Rising healthcare costs send Boeing to the negotiating table

As healthcare costs continue to squeeze budgets, employers are looking for ways to save money without alienating workers. And for one corporate giant, that means using the size of its workforce to negotiate directly with health systems.

Thousands of Boeing Co. employees in Charleston, S.C., and St. Louis will be offered an optional narrow-network plan next year, similar to one offered to 30,000 of Boeing's Seattle workers in January. Employees who choose the option pay less for premiums and nothing for generic drugs and primary-care office visits, but workers must seek care from a limited network of hospitals, doctors and laboratories.

Health systems in all three cities bid for the Boeing contracts, which the corporation negotiated directly with providers, an unusual move for a company. Employers typically rely on consultants or insurers to select, price and design employee insurance plans.

But experts say Boeing has the sophistication, resources and workforce to dictate its own terms, and health systems see clear benefits to winning its business. Boeing has “market share and volume,” said Donn Sorensen, president of Mercy's operations in eastern Missouri, where Boeing has roughly 13,000 workers eligible for narrow-network health plans next year.

Boeing's new contracts are with Mercy in St. Louis and the Roper St. Francis Health Alliance in Charleston, S.C. Its Seattle contract is with the Providence-Swedish Health Alliance.

The company employs about 16,800 workers in California, 5,000 in Pennsylvania and 4,000 in Texas, and also operates across other states.

Boeing's narrow-network offerings are limited to non-union employees as changes to health benefits must be negotiated under Boeing's union contracts. The International Association of Machinists & Aerospace Workers, which represents Boeing factory workers, didn't respond to an interview request.

Health benefits are critical in labor negotiations, and are often listed as a benefit that workers would strike over, said Robert Bruno, an assistant professor of labor at the University of Illinois at Chicago. Workers also recognize the strategic trade-offs that businesses face—less research and development, fewer full-time employees—because of climbing health-benefit costs.

That's why organized labor is also testing ways to rein in health spending without compromising access and quality. Unions have hired their own experts and independently analyze health spending and trend data to develop cost-control strategies, Bruno said.

There are signs of growing interest in such direct contracts. The National Business Group on Health this year surveyed about 130 large U.S. employers and found 2% used a direct contract for workers' benefits.

About 10% of employers surveyed said they would consider direct contracts for 2016. Systems such as Ascensionand Catholic Health Initiatives are expanding operations of their newly acquired insurance companies to contract with employers.

Expect to see more of this activity among a small group of large, sophisticated companies, said Kaveh Safavi, global managing director for health at consulting firm Accenture. These “activist” employers will use their leverage to negotiate for prices or services that more common health plans lack.

But success at cutting costs and maintaining quality is not guaranteed. Narrow networks cannot compete exclusively on price, Safavi said. Ultimately, consumers need other tangible benefits—convenient access, communication and scheduling, for example—to make the trade-off worthwhile. And many dislike narrow networks' limited choices.

In Seattle, Boeing uses secret shoppers to monitor employee satisfaction, said Dr. Joseph Gifford, chief executive for accountable care at Providence-Swedish in Seattle. Boeing demands the level of customer satisfaction found in other industries, such as retail. “That's kind of a religion they've all gotten,” he said. “What they want is the customer to be delighted.”

Mercy executives agree. “The level of engagement that Boeing is seeking is a little deeper than other employers,” said Dr. Tracy Riordan, an internal medicine physician and vice president of employer health solutions for Mercy.

Boeing is expected to expand on its strategy, though not this year. “We hope to provide a program like this to most of our employees,” said Jeff White, Boeing's director of healthcare strategy.