CSI: Benefits: Healthy Pursuit

WHEN HEALTH INSURANCE PREMIUM increases for employer-sponsored coverage averaged 7.5 percent in 2004, it almost called for celebration: In 2003, rates were up 10.1 percent. In 2002, they jumped a full 14.7 percent. Anecdotally, small builders report even steeper increases, some as high as 40 percent in one year.

The prices of premiums—which don't even capture the rapidly escalating cost of prescription drug coverage—help explain why small businesses have consistently ranked “health-care costs” as their top concern in a study conducted every four years by the National Federation of Independent Business and Wells Fargo. It seems, though, that the issue's become even more pronounced. Two-thirds of respondents cited health-care costs as a critical problem in the study released last May, compared with 47 percent in 2000.

The greater those concerns have grown, the more active—and aggressive—small builders have become in implementing strategies to curb costs. Some have taken their activism national, lobbying for federal legislation to allow association health plans, which they believe could save as much as 15 percent or more across state lines. Back at home, they're talking more often with insurance brokers, shopping for the most efficient packages, taking on more risks to cut costs, and educating employees to become wiser health-care consumers.

“It's a balancing game. I'm trying to contain costs without cutting benefits,” says Michael Brodsky, owner and chairman of The Hamlet Cos., based in Salt Lake City. So far, Brodsky's been able to maintain his goal of paying 100 percent of the health insurance premium for Hamlet's 54 eligible employees, largely by changing insurance carriers two years ago and opting for plans with higher deductibles.

That's a change from three years ago when Hamlet's plan included no deductible.

After trying a couple of different deductible levels, the company thinks it's found a formula that works: partial self-insurance. The company contracts with the insurance carrier for higher deductible levels ($500 for an individual and $1,000 for a family), but Hamlet reimburses the first half of the employee's out-of-pocket payment.

By agreeing to cover the first half of the deductible, Hamlet assumes some of the risk that used to rest with the insurance carrier. But, says Scott Carter, Hamlet's human resources director, the tradeoff is worth it. The change saved the builder about $40,000 last year.

The company spent some of that savings on adding an accident rider to its health insurance policy. The addition triggers insurance to pay the first $1,000 in costs related to accidents (the employee deductible is applied after the first $1,000). The rider bumps the company's rate up slightly, but Carter says it's a valuable expense since Hamlet's employees tend to be young, with growing families.

Hamlet has also used competition to its benefit. Its broker collects bids with a variety of coverage options from each of the Salt Lake City area's six insurance carriers. This year, that competition helped Hamlet lock in an 11 percent rate increase; its carrier dropped down from an 18 percent increase when another company beat its bid.

New competition in the Detroit area, where Blue Cross Blue Shield of Michigan controls most of the insurance market, worked to the advantage of Hometowne Building Co.

Hometowne opted to switch to Humana, a large national carrier, when it entered the market this year and realized a 12 percent drop in its premium. Hometowne employees pay for 25 percent of their premiums, but the company elected not to use its savings to cut their contributions this year.

“We're banking the windfall,” says John Woods, Hometowne's COO. “It's our goal over the next two to four years to use the savings to moderate future spikes. We don't want to pass along a lot of spikes to people.”

Hometowne has also ramped up its efforts to educate its employees about their health-care choices.

“A higher level of consumerism is required on the employee's part,” Woods says, adding that he believes better informed employees—and employers, since Hometowne's managers are learning all they can about insurance as well—will help keep costs under control.

Well-educated employees will lead to major changes in the country's health-care system, predicts Steve Rock, CEO of the Pennsylvania Builders Association (PBA) Benefits Trust, which administers health plans for 4,500 Keystone State builders and related companies.

Better informed consumers are the key to the future success of health insurance plans that pair high deductibles and health savings accounts (HSAs), Rock says. In these plans, sometimes referred to as consumer-driven health plans, the employer, the employees, or both, contribute pre-tax dollars to accounts that can be used to cover out-of-pocket expenses.

Federal Medicare legislation passed in 2003 created the HSAs, which differ from commonly offered flexible savings accounts in several ways: Employers, not just employees, may contribute to the accounts, the accounts roll over from year to year, and they must be combined with a deductible of at least $1,000.

PBA Benefits Trust rolled out the combination plans in two of its four regions on Jan. 1 and in its central region on April 1. It's too early to know how many companies will opt for the HSA plans, but they have the potential to save employers as much as 25 percent a year, Rock says.

In the meantime, simply joining one of the other plans offered by the Benefits Trust saves Pennsylvania builders significant amounts. Compared to small group premiums offered in the state, Benefits Trust plans cut rates by about 10 percent or 15 percent. What's more, Benefits Trust negotiated a better deal with its largest carrier this year, reducing the rate of increase from 15.9 percent to 9.5 percent.

Though renewal time resulted in net positives for these companies, they say they'll continue to build a stable of other cost-containment strategies to buffer against increases in the years to come.

“We have a lot of pressure to keep costs under control,” Woods says. “At double-digit increases each year, we constantly have to be looking at alternatives.”

The Case: Health insurance premiums have risen much more quickly than the rate of inflation. Increase averaged 7.5 percent nationwide in 2004.
The Investigation: Find ways to cut company's health-care costs without sacrificing benefit levels.
The Evidence: A multi-pronged approach, combining employee education, shopping for better plans, and higher deductibles.
The Verdict: Better-informed employees, more favorable insurance rates, and direct savings as a result of self-insuring a portion of the health plan.