Firms brace for another jump in health care costs

Posted on Thu, Jun. 06, 2002
By Casey Selix, Pioneer Press

Double-digit increases in health care insurance costs are anticipated again in 2003, and area employers say they are planning to place more of the burden on employees.

A survey by Hewitt Associates shows Minnesota employers are expecting increases between 15 and 25 percent in health maintenance organization rates for 2003, said David Moody, who heads the health management practice for the Minneapolis office of Hewitt.

Nationwide, increases in HMO premiums for 2003 are averaging 22 percent compared with 15.3 percent in 2002, according to the Hewitt survey of 140 employers released this week. Hewitt is a human resources consulting firm based in Chicago with 80 offices worldwide.

To deal with the cost increases, Moody said, employers are taking a number of approaches, including increasing the amount employees contribute per paycheck toward the group premium, increasing co-payments on office visits and increasing prescription costs. Employers are also trying to educate employees to be “better consumers of health care,” he said.

“Employers are struggling with what to do because they don’t see an end to these increases for the next few years,” Moody said. “They can’t sustain these increases on their own. It’s impacting their bottom line.”

Harold Hamilton, who owns Micro Control in Fridley, is considering individual medical savings accounts of about $2,000 each for his 140 workers in the hope they’ll take more responsibility for how they spend health care dollars. He also will carry coverage for catastrophic illness and injury.

“If their kid has the sniffles, they can decide, ‘Should I take him to the doctor or maybe give him two aspirin and put him to bed,’ ” Hamilton said. “All of these little things cost money.”

Hamilton has used a combination of self-insurance and an insurer in recent years to provide a standard employee benefit. Premium increases in the 1990s — including a 100 percent leap after an employee was seriously injured — prompted the switch to self-insurance.

“It’s cheaper that way,” Hamilton said.

Under the plan, Micro Control pays up to $30,000 of an employee’s health costs annually before the outside insurance kicks in. Micro Control picks up 75 percent of the nearly $6,000 premium per employee each year; the employee picks up the rest. Office visit co-pays cost employees $20; prescription co-pays run $20 to $25.

Michael Scandrett, executive director of the Minnesota Council on Health Plans, said employers and HMOs are just beginning to negotiate rates and increases for 2003. Premium increases are keeping pace with the 10 to 15 percent increase in medical costs, Scandrett said.

“A variety of things are happening with the aging population (needing more care), the creation of new drugs and new technology, and the trend in the marketplace toward the types of plans that allow easier access to specialists and fewer restrictions on referrals,” Scandrett said. “The less managed care there is, the more costly it’s going to be.”

Moody said HMOs are also “under tremendous pressure to be profitable” while providers —-hospitals and health workers — are “flexing their leverage” to demand higher pay in contracts. One example would be the nurses strike in Minnesota last year that resulted in higher salaries, he said.

At least one change in Minnesota law this year is expected to provide some relief to smaller businesses. Businesses with two to 50 employees are now allowed to pool with similar businesses to purchase group health insurance.

“The pooling provision could help if it can succeed, but there are a lot of administrative challenges to do it,” said Mike Hickey, state director of the Minnesota branch of the National Federation of Independent Business.

Even so, the double-digit increases in premiums are “really getting old,” Hickey said. “This is the third or fourth year of double-digit increases, and it’s almost getting impossible for the smallest and most vulnerable businesses” to offer insurance.

Employers are also torn between absorbing the increases and passing on costs to their employees, said Moody. They risk alienating workers if rising health costs gobble up salary increases, and the issue is starting to dominate contract negotiations with unions, he said.

“Low-margin employers really have to think harder because they don’t have much leeway in terms of how much they can absorb,” he said. “Employers with high margins have a little more flexibility. I don’t think there’s a one-size-fits-all solution.”

For several years, Ecolab’s policy has been to split the costs of health care with employees on an 80-20 basis — the company pays 80 percent of the costs, the employee 20 percent, said Mike Monahan, a company spokesman. “As increases come, we maintain that split,” Monahan said.

The St. Paul-based company, provider of cleaning and maintenance services for the hospitality industry, recently raised employees’ co-pay from $10 to $15 for office visits, and from $7 to $10 for prescription drugs, he said.

Employees are usually warned several months in advance when a hike in health insurance costs is in the offing, he said. The company has about 1,500 workers in the Twin Cities.

Hamilton is ready to try medical savings accounts for employees and to carry the extra insurance for the serious medical conditions.

“Insurance was never really meant to cover kids with sniffles,” Hamilton said. “The purpose of insurance is to cover major disasters. A kid with sniffles is not a major disaster. Neither is an adult with sniffles. I had the sniffles two days ago. I got some Sucrets.”

Go to www.hewitt.com for more information on the survey.

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Staff writer Jim McCartney contributed to this story. Casey Selix can be reached at cselix@pioneerpress.com or (651) 228-2123.

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