Hayslett, chief administrative officer at public relations
firm Hayslett Sorrel, is breathing a sigh of relief.
After renewing policies for employee health insurance,
increases in premiums only totaled 6 percent –
far less than many other companies.
“I just reported at our staff
meeting there would be no change in insurance company
or doctors or new forms to fill out,” says Hayslett.
“It’s a great relief to the employees.”
In an era of double-digit premium
increases, many firms are finding although health
insurance coverage is one of their biggest assets
when it comes to recruiting and retaining employees,
it can also be one of their biggest expenses as well.
Rising costs are forcing many companies
– particularly smaller firms – to reduce
benefits or pass along greater costs to employees.
Cutting benefits remains a difficult choice for many
executives. While health insurance can be one of their
biggest line items, eliminating it increases the risk
that valued employees may defect to competitors offering
more generous benefits.
“Companies realize professionals
are looking for a company that provides benefits –
health insurance, dental insurance, some kind of 401(k)
or retirement plan,” says Denise Grove, part-time
CFO for Hayslett Sorrel. Grove, who works with five
other firms ranging in size from 10 employees to more
than 1,000, says her clients see health insurance
as part of the cost of doing business. “Their
people are their assets,” she explains. “That’s
the way they retain their employees.”
Insurance costs are now rising higher
than at any time in the last decade. Business was
hit hard by big increases in the late ’80s and
early ’90s. After health insurance premium inflation
peaked at 18.6 percent in 1988, it declined to a mere
two-tenths of 1 percent by 1997. The next year, costs
soared to 6.1 percent and have been steadily rising
ever since, according to figures from the latest Mercer/Foster
Higgins National Survey of Employer-Sponsored Health
Plans, the largest and most comprehensive survey on
While those figures represent national
averages, the reality for many companies is quite
different. “[Companies are] experiencing, in
many cases, up to 30-, 50- or even 100-percent increases
in premiums on renewals,” says Bert Fridlin,
Georgia state director of the National Federation
of Independent Business. A survey of his organization’s
members showed 81 percent experienced increases of
more than 10 percent in premium rates.
Experts say soaring health insurance
premiums are directly linked to escalating costs in
the $1.5-trillion national healthcare market. According
to a Kaiser Family Foundation report, about one-third
of this spending was for hospital care (32 percent);
more than one-fifth for doctor services (22 percent);
and almost 10 percent for prescription drugs. While
pharmaceuticals was the smallest category, it was
also the fastest growing – increasing two to
five times faster than spending for hospital or doctor
care. In 2000, drug spending increased by 17 percent.
“The increase in healthcare
[insurance] premiums is really driven by the underlying
problems in the health services sector,” says
Dr. Pat Ketsche, assistant professor at Georgia State
University’s Institute of Health Administration.
It comes as no surprise that according
to a Pricewaterhouse-Coopers report for the American
Association of Health Plans, medical costs are expected
to increase by 13.7 percent this year. Only 2.5 of
those percentage points can be attributed to general
inflation. The rest of the increase is generated by
advances in technology, such as new drugs and medical
devices, increased reimbursement rates for doctors
and hospitals, government mandates and regulations,
increased consumer demand and malpractice litigation.
The reasons for these increases are
many and complex, and don’t lend themselves
to any quick fix, although industry observers have
no shortage of possible solutions. This leaves business
executives on their own when it comes to dealing with
the rising costs. Many would clearly like to throw
up their hands and get out of the traditional employer-provided
health insurance market. Nearly all, however, realize
the short-term gain isn’t worth the long-term
cost to employee morale and performance.
So what’s an employer to do?
Options are largely determined by the size of the
company. Small and medium-sized firms typically don’t
have the same resources or the room to maneuver as
Companies with more than 100 employees
can often self-insure as a means of cutting insurance
costs. Through self insurance, a company can set aside
its own funds to pay for routine office visits and
minor illnesses. A high-deductible insurance policy
is reserved to cover more expensive claims such as
heart surgeries and births. This approach has proved
popular with businesses; more than half of Georgia’s
4.9 million workers with private health insurance
are covered by these types of self-insurance plans.
In addition, a self-insured company is also exempt
from the 26 state-legislated mandates that require
policies to cover services ranging from chiropractic
care to mammograms.
“On any claim, we covered the
first $25,000 in order to help reduce our premium,”
says Grove of one of her client companies. Businesses
can also turn to cost-containment companies that manage
their HMO and PPO relationships and negotiate every
bill to obtain the maximum savings.
