They giveth; they taketh away

Workers are shouldering more of the costs of health coverage than ever before amid stagnant wages and a weak economy, according to a benchmark survey of employers released last week.

And yet, the Obama administration is quickly rolling out programs that aim to shore up employee benefits as mandated in the health reform law. Many employers are eager to participate.

Experts said that while it is still unclear how successful these federal programs will be, employers and workers need to be more engaged in cost-control tactics.

“We're finding that employers are not holding health plans accountable,” said Megan McHugh, research director of the Health Research & Educational Trust, a division of the American Hospital Association.

This is bad news for workers, according to the 12th annual survey by the Kaiser Family Foundation and the HRET, released last week.

The survey of more than 3,000 employers large and small showed that firms are increasingly passing on the cost of care to workers. This year, the total cost of premiums—both the worker and employer share—rose by 3% to 5%. But the workers' share of cost rose by 14%, while the amount employers contributed did not increase (See chart, p. 7).

The average premium cost for family coverage this year was $13,700, with workers picking up nearly $4,000 of the cost, up close to $500 since last year. Employers contributed on average $9,770 toward family premiums in 2010, about the same as last year, the survey found.

Over the past five years, workers' contributions to premiums have risen by 47%, while overall premiums rose 27%, wages increased 18% and inflation rose 12%, the survey concluded.

“It's the first time that I can remember seeing employers shifting all the costs to workers,” said Drew Altman, president and CEO of the Kaiser Family Foundation. “It speaks to the depths of the recession and holding the line on costs while trying to avoid layoffs.”

Perhaps more important is the long-term trends seen in the annual survey, Altman said.

“For working people, they are getting less while paying more,” he said.

Take annual deductibles. More than a quarter of workers—27%—have annual deductibles of at least $1,000, up from 22% of workers a year ago. Among firms with fewer than 200 workers, 46% had an annual deductible of $1,000 or more. The share of workers with annual deductibles of $2,000 or more is also rising, according to the survey. The continued shifting of healthcare costs to employees comes as hospitals struggle to contain the amount of patient bad debt on their books. The American Hospital Association has estimated that about a quarter of hospital bad debt comes from underinsured patients who can't afford copayments and deductibles (Aug. 23, p. 14).

“The nature of health insurance in this country is changing,” Altman said. “People are having problems paying for care; we know this from other studies. This is a very important issue that did not get enough attention during” the health reform debate.

The Obama administration is keeping the spotlight on new programs in the health reform law that aim to help employers cover their workers.

Last week, HHS Secretary Kathleen Sebelius appeared on stage in Washington to announce the first 2,000 businesses and unions accepted into the Early Retiree Reinsurance Program. Flanked by employers and union officials, Sebelius said that rising healthcare costs put employers at a disadvantage against foreign competitors.

In response, the $5 billion reinsurance program will shore up a declining benefit. Today, only 29% of employers offer health coverage to early retirees who do not yet qualify for Medicare. That's down from 66% in 1988, according to HHS.

To qualify, employers and unions must already offer health benefits to retirees between the ages of 55 and 65, spouses and dependents. HHS will reimburse the employers 80% of medical cost claims for individuals who have medical expenses between $15,000 and $90,000 a year. The program ends in 2014 when early retirees will be able to purchase health coverage through new insurance exchanges and cannot be denied coverage based on a pre-existing condition.

Ceramic and glass company Corning spent $60 million last year on retiree health coverage, said Debra Waggoner, director of global government affairs for the New York-based company. Corning pays 75% of the share of coverage, while retirees pay 25%, she said.

“Being competitive in today's global economy is difficult with rising healthcare costs,” Waggoner said. “But healthcare is a fundamental part of our commitment to our employees.”

There's so much enthusiasm for this reinsurance program that experts say the $5 billion allocated will run out well ahead of 2014. The Employee Benefits Research Institute predicts that $2.5 billion will be exhausted in the first year of the program because of the high demand from employers and high claims from early retirees. By the end of the second year, the funds will be exhausted, the institute said.

Sebelius said she would monitor the funds and provide regular updates on the program.

Despite enthusiasm for this program—even among the law's detractors (See story, p. 7)—the health reform law remains unpopular. A monthly tracking poll, also by the Kaiser Family Foundation, indicates the law is actually growing more unpopular. The law had a 43% favorability rating in August, down from 50% in July, according to the study.

Sebelius said at a news conference announcing the reinsurance program that she was aware of the trending. “What is really important to a lot of folks is how this will affect” them, she said. “We are getting that message out a step at a time.”

She pointed to the small business tax credit in the law as an example. “Small businesses are operating with apprehension about the law,” Sebelius said. “Often they have not heard about the tax credit. They think it's a mandate.”

Millions of employees at small businesses could benefit from the tax credit in the law, according to another report out last week, by the Commonwealth Fund. The tax credits will offset up to 50% of the cost of health premiums for workers at firms with up to 25 employees. About 16.6 million workers will be eligible starting this taxable year, and about 3.4 million workers will benefit by 2013, according to the report. Small employers could lower their premiums by 8% to 11% by 2016 when the credits sunset, the report states. The savings per employee could be about $2,000.

“It's real money,” said Karen Davis, president of the Commonwealth Fund.

Like the retiree health reinsurance program, the tax credit won't likely add to the ranks of the insured. Rather, it will shore up existing benefits at small firms, Davis said. “It is really an economic stimulus measure that will help small businesses get through these tough economic times,” she said.

Small businesses are cost-shifting even more than large ones, according to the Kaiser Family Foundation survey. Twenty percent of workers at firms with fewer than 200 workers have an annual deductible of $2,000 or higher, up from 16% of small-businesses workers last year, the survey found.

Lack of engagement is a core issue, McHugh said. Only 5% of small firms surveyed said they review performance indicators for their health plan's service or clinical quality. Among large firms, 34% said they were likely to review health plan performance.

At the same time, only 16% of large and small businesses said they include a high-performance or tiered provider network in their health plans. These networks encourage patients to visit the most efficient doctors by either restricting payments or offering copayments and coinsurance for providers in different tiers.

McHugh of the HRET called this lack of comparison shopping “troubling.”

But Andrew Webber, president of the National Business Coalition on Health, an employer group focused on improving health system performance, said he was encouraged by these findings. “I don't think it's realistic for small employers to be aware that this information is even available,” Webber said.

But among firms that did use this data, including the 34% of large firms, a total of half said that performance measures were very or somewhat influential in helping them select a health plan. “I see that as a positive, and it's certainly higher than in the past,” Webber said. “If you've got a small percentage of the customer base really pushing for changes, it can have an impact across the board.”

Others agreed that the news from last week was not all gloom and doom. Jim Napoli, an employment benefits lawyer and senior counsel at Proskauer Rose in Washington, said more cost-sharing isn't always a bad thing. If cost sharing means giving workers more decisionmaking in their healthcare purchasing, that's a trend that is unrelated to the recession, he said. “Generally speaking, it's not a movement where employers are trying to walk away from their obligation,” he said. “They are trying to get the employees more engaged.”

Indeed, consumer-driven plans now enroll 13% of total covered workers, up from 8% last year. And about three-fourths of employees that offer health coverage have wellness programs today, including those for weight loss, smoking cessation and personal health coaching, according to the Kaiser Family Foundation survey.

Napoli concedes that too much cost sharing can be detrimental because it becomes a barrier to access care. “It's a delicate balance,” he said. “And it's very much a discussion going among employers when designing benefits for 2011.