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Thursday, May 17, 2012
Special Report: July 2006
Disappearing Act
Is affordable health insurance gone for good?
Story by Michael P. Scott
Each year, California businesses spend millions of dollars providing healthcare coverage to their employees and dependents. But despite these investments, many beneficiaries are becoming increasingly discontent with the quality of care they are receiving, the burden of high deductibles, and gaps in their coverage. Many business leaders, too, are frustrated by exploding health plan costs and narrowing coverage options.
As health insurance costs continue to rise, growing numbers of companies are finding they are no longer able to offer coverage to their employees. Among those companies that continue to provide health benefits, there is a trend toward requiring employees to pay a greater share of the premium or higher deductibles, which some employees are unable to afford. A recent report by the California HealthCare Foundation found that one in 10 workers eligible for insurance at work turns down coverage because the premiums are too high.
These rising costs reflect a national trend: Healthcare expenditures are escalating faster than the rate of inflation, representing more than 16 percent of the nation’s gross national product, and an estimated 6.3 million people, or about one in five state residents, are without health coverage. In addition to the costs of treating the uninsured, prescription drug costs, healthcare technology, administrative expenses and changing demographic factors continue to strain an already overspent health system.
A major concern of state lawmakers is the fact that California has the fewest number of businesses offering health insurance to their employees of any state in the nation. As a result, the Legislature continues to explore a long list of possible approaches to the health-coverage issue. Approaches include creating a government-run, single-payer system and providing tax breaks to people who save money exclusively for their healthcare needs.
In 2003, state lawmakers appeared to have created some momentum along these fronts through the passage of Senate Bill 2, which mandated that all large employers in the state provide health insurance to their employees. This bill was defeated a year later, however, in a campaign largely financed by restaurant and retail chains.
There has been a lot of political buzz lately about Massachusetts’s bipartisan legislation, passed in April, mandating that individuals, employers and the government share in the responsibility of a comprehensive healthcare plan everyone in the state can access.
This legislation follows a model advocated by many centrist leaders who believe America would be best served by a system that supports mandatory insurance supplemented by a guaranteed government safety net for those with little or no ability to pay. While there is a great deal of hope for this model, many healthcare policymakers and business leaders have adopted a “wait and see” attitude.
The California Hospital Association has been among the most active advocates of change relative to the current health insurance model and was a major supporter of SB 2.
“We have long believed that building upon the existing employer-based system is the best route for reform and makes the most sense given the realities of California’s healthcare environment,” says Jan Emerson, a spokeswoman for the California Hospital Association, which represents the interests of the hospital field. “In our view, this is best accomplished through having employers either offer a basic health plan to their employees or contribute to a purchasing pool ensuring employee coverage.”
“There’s a growing acceptance that health insurance cost increases
are a reality and that cutbacks may have to be made in other areas
to soften the blow.”
— Craig Capper, regional vice president, Robert Half International
But Emerson believes the model being pursued in Massachusetts, which mandates health coverage for all state residents, has potential. “It is our opinion that all individuals have some form of responsibility in managing their health spending and obtaining adequate health coverage,” she says. “We believe that some sort of mandatory system — much like car insurance, where everyone is either required to purchase coverage or take advantage of subsidized insurance if they fall into a lower income bracket — represents a very viable option.”
State legislators and healthcare advocacy groups are keeping a close eye on the proposed Healthcare Marketplace Modernization and Affordability Act of 2006, which would arguably undermine a number of state protections available to California small-business owners who participate in the health insurance market.
This piece of legislation, which has active support from President Bush and others, would allow the federal government to have greater control over insurance markets, including access to treatment and providers. Of greatest concern is the likelihood that individual businesses would bear increased financial responsibility for insurance rates based on the health status of their own employees rather than sharing the risk across an entire small-business community.
“We are very concerned about this legislation and its potential for circumventing state consumer protection and regulatory requirements,” says Chris Ohman, president of the California Association of Health Plans, a trade group that represents 37 health plans that have approximately 21 million members in California. “This could create an environment where cherry picking occurs, a practice where health plans select only the healthiest patients for enrollment, thereby leaving other individuals and businesses with costlier, less attractive health plan options to choose from.”
At Folsom’s Jadoo Power, which designs and develops portable fuel cells, rising healthcare insurance costs are a major concern. CFO Kirk Minami believes reining in these expenses while continuing to offer a quality health plan is critical to the long-term competitiveness and growth of Jadoo. “We have seen increases of anywhere from 10 to 20 percent each year over the past several years,” says Minami. “That concerns us.”
Minami is among a growing number of CFOs keeping a close eye on changes in the health insurance marketplace. In a study conducted by Robert Half International, 49 percent of the 1,400 chief financial officers surveyed cited rising healthcare and insurance costs as their biggest concern. When respondents were asked how they were addressing this issue, spending curbs in other areas was the most common strategy indicated.
“What this survey shows, among other things, is a growing acceptance on the part of employers that health insurance cost increases are a reality and that cutbacks may have to be made in other areas of their operation to soften the blow,” says Craig Capper, regional vice president of Robert Half International. “For many employers, it boils down to effectively managing their costs in a way that doesn’t compromise their ability to offer competitive health coverage.”
