Stem The Tide

One way to contain health care costs as insurance premiums continue to rise is dealing with the premiums

There is an old adage, “You get what you pay for.” When it comes to health insurance for small employers, it may change to, “You’re paying for it whether you get it or not.” Health insurance is the second-largest expense for many employers, behind payroll. How can companies continue to exist when this cost increases by double-digit percentages year after year?

As the Spring issue of Welding & Gases Today went to press, the Senate was still at odds over the details of President Obama’s proposed health care plan. While waiting for a final bill, every business owner has had to come to grips with escalating costs, and many have scaled back coverage. This article offers some suggestions for containing your company’s health care costs.

Many welding supply distributors still have a traditional approach to providing health care for employees, offering health insurance plans with low or no deductibles, $10 or $20 copayments, and 100 percent coverage. In many other industries and certain regions of the country, such low out-of-pocket expense plans, commonly referred to as “first-dollar plans,” no longer exist. Most plans offered are Preferred Provider Organizations (PPOs), which mirrors the national trend, and the PPOs offered provide for much more coverage.

The main figure business owners who provide health insurance are fighting is “medical trend,” which tracks the rising cost of health care year over year. Unlike inflation, however, medical trend needs to account for procedures and prescriptions that are currently utilized by our employees which may not have existed three or four years ago. While these services or products are saving countless lives, their inclusion as covered services are causing health insurance costs to skyrocket. Depending on what survey or article you read, medical trend is hovering between 12 and 18 percent. This means that the average small business can expect medical insurance costs to rise by at least that much each and every year.

The best way for employers to offset medical trend increases is to introduce a term not typically popular in the political world: “personal responsibility,” also known as “consumerism.”


Promoting Your Company via Health Benefits

In 2008, Darren Bradley, president of Spectrum Gas Products (Costa Mesa, CA), made the decision to provide health insurance for the employees of his then-four-year-old company. Despite the rising cost, Bradley knew it would be an important step taken to grow his company, and decided to cover 100 percent of his employees’ coverage. “I felt we would get a higher-quality employee, one who would be interested in long-term employment.” The benefit of health insurance is a point of discussion during a potential employee’s interview. “If the candidate seems excited to talk about the health insurance benefit and asks questions about it, I consider that an indicator that the individual may be looking for a long-term position.” On the other hand, if they don’t express interest in talking about the benefit, Bradley says it just might be that they are only looking for a job and may not stick around. “The discussion is a good tool in assessing the candidate,” he says, “and I feel we get a better quality employee because we offer it.” The discussion of the benefit continues after the candidate is hired, and the ongoing promotion that the company provides 100% coverage for its employees brings home to employees the fact that Spectrum Gas Products cares about them and is a great place to work.

Consumer-Driven Plans
Most distributors are paying tremendously high premiums so that their employees can have a medical insurance card, which only requires the employee to pay $10 or $20 for a doctor visit or prescription, regardless of the true cost of the service or prescription. They may even have gone as far as introducing a $250 or $500 deductible to employees for hospital admissions or other outpatient services or diagnostic tests to try to offset these increases.

The real savings come from educating your employees about the true costs of health care and from monitoring the costs.

Employers can see a significant savings (perhaps 30 percent to 40 percent) by changing their first-dollar plan to a high-deductible health care plan (HDHP) with a $2,000 to $5,000 deductible. Rather than passing this new liability in the form of a deductible along to the employee, the employer simply uses part or all of the savings to fund their employees’ deductible. This can be done in a number of ways, most commonly by utilizing a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA) program.

These programs work because the typical employee populations of most groups are made up of three distinct types of health care users:

  1. Those who use an average of $5,000 or more in health care in a given year. This population is typically around 20 percent of your group.
  2. Those who use virtually no health care in a given year. This is also about 20 percent of your group.
  3. The third segment represents the other 60 percent and is made up of those who spend between $0 and $5,000 annually on health care.

While a first-dollar plan seems terrific for the first group, an employer is overpaying for what roughly 80 percent of the employees need.

