Pressure on Your Health Benefits

By Kathleen Kingsbury

After watching health-care costs rise more than 60% in the past five years, most of America's 177 million insured workers are bracing for another dose of pain. As this November once again brings open-enrollment season--that annual headache of working out how much more of our paychecks will go to health benefits next year--2007 looks to bring no relief. For the average employee, premiums and out-of-pocket expenses will reach $2,904 a year for a family, up $300 from 2006. That's the pass-along pain of the costs that employers now endure, nearly $9,000 per employee, up an estimated $518 from this year.

Containing those costs is a new corporate imperative. Among the tactics: bosses are skimping on raises. They're being more restrictive about covering family members and offering more preventive programs to keep workers healthy--or at least forcing them to take more responsibility for their health-care spending. That is, if they even offer health benefits. Thirty-nine percent of companies offer no medical benefits, up from 31% in 2000. About 60% of companies say they expect coverage to decrease. So it's not surprising that 80% of Americans polled say the system is broken. "Really all humanity has been stripped out," says Cathi Shaefer, a grocery clerk for the supermarket giant Safeway in Upland, Calif. "The care of people is getting a lot less attention than numbers."

The few companies that have been able to keep their costs down could gain an advantage over rivals, since the disparity between those paying the highest price for health care and those paying the lowest is estimated at $3,000 per employee. For a firm of 10,000 workers, that's $30 million, a chunk of change that would have nearly any executive sweating his competitiveness.

One antidote to the cost spiral: puny raises and fatter deductibles. "Most companies realize they couldn't hire anybody if they didn't offer medical benefits," says Helen Darling, president of the National Business Group on Health. "But they also expect employees to share more of the burden." Workers can't help feeling it. According to Department of Labor statistics, salaries rose 3% from June 2005 to June 2006, but inflation rose 4.7% and health care 8%.

Those numbers won't change much in 2007. Someone making $40,000 a year can anticipate a 4% pay increase next year. (Don't spend it all in one place.) With health-care costs expected to rise about 7%, that means at least 16% of that raise would go to higher premiums or new out-of-pocket expenses. Stated another way, your 4% raise is actually closer to 3%. Of course, employers tend to look at it differently. "It's a phenomenon we call the hidden paycheck because companies have essentially been substituting health-benefit dollars for salary and merit increases," says Ron Fontanetta of the benefits-consulting firm Towers Perrin.

Companies are also saving money by cracking down on eligibility and raising costs for extended family coverage. Many have begun to impose a monthly surcharge of $50 to $200 to cover spouses and partners who could otherwise get coverage from their employer. Employees are now often paying more to cover their dependents themselves. Following the automobile industry's lead, many firms--about half of all businesses--are conducting audits, requiring marriage licenses or birth certificates to verify coverage for some spouses and dependents. Ford has cut more than 50,000 people from its rolls and Chrysler 26,000. That's a drop in the bucket when you expect to spend $2.3 billion on health care, Chrysler spokesman David Elshoff says, "but at that amount, you're looking at every option to bring costs down."

In addition to being less generous, businesses are being less paternal too, forcing workers to be more accountable for spending, a practice called consumer-driven health care. One immediate change has been a move away from fixed co-payments for such medical expenses as doctor visits and prescription drugs. That's being supplanted by coinsurance, under which the covered person pays a percentage of the expense. Nearly half of companies will have made the switch by next year. "The idea is to get employees to think before heading to the doctor for a cold," says Columbia University professor of health management Sherry Glied, "to shop around a little for the best price."

Another option growing in popularity: high-deductible health plans coupled with a reimbursement mechanism, most often a health-savings account. Younger and healthier workers increasingly select such coverage, which combines a deductible of at least $1,000 with a tax-deferred savings account to which employers sometimes contribute. Chicago-based accounting firm Blackman Kallick offered its more than 200 employees the plan this year. "About 10% chose it," says human-resources manager Suzanne Palombi, "many more than we anticipated." For Blackman, that equates to a 33% drop in premium costs for those workers.

Such savings from high-deductible plans, however, are most likely short lived. A study by benefits-consulting firm Watson Wyatt Worldwide found no correlation between high-deductible plans and companies with the lowest health-care costs. And a Rand Corp. report last week showed that people with such coverage more often forgo necessary care--which generally leads to greater expense later.

Indeed, most corporations are focused on giving employees incentives to stay healthy. Some 60% promote preventive care through wellness programs, including smoking cessation and health-club discounts. "More than ever before, companies are seeing the link between good health and productivity," says Beth Bierbower, vice president of product innovation for insurance provider Humana. "So they're engaging employees more on what their personal needs are."

Humana offers customers several wellness components in their plans. One includes a point system, designed by British firm Virgin, in which a pedometer records an employee's movements. Each step, with extra credit for exercise activities, is converted into points that can buy music, sports equipment and even airline tickets. At Illinois-based International Truck and Engine Co., a similar program has its workforce racing CEO Daniel Ustian to better health. A quarter of its 17,000 employees put in 27 miles a week.

It's not the walkers who are the problem, though. Since 10% of employees account for 70% of costs, identifying and caring for those at the highest risk for illness is a priority. Employees at South Carolina's private utility SCANA who fill out annual health assessments get a special break: their premiums don't rise. Of the company's 15,000 workers, 94% took advantage of that offer this year. The data SCANA and other companies collect can then go toward disease management for such illnesses as diabetes and high blood pressure. At International Truck and Engine, where costs have remained flat the past two years, health professionals call chronically ill employees regularly (unless they opt out) to offer advice on care and medication. SCANA provides drugs through an in-house pharmacy. "We then can buy drugs at a wholesale price," says Joe Bouknight, SCANA's human-resources director. "In 2007 that will represent a nice discount for us and our employees." If only that were true for the rest of us.