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Sharing the pain

Employers continue to shift more costs to workers, with high-deductible health plans getting closer attention


By Melanie Evans
Posted: November 7, 2011 - 12:01 am ET
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American workers, regardless of industry, are shouldering a greater share of the cost of medical care, based on the results of Modern Healthcare's fourth annual survey of health spending by large U.S. employers.

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Among the 35 large employers participating in this year's Healthcare Purchasing Power Survey were household names such as General Electric Co. and General Motors Co. and major health systems, including Henry Ford Health System, Catholic Health Initiatives and Vanguard Health Systems. By no means representative of the nation, the survey results nonetheless offer a glimpse into health spending trends and changes to health benefits.

Modern Healthcare invites participation from companies with annual U.S. revenue of at least $1 billion, regardless of industry. The survey was co-sponsored by the Leapfrog Group, an employer organization that promotes health quality and efficiency, and the National Business Coalition on Health, an association for employer coalitions that seek to use purchasing clout to promote safe and cost-effective care.

Employers again reported changes to health benefits that increase the amount workers must pay for medical care, as was the case in previous surveys. The changes cut across industries included in the survey.

Insurance coverage with high deductibles proliferated in the survey, including one company, the insurer Aetna, which listed a high-deductible health plan as workers' only option. Vanguard added a high-deductible plan and freight company Con-way added two.

GE, the employer reporting the largest health expenditures in this year's survey, moved its 85,000 salaried workers and their dependents into three high-deductible options.

Other employers made changes that increased employees' share of medical costs.

Catholic Health Initiatives, an Englewood, Colo.-based system with 55 hospitals across 16 states, now requires employees to pay a percentage of their medical bills rather than a fixed copayment. And Tyco International, an electronic security and fire safety company, reported employees' share of premiums increased to 30% from 20% to 25% previously.

Modern Healthcare's results underscore other surveys that show households are bearing a greater share of the nation's rising healthcare costs in the form of larger deductibles and other out-of-pocket expenses.

An estimated 12% of workers insured by an employer this year had deductibles of at least $2,000 compared with 7% in 2009, the Kaiser Family Foundation reported in September.

The percentage among large insurers was smaller but nonetheless increasing: 5% this year compared with 3% in 2009 and 1% in 2007, the annual Kaiser survey found. High-deductible plans grew more rapidly among small employers to cover more than 1 out of 4 (28%) of insured workers, up from 1 out of 5 two years earlier.

Paul Fronstin, director of health research and education programs for the Employee Benefit Research Institute, says large employers have started in recent years to experiment with health plans that combine high deductibles and significant exemptions from out-of-pocket costs for chronic disease management.

Large self-insured employers have more incentive to trim health spending and improve workers' wellness to lower costs by experimenting with health benefit design, he says.

Self-insured employers finance health benefits with their own cash, so when costs fall, the employers see the savings. That's not necessarily the case for companies that buy insurance from commercial health plans. That's because commercial plans pool premiums from multiple employers, Fronstin says. When one employer lowers costs, the entire pool may benefit or savings may be used to offset higher costs elsewhere.

Companies also have grown more aggressive with incentives for employees to participate in wellness programs, using bonuses, financial penalties or excluding workers who opt out of certain health plan options, Fronstin says.

Fronstin says “more and more people” can expect plans with wellness sticks and carrots “come Jan. 1.”

Adding incentives

Since 2007, GE has adopted and expanded online health and wellness tools; it also offers health coaches to help workers make informed decisions and seek second opinions for frightening diagnoses, says Ginny Proestakes, the company's director of health benefits.

In 2010, GE shifted salaried workers into high-deductible options. Proestakes says the company previously made incremental changes to plans but health expenses continued to grow at a rate of two or three times that of inflation.

GE reported $1.7 billion in healthcare spending for 2010, the most recent year available.

GE, No. 1 on this year's survey based on total healthcare spending, makes an array of products from jet engines to MRI machines.
GE, No. 1 on this year's survey based on total healthcare spending, makes an array of products from jet engines to MRI machines.
Photo credit: General Electric Co.
“We think we need a new model,” Proestakes says. Starting in January 2012, nearly all of the company's 40,000 hourly and union workers and their 60,000 dependents will also switch to the high-deductible options. The company publishes the plan deductibles and the maximum that employees must spend for care online. Deductibles vary from $800 to $2,000 depending on the plan and the number of dependents. Proestakes also notes that the workers' maximum out-of-pocket costs are on a sliding scale by annual pay.

