For several years, many companies have watched their health care costs steadily rise at double the inflation rate. But mostly they chose not to radically change health plans, says Rebecca McLaughlan, managing director and principal at McGraw Wentworth, a Troy, Michigan-based employee benefits consulting company.
The historic economic downturn in the fourth quarter changed everything.
By making such plan design changes as increasing median co-insurance to 15 percent from 10 percent and tightening up eligibility provisions, companies in Southeast Michigan expect to hold down health care cost increases in 2009 to 5 percent, compared with 7 percent in 2008, according to the sixth annual McGraw Wentworth survey of employee group benefits. In 2005, costs for Southeast Michigan companies rose 9 percent.
Nationally, health care costs are projected to increase in 2009 by 6.4 percent, according to data provided by Mercer, a New York-based employee benefits and consulting company.
“The [benefit cuts] we saw this year [in Southeast Michigan] were greater than what we saw nationally,” McLaughlan says. “We may see the same kinds of changes in the next year. The companies that didn’t make the big changes this year will make them next year.”
Over the past six years, employee cost-shifting has steadily led to workers paying 41 percent of total health care costs in 2009, up from 33 percent in 2004 for a median PPO plan, the survey said. In 2008, employees paid 39 percent of total health care costs.
From January to April, McGraw Wentworth surveyed 394 Southeast Michigan employers with between 100 and 10,000 employees in its Southeast Michigan Mid-Market Group Benefits Survey. Another 250 midsize employers were surveyed statewide.
Those surveyed included auto suppliers, manufacturers, school districts and nonprofits. Some 40 percent are in Oakland County, 25 percent in Wayne and 8 percent in Macomb. This year, 93 percent of companies offer PPO plans and 45 percent offer HMOs.
Overall, local employers are offering slightly fewer PPOs and HMOs in favor of consumer-driven health plans that now represent 19 percent of offerings, compared with 16 percent last year. Nationally, 20 percent of companies offer consumer-driven plans.
Consumer-driven health plans combine a high deductible of $2,500 to $5,000 with a tax-exempt health savings account with funds used for qualified medical expenses.
“Companies are using this as a key cost-saving measure and to encourage employees to be better consumers of health care,” says Karen Alter, account director with McGraw Wentworth and the survey leader.
Employee enrollment in consumer-driven health plans also continues to increase, Alter says.
For example, some 38 percent of companies in 2009 reported that 20 to 49 percent of their employees choose a consumer-driven health plan, compared with 28 percent of companies in 2008, the survey says.
Companies also continue to tighten health care coverage provisions to make sure they are not providing expensive insurance to ineligible spouses and dependents.
For example, 11 percent of companies in Southeast Michigan have decided not to allow spouses to be covered if the spouse has coverage through an employer. The national average is 5 percent.
McGraw Wentworth also found that a high-performing subgroup of its survey participants, which it called “TrendBenders,” decreased costs by an average 1 percent over the two-year period of 2007 and 2008 by managing eligibility more closely and using spousal surcharges and wellness initiatives that include smoker surcharges.
Acro Service Corp., a Livonia, Michigan-based human capital management firm with 1,000 employees, has had no medical cost increases in the past five years by using a combination of plan design changes, employee cost shifting and a greater use of generic medications, says Keith Berg, Acro’s director of human resources and procurement.
“One of our challenges is trying to provide rich or top-tier benefits for our contract staff, since many of them work at Fortune 500 companies. We want them to have comparable benefits,” Berg says.
Because of rising medical costs, Berg says, Acro needed to make some tough choices to maintain good employee benefits while holding down costs.
Acro last year increased co-pays for brand-name drugs to $60, from $30, to encourage employees to use more cost-effective medications. Its generic usage rate increased to 72 percent of prescriptions filled from 68 percent.
In 2009, Acro increased co-pays for emergency department visits to $100, from $50, to encourage employees to use less-expensive primary care physicians or urgent care centers.
Acro also this year increased deductibles for two PPO plans it offers through Blue Cross Blue Shield of Michigan. For example, deductibles went up to $500, from $250, for its higher-cost plan and to $1,000, from $500, for its lower-cost plan.
Acro eliminated its 100 percent coverage plan in 2006 and began offering 90 percent co-insurance and 80 percent co-insurance plans, Berg says.
“Like many employers, you paid your premium and everything was covered at 100 percent,” Berg says. “We couldn’t continue to offer that benefit because of rising costs.”