The name of the game in health insurance
is spreading risk across a large group. A company
with fewer than 50 employees presents far greater
risk for an insurance company writing a policy than
a company with thousands of employees.
So small companies turn to their agent
or insurance broker for help in keeping costs down.
“[Brokers] have a lot to do with getting quotes
from different insurers and trying to place comparable
coverage,” says Grove.
Brokers who deal with a large number
of carriers can assist companies in determining their
insurance needs. Their independence enables them to
seek out the best deal by soliciting bids from a number
of carriers until they find a policy that suits their
client’s needs. Underwriting standards vary
widely, and quotes for the same companies can vary
as well, depending on the carrier. For example, some
insurance carriers avoid insuring small groups or
charge a premium for the privilege. Some companies
may not offer the products that a particular employer
wants to buy.
NFIB’s Fridlin advises his members
to find an agent associated with the Georgia Association
of Health Underwriters.These professionals can also
guide clients to products they might not have previously
considered and help them to make the hard choices.
For example, a company may need to drop its fee-for-service
policy and change to an HMO plan. While choices of
doctors and hospitals for employers are more limited
under this plan, a switch may result in cost savings.
Sometimes just changing carriers while keeping the
same coverage can also result in savings.
“There is still a great variety
of products out there,” says Bruce Wharton,
vice president of Bryant & Wharton Associates,
a business insurance broker. “[Companies] need
to have the mindset that they may be not be able to
improve their benefits or lower their costs as they
could in years past.”
While relatively few companies seriously
consider dropping insurance altogether, most are either
trimming benefits by moving to more restrictive plans
that don’t cover as many services or passing
more of the burden along to the employee.“[Insurance
carriers] are trying to combat this by raising co-pays,”
says Wharton. “Prescription drug card co-pays
have nearly doubled. What used to cost $20 is now
In addition, insurance carriers are
offering defined benefit plans that allow employees
to choose basic coverage with higher deductibles and
co-pays for drugs and office visits, or buy into a
more generous plan with lower co-pays and more generous
access to providers who are not part of the plan’s
By convincing employees to pay more
for their healthcare, employers are slowly reversing
a trend that some feel has served to disconnect workers
from the true cost of healthcare. “I think we’ve
all lost contact with what insurance is really for
– to prevent catastrophic loss,” says
Wharton. “Now we want our insurance to pay 100
percent of everything, but it’s getting to the
point where [employers] can’t afford [to provide]
When employees pay just $10 for a
prescription or $15 after a trip to the doctor’s
office, they often have little understanding of the
true costs of the services they receive. “When
you have [employees] bear even a small portion of
the premium, they’re able to see – year
to year – how the costs are changing and are
more receptive to innovation in health plans,”
advises Dr. William Custer of Georgia State University’s
Center for Risk Management and Insurance Research.
As employees pay more, they tend to
become better consumers of their healthcare services.
The ultimate goal of many of these options is to encourage
employees to shop around for the best deals in doctors
and hospitals instead of seeking care regardless of
The next step in that direction may
come through a move to consumer-directed health plans.
These policies typically couple a high-deductible
policy with an upfront sum an employee can spend on
healthcare. When that amount is spent, the employee’s
share of the deductible – which may be as high
as $5,000 – kicks in.
“The idea behind consumer-directed
health plans is that if consumers are spending their
own cash, they’ll be more price-conscious and
they won’t have such a high demand,” says
Ketsche. “The idea is if you make consumers
use their own money or money you’ve given them,
they’ll price-shop with that money more than
if it’s just a covered expense.”
Unlike traditional flexible spending
accounts already in use, unspent funds roll over to
the following year. Employees have an incentive to
build up their funds to cover a greater portion of
Consumer-directed products are best
suited to the higher end of medium-sized companies
that can handle the increased administrative work
associated with the plans. In addition, they place
a greater burden on employees who must begin managing
their own insurance in ways they were never able to
“Health plan representatives,
brokers and benefit managers need a high level of
effort to educate consumers for them to understand
consumer-directed products because they’re more
complex than the products in the marketplace now,”
says David Fields, general manager, consumer services
at Blue Cross Blue Shield of Georgia. “Providers
of information need to effectively use the Internet
and other technology in order for customers to get
to the information these plans offer and, furthermore,
to understand them.”
