As health insurance premiums rise, companies struggle to keep costs down

Donald Nokes has always offered health insurance to the entire staff at NetCenergy, a Warwick IT company founded in 2003. But it’s not been cheap.
When he started, he paid 100 percent of the cost of plans with a $250 individual deductible ($500 for families). Then his premiums went up, and he doubled the deductibles. As the hikes kept coming, he asked workers to pay 40 percent.
This year, facing a 14 percent rate hike, Nokes took a bigger leap. He switched to an HSA-eligible plan with a $1,500/$3,000 deductible, which offers minimal first-dollar coverage. To soften the blow, he put one-third of the deductible into each worker’s health savings account.
Nokes likes HSAs, which he said “get the consumer more engaged and bring more transparency into the system.” But he doesn’t sugarcoat how he’s kept costs under control.
“I was able to keep it at [a five-year average of] 4.7 percent by actively managing, and when I say actively managing, I guess that’s a euphemism for ‘I made my employees pay more,’ ” he said. “And I think a lot of other businesspeople did the same thing.”
A new survey from the Kaiser Family Foundation and the Health Research & Educational Trust (HRET) confirms that: From 2009 to 2010 alone, it shows, U.S. workers’ average contribution toward a family plan rose by 14 percent, to $3,997 per year.
The jump came as total family premiums rose only 3 percent, to $13,770. Single-coverage premiums, meanwhile, rose by 4.7 percent, to $5,049, but employees’ part rose 15.4 percent, to $899 per year.
Cost-sharing also rose, with 27 percent of workers now facing at least a $1,000 deductible ($2,000 for families), up from 22 percent. At firms with between three and 199 workers, the share was already much higher, 40 percent, and it rose to 46 percent.
“What insurance is in this country is gradually changing: It’s becoming less comprehensive,” said Drew Altman, president and CEO of the Kaiser Family Foundation. And while the extra costs put a burden on workers, in this economy, they can’t really fight back. Locally, all three commercial health plans and two top benefits brokers cited similar trends.
Amy Gallagher, vice president of major accounts at the Cornerstone Group, in West Warwick, said employers are trying to take “as big a portion as they can” of the costs, but “deductibles are really ticking upward,” from the $500/$1,000 that was the norm, to $1,250 for families.
Like NetCenergy, many U.S. employers are also switching to “consumer-driven” plans, either with HSAs or with health reimbursement arrangements (HRAs), employer-owned funds used to pay for certain expenses in a high-deductible plan. The Kaiser/HRET survey shows in 2010, enrollment in HSA and HRA plans jumped from 8 to 13 percent of workers.
Joel Cooper, executive vice president of USI New England, in Warwick, encourages clients to use HRAs to self-fund as a way to reduce premiums and also be able to customize their plans beyond the “cookie-cutter” options offered by insurers.
Most local prescription drug plans, for example, include tiered copays, Cooper said, but with an HRA, the employer can set up stronger incentives to use generics and lower-cost drugs – such as making workers pay a percentage of the actual price of the drug.
The flip side is that this can be cumbersome. Ted Almon, president and CEO of the Claflin Co., in Warwick, said he’s had a high-deductible plan with an HRA for several years, and it cut costs, but he has to use a third-party administrator to process those claims, separate from Blue Cross & Blue Shield of Rhode Island. “It’s horribly inefficient, administratively.”
And even at a modest $26 per week for singles and $60 per week for families (Claflin pays the other 75 percent of the premium), the plan appeals to ever-fewer workers, Almon said: Of 170 who are eligible, only 123 now participate. “It’s in a death spiral,” he said. Switching carriers, another common strategy, is also not helping much this year. Tufts Health Plan, still relatively new to the market, did report an increase in inquiries. But Gallagher said insurers aren’t offering particularly good deals to steal one another’s accounts.
What insurers are offering, along with consumer-driven plans, are limited-network or tiered plans – not just HMOs, which have never been very popular in Rhode Island, but also, at UnitedHealthcare of New England, new plans with incentives to use providers in the company’s Premium Designation program.
“Overall these providers have lower complication rates and better quality outcomes for members,” said President and CEO Stephen J. Farrell. “They also cost 10 percent to as much as 20 percent less than those who have poorer outcomes.”
At Cornerstone, meanwhile, Gallagher said a favored approach is a new “standards-based” type of wellness incentive, in which workers can reduce their premium payments or deductibles by meeting specific health standards – say, for body mass index or blood pressure.
One thing no one reports is a positive impact from health care reform. At best, employers are said to be taking a cautious, “wait-and-see” approach (though Nokes stressed that he doesn’t see anyone pushing for a repeal), but most everyone expects reform to increase premiums in the short term, because of new coverage requirements (see related story, Page 9).
There is also anxiety over new paperwork and compliance issues, which Nokes said has made hiring a broker essential. There are more than 500 available, with “varying skill levels,” so he led a Rhode Island Business Group on Health effort to write a guide to hiring a broker.
The much-touted small business tax credits, on the other hand, may not make a big dent at all. A Families USA report in July estimated that 82 percent of Rhode Island businesses with 25 or fewer workers and wages averaging $50,000 or less – 15,700 altogether – would qualify, and 3,900 would qualify for the maximum credit, 35 percent in 2011-13 and 50 percent in 2014.
But a new report from the Commonwealth Fund, which estimates that eligible firms employ 16.6 million Americans, projects take-up will be very low, affecting 3.4 million workers by 2013. And the credits are small for larger and higher-paying firms: A 20-person firm with a $30,000 average wage gets only a 5-percent credit, as does one with 11 workers at $45,000.
Neither Almon nor Nokes, both well-connected in the business community, knew of anyone who’s taking advantage of the credits, which kick in with the 2010 tax year. Cooper said he hasn’t discussed them with clients, either, though Gallagher said Cornerstone has developed a “tax calculator” to help employers figure out if they qualify. •

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