Cost Fears Spur Companies to Amend Health Plans for 2009

Some employers, worried that costs will exceed their budgets, have changed plan designs to keep their budgets on an even keel as they head into a new year filled with economic challenges.

October 14, 2008
Even as a majority of employers roll out next year’s health care plans, consultants and benefits managers say the weakening economy is causing concern that health care costs will be greater than projected.

Some employers, worried that costs will exceed their budgets, began chang¬ing plan designs to keep their budgets on an even keel as they headed into a new year filled with economic challenges.

“We have seen a few employers put in last-minute tweaks,” says Bob Tate, chief actuary for the health management practice at Hewitt Associates in Atlanta. “They’re all reducing health care costs.”

Last month, the Henry J. Kaiser Family Foundation and the Health Research & Educational Trust reported that 2008 health care costs increased by 5 percent, driven largely by cost shifting through the use of higher deductibles. Researchers say costs are almost certain to rise in 2009.

“We’ve seen peaks and valleys in premiums before,” says Drew Altman, president and CEO of the Kaiser Family Foundation. “There is no evidence we’ve done much if anything to deal with the fundamental underlying drivers of health care costs. So this valley won’t last.”

Hewitt Associates projected health care costs to increase by 6.4 percent in 2009, but those estimates were based on the health budgets of large employers drawn up earlier this year when the economy showed less strain.

Jon Gabel, a senior fellow at the National Opinion Research Center and an author of the Kaiser report, says a lag usually exists between the start of a recession and the sharp jump in health care costs that follows, but the current fiscal crisis will shorten the span. Lower expected earnings by insurance companies could prompt an increase in rates and may be one reason brokers report double-digit rate increases for small and medium-size employers in California.

Though more employers are offering high-deductible plans, few employees sign up for them if they have a choice, according to the Kaiser report. Stagnant wages and increases in the cost of living may change that, especially for healthy employees.

“Employees among large employers … don’t seem to be enamored with these high-deductible plans,” Gabel says. “Maybe with the economic downturn they’ll be more price-sensitive with these plans, but last year that was not the case.”

Sicker employees, though, could be more likely to absorb premium increases so they can stay in more generous plans. Without healthy employees to subsidize the cost of the sick, those plans could see a cost spike, Gabel says.

To avoid such a scenario, nutritional supplement retailer GNC of Pittsburgh will no longer allow employees into low-deductible plans until they’ve been employed one year. The company tried raising premiums for that plan, but has not worked to get employees to move toward the company’s higher-deductible plans.

GNC benefits manager Gene Leis says he’d rather limit people’s eligibility for the low-deductible plan than go overbudget and risk layoffs and closing stores.

“A 1 percent increase [in health care costs] is the profit from two stores,” Leis says. The company has about 2,500 stores. “Do you want to open two new stores or close them? If you close stores and lay people off, you make money right now.”

—Jeremy Smerd

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