While the economics of healthcare
are often complex, many agree, for better or worse,
one of the primary drivers of healthcare inflation
is the very patient who wants and needs medical care.
“One of the fundamental issues is the insatiable
demand [for healthcare], but very few people understand
the underlying cost of that demand,” says Fields.
One often under-utilized means of
cutting down on demand is employee wellness programs.
Programs for controlling hypertension, smoking cessation
and fitness are not only popular with workers, but
can also reap benefits for business through increased
productivity, lower absenteeism and insurance rates
“Employers have had wellness
programs for quite some time and continue to try to
find ways to offer them to employees,” says
Custer. “The catch is, wellness programs, where
the employer can capture the benefit, are widespread
– smoking cessation is one.”Employers
tend to avoid prevention methods, such as screening
for certain diseases, whose benefits might not show
up until years later – when the employee no
longer works for them.
Even as businesses scramble to find
new ways of dealing with the rising cost of insurance,
some relief may already be on the horizon. The rise
and fall in health insurance premiums are cyclical.
While healthcare costs themselves are unlikely to
fall, the era of 12- to 20-percent premium increases
should abate in the next few years, according to Custer.
In the meantime, both insurers and
the insured are seeking new ways of keeping costs
under control, while continuing to provide vital benefits
to workers. In many respects, their efforts are merely
scratching the surface of the issue. One claims manager
for a Fortune 500 company observed that until the
demand for medical services decreases, companies will
never be completely successful in controlling costs.
Perhaps the answer to the dilemma will be found in
the re-education of both the insurance provider and
Legislation Efforts Often Increase Cost of
problem of rising premiums for employee health insurance
is nothing new. In fact, business owners have consistently
said it’s one of their biggest problems, according
to Bert Fridlin, Georgia state director of the National
Federation of Independent Business. He keeps his finger
on the pulse of business, and knows all too well the
festering nature of the problem.
He concedes that despite considerable
attention given to health insurance by legislators
in Atlanta and Washington, D.C., the problem isn’t
likely to get much better. There are, however, some
hopeful signs that businesses and individuals will
get at least a little relief in the year ahead.
Mandates. Over the years, the General
Assembly has enacted 26 different mandates requiring
insurance companies to cover all or part of specific
conditions or certain treatments in their policies.
Business groups have long argued that these state
mandates push up the cost of coverage and make it
less likely that small businesses will even offer
coverage. Large self-insured businesses are not subject
to these mandates.
A new bill – which died in the
Assembly this past session – would allow optional
policies where employers and individuals could have
a choice of benefits. In other words, policies could
be sold either with or without mandates to hold costs
In addition, even though the bill
died in the Assembly this time, it will likely resurface
again next year. Rising costs increase chances that
the measure will eventually see the light of day.
In the meantime, groups such as the
Georgia Chamber of Commerce keep fighting the addition
of new mandates. “We’ve been able to turn
many [mandates] into offerings, which means [insurance
plans] have to offer that particular coverage to the
employer, but the employer can choose not to include
it in their plan,” says Amy Fincher, vice president
for governmental affairs with the Chamber.
Tax Incentives. “We’re
seeing, at the federal level, interest in tax incentives
for small businesses and individuals,” says
David Fields, general manager, consumer services for
Blue Cross Blue Shield of Georgia. “Businesses
get a tax break when they pay for premiums, but government
is looking at some tax credits for individuals,”
he says. This move will provide new benefits to workers
while also taking some of the pressure off businesses
that must pass a greater share of insurance costs
along to employees.
Legislation has also been introduced
that would allow for 100-percent deductibility from
Georgia income tax for individuals who purchase health
insurance, according to Fridlin.
Certificate of need. The General Assembly
also plans to revisit the issue of certificate of
need. That law gives the state permission to decide
if and when hospitals can be built or expanded, or
new equipment or specialties added. Opponents of the
law charge that the law cuts down on competition and
drives up prices for medical care, and, in turn, increases
insurance premiums. They think the law should be repealed.
“Hospitals have used that [process]
to create monopolies in certain areas,” says
is willing to predict how far these measures will
go, or if they will even succeed. The only thing anyone
is sure of is that getting and keeping health insurance
will continue to be a necessary – but increasingly
expensive – proposition.
Catalyst Magazine. 3379 Peachtree Road NE, Suite 300.
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2002, by The Leader Publishing Group, Inc., publishers
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