The California Public Employees’ Retirement System is one of a number of organizations that have taken extraordinary steps in the past few years to stem rising health-coverage costs. As the nation’s third largest purchaser of insurance behind the federal government and General Motors, CalPERS historically has had the positioning power to negotiate some of the lowest premium rates around.
In 2004, however, after absorbing double-digit annual premium hikes, CalPERS made a major cost-cutting move by dropping HMO coverage at 23 hospitals statewide, including 13 hospitals owned by Sacramento-based Sutter Health. Early results appear to indicate positive returns.
“There was a great deal of fanfare in the beginning when it was announced that we were developing a select-provider network in an effort to contain skyrocketing healthcare costs,” says Karen Perkins, a spokeswoman for CalPERS. “The good news is that the adjustments we made yielded a savings of $31 million in 2005, with a projected savings of $45 million in 2006. It appears that our members made the adjustment just fine, and our enrollment numbers are stable.”
“We have seen increases of anywhere from 10 to 20 percent each year over the past several years. That concerns us.”
— Kirk Minami, CFO, Jadoo Power
Most healthcare industry analysts predict rising insurance costs will be a thorn in the side of employers for years to come. According to the California Insurance Commission, health insurance premiums increased 61 percent in California between 2000 and 2004, outpacing the rest of the nation for each of those years and increasing at nearly seven times the rate of inflation.
In response to the volatility of the health insurance marketplace in the Capital Region and elsewhere, a new model of employer health coverage that places a greater share of accountability directly in the hands of employees has emerged. The model requires employers to offer, among other things, a variety of options and incentives, as well as education to ensure that their employees become smart healthcare consumers.
Health savings accounts are one such model becoming increasingly appealing to Capital Region companies. These personal, tax-free accounts are set up by an employer or employee to pay for uncovered healthcare expenses and must operate in conjunction with a qualifying high-deductible health plan.
In addition to plan-design changes, which may include higher deductibles and co-payments, some companies are implementing wellness and preventive health programs. The belief is that through workplace health screenings, subsidized health club memberships and other incentives for maintaining a healthy lifestyle, many serious health conditions can be prevented, thereby reducing health plan costs.
“We believe that it makes good business sense to offer a variety of health plan options to employers that address a wide continuum of needs,” says Gene Householter, Western region president of large-group services for Blue Cross of California. “An example of this is in the growing interest among employers around wellness and alternative-medicine options. We have responded to these and other trends through a number of very attractive plan options that have appeal with both consumers and businesses.”
Insurance broker Bentley Callender of Bentley Insurance Services in Citrus Heights sees a major insurance revolution brewing. “Virtually all employers these days, regardless of whether they are big or small, are worried about health insurance costs,” says Callender. “There is definitely a trend among employers toward the use of high-deductible plans, where a portion of the savings is being placed into health savings accounts on behalf of the employee.”
Callender also believes employers are increasingly relying on the Internet to find better rate quotes. With respect to online health plan alternatives, Callender believes employers should exercise a degree of caution. “While the online option may at times represent a realistic alternative,” he says, “an agent can often provide a much higher level of personal attention, thereby making things much easier for an employer over the long run.”
Minami of Jadoo Power has solicited the help of an agent to assist Jadoo in enhancing both the cost-effectiveness and the competitiveness of his company’s health plan. “Because our company doesn’t have a dedicated human resources director or benefits coordinator,” he says, “we rely heavily on our agent to provide us a range of health plan scenarios and benefit-design solutions.”
Minami has also taken the unusual step of involving Jadoo’s employees in health plan discussions. “In our meetings with employees, many of them walked away shocked as to what the actual costs were in administering the health plan,” he says. “A number of them, in fact, made inquiries as to whether we were going to look into various plan options such as flexible benefits. Because this feedback has been so valuable to us, we plan to continue offering quarterly updates and discussions regarding our benefits in the future.”
“There is no doubt that an entitlement mentality exists. Employees believe they should pay as little as possible while having everything covered.”
— Bruce Barton, VP of public affairs,
California Association of Health Underwriters
Benefit advisers like Vinny Catalano of Sacramento’s Benefit Insurance Services believe employers would be wise to educate themselves as well as their employees about the realities of their health plan.
“Most employers these days are doing themselves a big disservice by not communicating to their employees what they are contributing in terms of health insurance premiums on their behalf,” says Catalano. “Many employees, in fact, have this notion that their health benefits shouldn’t cost them anything and thus have little incentive to become good consumers when it comes to their healthcare.”
Bruce Barton, vice president of public affairs for the California Association of Health Underwriters, concurs. “There is no doubt that an entitlement mentality exists in many business environments, one where employees believe that they should pay as little as possible for their health benefits while having everything covered.”
Barton points to a number of factors he believes are contributing to this mindset, the biggest of which is a lack of transparency. “While progress has taken place relative to encouraging California hospitals to reveal their prices,” he says, “greater efforts still need to be made to get this information in the hands of consumers so that they can make informed choices and decisions regarding their care options.”
In the end, employers, insurance industry advocates, policymakers, brokers and other stakeholders agree that major reform needs to take place in order to create maximum efficiencies in the health insurance system.
“I believe that we are rapidly headed towards a time where employer health coverage will consist of a good, high-deductible, catastrophic plan tied to a health savings account,” says Catalano. “Because the landscape is evolving so rapidly, those employers who take the time to educate themselves on the various health-coverage options available to them will discover the most cost-effective and quality solutions to their needs.”
