Employers seek options as healthcare costs climb
Employers are running into limits on how much more they can shift rising health benefit costs to workers, prompting them to use other methods to cut costs, businesses and healthcare experts say.
In the latest evidence of this trend, a study to be released today by Mercer Health & Benefits showed that deductibles and co-payments leveled off this year. Those out-of-pocket expenses had surged in the late 1990s and earlier this decade, as employers required workers to pay for more of their medical costs.
But as workers’ share of healthcare costs have increased in recent years, many have opted to go uninsured, experts say. Those opting out usually have been among the healthiest.
Their departure from the benefits rolls exacerbates costs for employers and those who remain. In effect, there are fewer healthy people to subsidize the costs of the sick.
So to lure the healthy back and decrease costs, companies are shifting their focus to other alternatives, experts say.
“Employers are realizing that if it is unaffordable, it is not a benefit anymore,” said Laura Baker, a principal in Mercer’s Los Angeles office.
Some businesses are electing not to provide any healthcare benefits at all. But those continuing to offer benefits are increasingly turning their attention to disease prevention programs and consumer-directed health plans with low premiums and high deductibles, Baker said. Those are more attractive to those less likely to need healthcare, she said.
Such ideas have largely been overlooked over the years, but Mercer consultants predict they will grow rapidly because employers are simply running out of options. Those surveyed by Mercer, a unit of Mercer Human Resource Consulting, favored these alternatives over reducing benefits or shifting more costs to employees.
The percentage of large companies, those with 500 or more employees, that offer preventive health screenings nearly doubled in the last three years. Overall, about a quarter of the nearly 3,000 companies surveyed by Mercer offered such screenings, which assess workers’ condition and give tips on how to stay healthy.
Consumer-directed plans, which allow workers to place money in accounts earmarked for healthcare expenses, are offered by 6% of employers, three times the level of last year. An additional 14% said they were likely to offer such plans next year.
The margin of error in the survey was plus or minus 1 percentage point.
The idea behind consumer-directed plans is that patients will be more cost-conscious if they have a greater stake in how much is paid for medical services and drugs.
“Everything else we’ve been doing to date has been ignoring the root cause of the problem of rising healthcare costs,” said Kirby Bosley, an analyst with Watson Wyatt Worldwide, another benefit consulting firm. “Cost shifting or cost sharing does nothing to reduce utilization, to create a workforce that is healthier, and to get people to seek care that is more efficient and cost effective.”
Grocery chain Safeway Inc. got the message, company spokesman Brian Dowling said.
Last year, the Pleasanton, Calif.-based company spent about $1 billion in healthcare for its 200,000 employees. That was 19% more than its net income. So now, the company is testing a health plan that encourages its workers to stay healthy.
Safeway offered the plan last year to its 30,000 nonunion employees, mainly administrative workers. Just under half of them enrolled. The company plans to roll out the plan to the rest of its workers soon.
The new plan pays 100% for preventive care, such as physical checkups and mammograms, but increases the stakes if workers get sick by raising deductibles from $750 to $2,000. But the company also created a health reimbursement account and subsidized it with $1,000 per employee -- giving them an incentive to keep health expenses from exceeding the subsidy.
The moves cut the company’s healthcare costs by 11%, Safeway said. Part of the savings has gone back to decreasing employees’ contributions.
Such a plan encourages employees to address illness early, Safeway Chief Executive Steve Burd said. “You can provide for a better quality of life and, frankly, lower your costs over the long haul,” he said.
Healthcare experts caution that it is still early to say whether these measures will drive down costs across the board. Consumer-driven plans represent only a fraction of options available to workers, and wellness programs are still taking hold.
But most agree that American workers are reaching the limit of what they can afford. Average physician co-pays, for example, held steady for the first time in five years, according to the Mercer survey, potentially a sign that they have reached a ceiling.
For employees enrolled in health management organization plans, or HMOs, average co-pays remained unchanged at $18 last year, after rising steadily from $14 in 2002.
Average deductibles for preferred provider organization plans, or PPOs, jumped from $523 in 2002 to $769 in 2005 but saw a more modest increase this year to $846.
But premiums continue to rise steadily. Mercer’s survey said they rose 6.1% this year, to $7,523 per employee, less than a high of 14.7% in 2002 but still way ahead of inflation and wage increases. The numbers are similar to findings in other surveys.
Employees are typically responsible for 20% to 30% of the premiums, and that number hasn’t changed much over the years. But the overall increase in the cost of benefits has eroded worker incomes, and many are choosing to go without.
Close to 5 million workers have joined the ranks of the uninsured since 2000, either because they couldn’t afford their employer-sponsored health plans or because their companies could no longer afford to provide the benefit, according to the Census Bureau.
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