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Navigating the Health-Care Cost Spiral
Options exist, but knowledge remains the key for small businesses
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Business New Haven
9/29/2003
By: Karen Singer
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Although "new and improved" models for health-care plans are becoming available in Connecticut, smaller employers appear to be relying on familiar models in their struggle to cope with soaring health-care costs.
Insurers, brokers and employer advocates say increased co-pays and deductibles are the most common strategies, as is the trend toward shifting ever-greater financial responsibility to employees.
A move toward consumer-driven plans is underway, they say, but is a long way from becoming the norm — particularly for small employers.
As for what’s happening now, a new survey of small and mid-sized businesses for the Connecticut Business & Industry Association (CBIA), conducted by the accounting firm of Blum Shapiro, shows health care concerns rank high on executives’ worry lists. Small wonder, with 82 percent of respondents reporting a ten percent or greater hike in health care costs last year, compared with 64 percent in 2001. And nearly 25 percent report that their premiums increased more than 20 percent over the last 12 months, compared with eight percent in 2001.
Eighty-one percent of respondents cited high health-care costs as one of their most significant concerns, while 46 percent identified it as their top choice.
Results, based on responses from 780 returned surveys, also show 43 percent of employers increasing employee health-care contributions, 15 percent exploring other plans or using competitive bidding, 12 percent adding or changing carriers, and nine percent reducing employee benefit levels.
"What we hear most from employers is they view their workforce as ‘members of the family,’" says CBIA vice president and general counsel Jan Spegele. "They’re going through a lot of anguish about whether they will be able to pay for health insurance, and looking for ways to make it possible for employees to have coverage."
What is driving the marketplace is "an attempt by insurers and employers to find products that might not be as rich as you might have seen five years ago, but that continue to provide people with a significant benefit," explains Keith Stover, lobbyist for the Connecticut Association of Health Plans, which represents the HMO industry.
"The underlying premise is many employers are at the point of making a decision whether to provide health insurance," adds Stover. "It’s in our interest to keep people insured."
Similar concerns have prompted the state’s Department of Insurance to expand its range of allowable health plans.
"Certainly the companies are taking advantage in every change in our policy that we make to give more options, particularly to small employers," says state insurance Commissioner Susan F. Cogswell. "They may not offer as much, however, and employees are taking on more of the burden."
CBIA provides nearly 5,000 small employers a variety of options through Health Connections, a program offering 32 plans from five companies: Aetna U.S. Healthcare, Cigna Health Care of Connecticut, HealthNet, Oxford Health Plans and ConnectiCare. Employees can select plans from carriers best suiting their needs.
Health Connections sales have increased steadily over the last five years, according to Ken Comeau, CBIA’s vice president of sales.
"We’re larger than we’ve ever been," he says. He acknowledges that the trend is toward employers offering a plan of benefits less rich than in the past. "We’re certainly selling a lot of $20 co-pay plans, and have seen more people starting to look at $30 co-pays."
Dennis Kay also has seen higher co-pay plan sales on the rise, particularly those requiring $15 or $20 for office visits and $25 or $30 for specialists.
"The reason we’re pushing that is it may hurt, but it’s not going to bankrupt a company, and it reduces the premium," explains Kay, who runs Kay & Co. He is state legislative chairman for Connecticut Benefit Brokers, which represents the state’s largest group independent agents.
"They’re all doing it — whether it’s a 15-, 75- or 100-person company or companies with 200 to 300 employees," Kay adds.
Health-care premiums for families in employer-sponsored plans are likewise skyrocketing.
Such premiums grew 13.9 percent nationwide in 2003, according to a new study by the Kaiser Family Foundation and the Health Research & Educational Trust. Companies with three to nine employees endured the largest hike — 16.6 percent on average .
In response, many employers are trying to find ways to reduce or eliminate family coverage. Health-care experts, including Kay, say families participating in small groups are paying a larger percent of premiums these days — but they’ve been paying extra for years. "The real news is that large companies are starting to do this," he says.
Insurance Commissioner Cogwell points to several recent developments that may help mitigate escalating health costs.
Cogswell says she is relieved that the state legislature is increasingly reluctant to add health mandates to an already substantial list of more than 60. She’s also "very pleased" the state legislature passed a measure in its last session enabling Medical Savings Accounts (MSAs) to be sold in Connecticut with full tax advantages.
In addition, a Department of Insurance ruling earlier this month eliminated a restriction on the difference between in- and out-of-network benefits to no greater than 30 percent. The new limit now requires co-insurance benefit filings to provide no less than 50-percent coverage.
The new ruling ought to please employers, argues Mary Ellen Breault, director of the life and health division at the state’s insurance department. "We were getting a lot of pressure from CBIA; employers wanted bigger differentials," she explains.