The switch also eliminated copayments and coinsurance, except for targeted and specialty drugs, Proestakes says.

The new plans try to offer better incentives—and more information—for workers to make choices, she says. GE high-deductible options cover preventive medical care at 100%, while smokers pay more for coverage. GE also developed a mobile application with Thomson Reuters, launched this year, that allows workers to search for doctors and outpatient surgery centers by cost and quality.

Employees also will receive $100 gift cards as an incentive for completing health risk questionnaires and voluntarily working with coaches on nutrition, exercise or stress reduction and other wellness options, she says.

At General Motors, wellness incentives have also grown more aggressive. Workers who previously earned money toward health savings accounts for health risk assessments must now complete short education courses to earn bonuses, says Jeff Johnson, GM's director of health and welfare programs. Courses are 15 minutes and employees, who can choose topics such as exercise, must attend at least six times over six separate weeks, he says.

For the first time, the Modern Healthcare survey asked employers about how benefits might change in reaction to the Patient Protection and Affordable Care Act.

Debate erupted among economists and policymakers after the law was enacted in 2010 over whether businesses would respond to subsidized commercial insurance exchanges by dropping employer-sponsored health benefits.

Employers would be forced to pay penalties for eliminating benefits, but such costs could nonetheless be smaller than health benefit expenses, argue those who anticipate a widespread loss of workplace-sponsored health plans. Businesses would have an incentive to drop coverage; workers would be left to buy plans through an exchange, they contend.

Those who dispute the scenario argue that companies won't drop benefits—or will reinstate them if they do—to remain competitive as employers. For skilled and highly paid workers, demand for workplace health benefits will continue, according to an analysis published last month by the Urban Institute. The report cited a prior Urban Institute analysis that found “employer-sponsored coverage under the ACA would not differ significantly from what coverage would be without it.”

The Congressional Budget Office earlier projected 10 million people would lose benefits under the reform law. McKinsey & Co. in June released a study projecting that the Affordable Care Act would prompt as many as 30% of employers to drop or curb benefits.

“The claim that there are incentives (to drop health benefits) misunderstands fundamental economics and the terms of the law, to put it bluntly,” says Judy Feder, a public policy professor at Georgetown University and an Urban Institute fellow who was one of the report's authors.

Employers would not gain financially from dropping benefits, she says. Well-paid workers pushed into an exchange would not qualify for subsidies and would lose tax breaks for employer-sponsored coverage. To stay competitive, employers also would be forced to increase pay to cover workers' premium costs.

Of the 35 respondents to Modern Healthcare's survey, Kindred Healthcare and St. John Health System said plans to drop health benefits in response to the reform law were “under consideration.” Remaining respondents said they had no plans for ACA-related benefit cuts.

Feder says she was pleased by the lopsided results, even though the survey is not representative of the nation.

Tulsa, Okla.-based St. John Health did not respond to interview requests by deadline.

Susan Moss, a spokeswoman for Louisville, Ky.-based Kindred, said in an e-mailed statement: “Like most other large employers, Kindred Healthcare evaluated our 2014 options, taking into account cost and the impact on recruitment and retention of a skilled and engaged workforce.”

Kindred—which according to financial statements operated 87 long-term acute-care hospitals across 24 states and 266 nursing homes and rehabilitation centers at the end of last year—will continue to offer health benefits for full-time workers, Moss says.

“Recently, we have begun evaluating whether or not we will continue providing health benefits for part-time employees who work 29 hours a week or less,” Moss said in an e-mail. “At this time, we have made no decision and are still evaluating our options.”



How we conducted the survey

This is the fourth year Modern Healthcare has conducted a survey of large employers seeking information on their healthcare spending.

The survey opened July 11 and closed Sept. 12. Copies of the survey were mailed to Fortune 1000 companies as well as others that have participated in other Modern Healthcare surveys. Modern Healthcare also promoted the survey through its website and electronic newsletters. In addition, the survey was promoted by two co-sponsoring organizations, the Leapfrog Group and the National Business Coalition on Health.

The survey was conducted in partnership with other Crain Communications publications, including Automotive News, Business Insurance, Crain's Chicago Business, Crain's Cleveland Business, Crain's Detroit Business, Crain's New York Business, Staffing Industry Analysts and Workforce Management.

To qualify for participation, employers were required to have a minimum of $1 billion in U.S. annual revenue. Government organizations were not eligible.

Thirty-five companies responded this year, identical to last year.


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