The sting from the company flu shot likely still fresh in their
minds, workers opening their benefits packages for next year are
staring at a sharper, longer-lasting pain: big changes in
health-care benefits.
Payroll deductions for insurance are going up, some office visit
costs, too. Prescription co-payments are spiking, especially for
name brand drugs. And many employees will have to start from
scratch with a new plan as their employers switch providers to save
money.
The culprit: huge increases in health-care insurance costs.
After years of little or no price hikes, employers are seeing
premium increases in the double digits. Benefits consultant Hewitt
Associates projects average increases of as much as 10 percent for
big companies and 15-plus percent for smaller employers next year,
compared with 3.7 percent just two years ago.
``Everybody's getting hit right now with rate increases,'' said
John Coyle, senior vice president in the Phoenix office of the
Segal Co., a national benefits consulting firm. ``I think most
employers are going to funnel it down to you and me. Clearly, the
days of single-digit rate increases are behind us, at least in the
short term.''
Analysts blame the hefty increases on everything from
profit-starved HMOs to those ubiquitous Claritin ads.
The impact is widespread, as nearly two out of three workers buy
health insurance on the job. Increased premiums, which are far
outstripping the average salary raise of 3.8 percent and general
inflation of 2.8 percent, mean less take-home pay. For those
already struggling to pay the bills, the increases could force them
to select a plan that provides fewer benefits or even skip
coverage, boosting the ranks of the uninsured.
Marilyn Hewitt, a 42-year-old analyst with the Arizona
Department of Economic Security, is already feeling the pinch. The
state's new health insurance rates went into effect earlier this
month, and her monthly premiums for family coverage from Cigna
jumped to $150 from $100.
``I knew that it would go up, but it was a surprise that it was
going up that much,'' she said.
Hewitt, a married mother of two, said a slightly cheaper plan
was available, but she didn't want to change doctors. She has
diabetes and asthma and makes regular office visits.
``You just have to live with $50 a month less,'' she said.
``There's not a whole lot you can do about it.''
RELATIVE BARGAINS Of course, employers that offer insurance plans still shoulder
the biggest chunk of employee health-care costs. And the premiums
and co-pays are a relative bargain compared with buying insurance,
or paying a doctor's bill or prescription costs, on your own.
But the sudden, sharp increases, which surfaced in this year's
coverage but are most widespread for the 2000 plan year, are
stunning.
And many employers are seeing increases far above the average
projections.
Insight Enterprises, a rapidly growing Tempe computer seller
with 2,500 workers, says health-care companies have proposed
premium hikes of 15 to 20 percent, double the norm. Chandler's
benefits coordinator was told the city's health-care insurance
costs would have jumped at least 18 percent if not for a contract
cap. They still went up 10 percent in one plan and 7.5 percent in
another, after some concessions in other areas. That compares with
3 to 5 percent increases the past several years.
Blue Cross says the average increase in its plans for 2000 is 9
to 12 percent.
FACTORS DRIVING UP COSTS There are several factors driving up costs, health-care analysts
and providers say.
Consider:
More people are going to the doctor, running up the number of
claims. Patients haven't thought twice about going because of
minimal, if any, charges for office visits.
``When they have a $5 co-pay to go to a doctor, it's not an
incentive for them to ask whether or not this runny nose really
requires a physician visit,'' said Rich Boals, chief operating
officer of Blue Cross and Blue Shield of Arizona, the state's
largest health plan. ``Now, we're moving away from that.''
Many HMOs and other managed-care providers are reeling from
years of low prices designed to snare market share.
``They're under a lot of pressure from Wall Street to get their
profits up, and the way they do that is by raising premiums,'' said
Larry Levitt, principal analyst on the Kaiser Family Foundation and
Health Research and Education Trust Employer Health Benefits survey
released Thursday.
Prescription drug expenses are skyrocketing. They've grown at
double-digit rates nearly every year since 1980, accelerating to
14.1 percent in 1997, according to the Employee Benefits Research
Institute. It's the most rapidly increasing medical care expense
for job-based insurance, Kaiser says.
Several factors are at work: Drugs are more and more expensive
due to heavy spending on high-tech research and development by
their makers as well as big advertising and marketing budgets.
The advertising campaigns _ who hasn't seen a television
commercial for the allergy medication Claritin? _ have employees
everywhere asking for the more expensive name-brand drugs.
HMOs have lost much of their cost-savings luster, with nearly 85
percent of employees now enrolled in such plans.
``A lot of the efficiencies that HMOs were able to provide early
on were really one-time efficiencies,'' said Gary Shutler, a senior
communications consultant in Hewitt's Newport Beach, Calif.,
office, which covers Arizona. ``Now, they're caught up in some of
the same spiraling costs of new technology and other drivers
(affecting all businesses).''
LITTLE ROOM TO SQUEEZE There's also little room to squeeze any more discounts out of
doctors and hospitals, who have been burned by backlash against
HMOs and the quality of coverage. Many HMOs, for example, have
dropped such cost-saving requirements as pre-certification, said
Boals, of Blue Cross.
It all adds up to some ugly numbers for employers and, in most
cases, employees. Some employers are reluctant to pass along the
premium increases given the tight labor market and competition for
workers, but most are finding the double-digit increases too much
to absorb on their own. At the least, they're tweaking their plans
to share some of the financial pain with workers.
Instead of increasing employees' payroll contributions by a big
percentage, Chandler bumped up co-payments for office visits and
prescriptions.
``Even though they have a co-pay for office visits and they have
a little higher prescription cost, they don't pay a whole lot more
out of their paychecks,'' said Mary Fedor, benefits coordinator.
In one plan, the office visit co-pay goes from nothing to $5,
the other from $5 to $10, effective Jan. 1.
TIERED CO-PAYMENTS For prescriptions, the city adopted one of the newest plans in
the business: a tiered co-payment plan.
Instead of one price for most prescription drugs, payment is
based on the type of drug: generic, brand name and brand names
outside the formulary, or approved list of covered drugs.
In one Chandler plan, employees who used to pay $5 for most
prescriptions will now pay $7 for generic, $12 for approved
name-brand drugs and $25 for all others.
Finova Group Inc. and Phoenix Newspapers Inc., parent of ``The
Arizona'' ``Republic,'' are among the other converts. Insight is
also considering a tiered prescription plan.
``What we're doing is looking at our plan and saying what in
here is a kind of Cadillac (coverage) and that we could maybe
reduce the benefit or increase the co-pay and not have to pass so
much on to the employee,'' said Louise Dunn, Insight benefits
manager.
Although the prescription changes will hit those with a cabinet
full of medicine and regular visits to the drugstore especially
hard, it will help others. Employees who've been shelling out the
full price for non-formulary drugs _ more than $100 for Merck's
popular migraine medicine Maxalt, for example _ suddenly find
they're saving money.
The Salt River Project, one of Arizona's largest utilities, also
changed its prescription plan, but with a twist. The company
lowered the co-payment on generic drugs to $4 from $7 and increased
the payment on name-brand drugs to $12 from $7.
The aim is give people incentive to use a less expensive,
generic drug, said Leo Elias, manager of benefits, health and
technical services.
At the same time, however, SRP employees will see more money
taken out of their paychecks for insurance. Dependent-care coverage
is going up 10 to 13 percent for next year depending on the plan.
That compares with increases of just 4 percent or so the past few
years, Elias said.
The company laid out the specific increases and the reasons
behind them in a newsletter last week.
To balance things out, many employers are boosting or adding
benefits in other areas, from chiropractic visits to group auto and
life insurance. Most are relatively cheap for companies but are
valuable in workers' minds.