Insurance-company executives are working on plans reflecting the 50-percent limit, and hope to get them approved by regulators and on the market soon.
Meanwhile, many large companies are gravitating toward Health Reimbursement Accounts (HRAs), because MSAs are restricted to groups of 50 or under, says Paul Philpott, chief marketing officer for ConnectiCare. "They’re similar in that there’s a core insurance plan with some sort of high deductible plan. On top of that you create a discretionary savings account.
"You’re absolutely, positively going to get a following with MSAs, and with small groups of ten and under it’s really going to flourish," says Paul Philpott "If you’re self-employed it’s really a no-brainer."
Cigna Healthcare of Connecticut has seen a sluggish response among small employers to its HRA product, which has been available since January.
"This is a product of greater interest to the mid-market and large customer, but due to the administrative complexities hasn’t held a lot of interest for the small market," says Cigna vice president Andrew Landsman.
"A large percentage of our existing customers — probably 90 percent — are instituting plan changes at renewal that will increase some combination of co-pays and deductibles," Landsman adds. "Two or three years ago, when we had a more robust economy, it was probably 50 percent."
Other insurers, including HealthNet, are doing well selling plans offering lower costs and reduced benefits.
"Overall, that’s what employers are definitely opting for," says Steve Guarino, HealthNet’s vice president sales for small business development. "They’re still going with what they and their employees are comfortable with."
The most popular group plans now feature $10 to $30 co-pays, $250 to $500 hospitalization options and three-tier prescription levels.
"What we’re finding is [that while] we’re out there offering higher-deductible plans, employer groups are slow in adopting them even though there can be considerable premium savings — up to 30 percent," Guarino says. "We thought these cost-sharing plans would catch on a lot more quickly."
In response, HealthNet will launch an HRA product by the second quarter of 2004 that, Guarino predicts, "will be easier to use and implement."
Stephen Glick, president of the Orange-based Chamber Insurance Trust, which sells health plans to chamber of commerce members throughout the state, also has watched sales of supplementary insurance policies rise over the past year.
"Forty to 50 percent of businesses are moving to higher deductible plans — $1,500 on average — or using them in conjunction with these types of plans," Glick explains.
Higher co-pays and deductibles are driving Connecticut small-employer membership growth at Aetna, according to James Reid, the company’s Northeast general manager for small group.
"We have seen an increase in $30 co-pay plans and a bigger shift to triple co-payments on prescriptions," Reid says. Another change is a shift toward putting day or dollar limits on hospitalization stays.
For small-business owners, Reid adds, policy sales hinge on several factors — price, the best value and simplicity of doing business with the carrier.
Aetna officials hope small employers will be attracted to Aetna HealthFund, featuring consumer-driven offerings, scheduled to be available in Connecticut next year. Based on medical coverage requiring more employee decision-making and control, plans include a dental fund, pharmacy fund and long-term care reimbursement program. Aetna HealthFund also features Web-based tools enabling members to evaluate prices for medical procedures and track health expenditures.
Next year Anthem Blue Cross & Blue Shield, whose small-business members are making more frequent policy changes and choosing policies with $20 and $30 co-pays, will launch a consumer-driven-type plan for the market.
"Anthem By Design" is a "personal care account product" aimed at "engaging the consumer in the health process," explains Jim Augur, director of small-business sales for the insurance giant. Based on a high-deductible PPO, the plan requires employer and employee contributions to an account to be exhausted before the traditional health component become effective.
"The opportunity here is to get a lower-premium product," Augur explains. He characterizes the PCA as "a kind of bridge to get to a high-deductible product."
Augur believes the PCA is most likely to appeal to "those well-educated, willing to accept a little bit of risk and interested in mitigating premiums."
Though consumer-driven plans are beginning to catch on with large employers, health-care experts predict acceptance will not come quickly. "It’s an evolution, not a revolution," says CIT’s Glick.
"We believe that employers covering ten percent of employees, all workers with job-based health insurers, will add an HRA plan in the next two years," explains Jon Gabel, vice president for health systems studies at the Health Research & Educational Trust in Washington, D.C. "This is serious business, not just a bunch of consultants and health-care wonks debating a hypothetical."
But Gabel expects small employers won’t be among the pioneers. They seldom are.
"Most health insurance change takes place among large employers, then filters down, like a defusion process," he says.
Kay agrees. "The theory is wonderful. The practicality does not exist. The problem with consumer-driven plans is it takes an educated consumer. You have to get people to think.
"Consumer-driven plans are not meant for small corporate America now,’ Kay adds. "You need a turnkey system, and there will be one in the next couple of years."
As health-care costs continue their upward spiral, however, small employers may well find that they need to be on an even faster learning curve.
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