Reducing Rising Health Care Costs By William Poe Insurance experts outline other strategies available to employers. Faced with seemingly ever-increasing health care premiums, St. Louis area companies have had no choice but to shift more costs to employees, area employers and benefits consultants say. "Companies are shifting down costs to their workers," says Pamela Ruckman, vice president of Marsh Advantage America, a large insurance program management firm, a service of Seabury & Smith. "Costs have kept going up, and companies have to shift the costs to the employees." "It wasn't long ago that companies began charging employees for dependent coverage, and now the majority of companies charge the worker something just for employee coverage even if it is a token amount," says Paul E. Flotken, principal with the Todd Organization of St. Louis, a firm that designs employee benefit plans. Flotken says area businesses experienced "double digit" increases in health insurance premiums in 1999 and are burdened with similar hikes again this year. "It's a big problem for all companies right now, and everyone is grappling with the issue," he says. New York-based human resources consultant Buck Consultants, Inc. estimates the average premium increase in St. Louis was about 11 percent in 1999. Ruckman and Flotken agree on the basic strategies available to help companies cope with big insurance premium cost increases: Structuring co-insurance premiums and deductible amounts to prompt employees to use "in network" health care providers Offering HMOs that do not provide out-of-network benefits Increasing employee co-pays for office visits and prescription drugs Using insurance carriers that have developed prescription drug formularies Developing a self-insurance program Shifting more premium costs to employees in the form of employee contributions to both employee coverage and dependent coverage. "Any time you can increase co-pays or employee contributions, the employer will garner cost savings," Ruckman says. For most companies, she says, the employer contribution to group health insurance must be at least 50 percent. Ruckman calls it rare when a company pays 100 percent of premiums. Most companies now pay up to 80 percent of premiums, but some are paying only 50 percent, she adds. Employees must also typically pick up the tab for most of the cost of dependent coverage, usually through payroll deductions, agree Flotken and Ruckman. Because the rising cost of prescription drugs has fueled some of the recent surges in health insurance premiums, employers should target pharmaceuticals for cost containment efforts, Flotken says. That is part of the cost containment strategy being employed by Monsanto Company, which believes that the out-of-pocket charge that workers must pay for prescription drugs has been lagging the price of the drugs themselves, says Bob Knowles, head of health and welfare benefits administration for Monsanto. Rather than impose a flat co-pay for prescription drugs, Monsanto now mandates that employees pay 20 percent of drug costs, up to a maximum per prescription co-pay of $20. "We think a co-pay based on a percentage of the cost of a prescription helps deal with the inflationary pressures better than flat co-pays," Knowles says. Another Monsanto strategy, Knowles says, is to offer its 14,000 U.S. employees various levels of health coverage at different price points. "We offer a no-coverage option (non-participating employees receive cash back each month), a low-cost option, a medium-cost option and a high-cost option, all with different co-pays and deductible amounts," Knowles says. "We don't try to drive employees to one of the options. "If an HMO is a low-cost option, we position it as a low-cost option; if a plan is high-priced, we show it as high-priced. We give them choices." Monsanto employees contribute to the costs of their health and welfare plan in a cost-sharing program, and the company "adjusts those costs from time to time," Knowles says. "We are always striving to maintain choice and hold down costs." A strategy available to other large employers is to self-insure, Flotken says. "More companies are self-insuring these days; they are willing to take on more risk themselves." Under self-insurance, the employer hires a third-party to process and pay claims from company funds. The employer buys stop-loss coverage to limit its exposure against types of claims and aggregate claim amounts. Although most experts recommend a minimum of 100 covered lives for the self-insurance option, smaller companies have also self-insured. One such company is Paradowski Graphic Design, which has about 15 employees, according to Managing Partner Nila Paradowski. "The way we looked at it was that, with traditional insurance, you are essentially prepaying for medical care with monthly premiums that might be between $4,000 and $5,000 per month," Paradowski says. "Why not self-insure? Typically, our employees tend to be very young so they are healthier as a group. So, we tried it." For two years, Paradowski Graphic Design was self-insured for routine doctor visits and hospitalization but dropped the effort, because the small firm found the process somewhat burdensome administratively and because employees had some concerns about it, Paradowski says. The firm is now enrolled in a PPO with United Healthcare of the Midwest. The company pays 100 percent of employee premiums; employees pay 100 percent of the cost of dependent coverage, Paradowski says. "We will take a hard look at our costs at the end of our policy period in the fall," Paradowski says. "We may have to ask employees to pay some portion of their health-care premiums, or we may switch plans. If rates increase, we would again consider self-insurance. We would not rule it out." Flotken says the tight labor market has forced some employers to absorb increases in premium costs. "Some companies in industries that are highly competitive for workers just can't pass cost increases along to employees. They have to fight to retain their workers." "The expectation of the employee is that paid health insurance is there for you," Paradowski agrees. "And we have to compete with larger companies for the same professional talent." Recent double-digit increases in health insurance premiums may not be a harbinger of increases to come, Flotken says. Price hikes in 1999 and this year came after much smaller increases in 1997 and 1998, Flotken says. "This is a cyclical business. We may have some flat periods to come." William V. Poe is principal of Poe Communications, a St. Louis advertising and marketing communications firm.

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