The real savings in these programs come from the education you provide to your employees about the true costs of health care and from monitoring the costs. Therefore, it is imperative to hire a good advisor and third-party administrator to monitor these plans for you.

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Small Business Experience with HDHPs
Many small business owners in the area where my company is located are discovering that switching to consumer-driven plans and encouraging employees to shop around for the best price can mitigate the company’s health care costs. One such owner is Karl Hils of Anchors Unlimited, a manufacturer of wire form parts in Verona, Pennsylvania, who says, “If an employee’s health insurance plan requires them to pay $8 for a generic prescription regardless of where they get it, what motivation is there to shop around?” “We tell our employees to find the best price; then we pay for 90 percent, they pay 10 percent. Because of this, our employees search out the best prices for prescriptions and other services.” By implementing this consumer-driven plan (as well as a few other changes), Hils’ overall medical costs are lower today than they were five years ago. The company uses a third-party administrator to track and fund the reimbursements.

In Pennsylvania, the state makes it easy to compare prescription drug costs at different outlets through its “Prescription for Pennsylvania” Web site at www.parxpricefinder.com. On December 7, 2009, a search for a 30-day supply of Simvastatin 20-milligram strength tablets within 10 miles of the 15090 ZIP code listed prices from $4.92 to $221.42, a difference of 4,500 percent. Check to see if your state has this resource available.

Rather than passing this new liability in the form of a deductible along to the employee, the employer simply uses part or all of the savings to fund their employees’ deductible.

Hils’ company is not alone in experiencing this reversal of the medical trend. Rich Hamilton, vice president of TEC Benefits in Wexford, Pennsylvania, says, “While going to a consumer-driven plan may not be the most popular move at your next renewal, it is the best weapon you have to offset the rising costs, so long as your employees are well-educated. Not all clients see a price reduction, but without exception, introducing consumerism to our clients has never resulted in total costs exceeding what the renewal would have been.”

An analysis of a block of small to medium-sized companies in western Pennsylvania shows that first-dollar renewals are three times higher than those of consumer-driven plans. “Getting a lower percentage increase on a lower base cost has tremendously curtailed our out-of-control health care costs,” says Craig Koryak of Kline Keppel & Koryak, a Pittsburgh-based accounting firm that switched to a high-deductible health plan several years ago. “We took the savings from each employee and deposited it into their HSA account. As our rates go up, we simply deposit less into their HSA accounts. Our costs have remained the same for four years.” Koryak’s company has gotten low single-digit increases since his firm switched to the high-deductible health plan.

106c_readmoreonline2web Where’d All the Benefits Go?
The GAWDA Employee Compensation Report is published every two years. The last report, in 2008, indicated that 98% of GAWDA members offered health benefits to their employees. Overall, employers paid 75% of a traditional plan with an annual deductible of $500. To see the changes over the course of two years, you can read the 2008 Employee Compensation Report.

At Sky Oxygen, we implemented a high-deductible, consumer-driven plan last year. I feel confident our renewal will be positive because I know exactly what the costs have been. This is due to detailed recordkeeping by the broker. When the broker sees a bill for a prescription go through that could have been purchased at a significantly lower cost elsewhere, the employee gets a friendly note in their paycheck informing them where that drug could have been purchased for a lesser price. The Sky Oxygen plan has a $2,500 deductible per family, which is 100 percent paid by the company. If employees use the plan as designed and are careful with costs, the company will continue to pay the entire deductible. If employees do not shop price-consciously, the company will start passing on part of the deductible.

By implementing a few consumer-driven changes, companies could see a significant decrease in their second largest bottom-line number this year and into the foreseeable future, allowing them at last to only pay for what they get.

Gases and Welding Distributors Association
106d_wallerlaurie Meet the Author
Laurie Waller is vice president of Sky Oxygen, located in Carnegie, Pennsylvania, and on the Web at www.sky-oxygen.com. Waller is also chair of the GAWDA Human Resources Committee.