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Another Year of Premium Hikes

Another Year of Premium Hikes

By VITA REED

Employers face another round of higher healthcare premiums in 2005, their seventh straight year of escalating costs.

Many plan to deal with next year’s increase the same way they’ve been coping for the past few years: shopping around, absorbing some of the rise, and, finally, passing some onto workers.

“We will share some of the premium increase in ’05,” said Joe Deacon, director of human resources for Fluor Corp., the Aliso Viejo-based engineering services company. “But employees also will be asked to share part of the burden.”

Fluor, which employs some 1,300 people in Orange County, isn’t sure yet what its percentage increase will be for next year, Deacon said.

On average, healthcare costs in OC arc up 12.6% this year, compared to a hike of 18.7% last year and a 13.8% jump in 2002, according to Hewitt Associates LLC, a Chicago-based benefits consultant.

“We’re being optimistic that in ’04 and early ’05 that the 15%, 20% kinds of numbers are going to drop,” Deacon said.

Fluor mainly self insures, running a health plan on its own with the help of an administrator. It also offers a health maintenance organization plan from Oakland-based Kaiser Permanente and Cypress-based PacifiCare Health Systems Inc.’s Secure Horizons Medicare HMO for its retirees.

“We’re pretty much down to just a few HMOs,” Deacon said. “For the most part, the HMOs throughout the U.S. have not been cost-competitive with the self-insured program, so those have, in the past several years, dropped off our program.”

Fluor workers “have been very understanding” about rising healthcare costs, according to Deacon.

“They see the national pricing and they realize that these are inevitable costs,” he said.

Many workers “prefer the quality care and they seem like they’d rather pay it than go to a low-cost program,” Deacon said.

At US Labs Inc., an Irvine-based medical testing laboratory, healthcare costs have gone up 10% to 15% in the past two years, said Judd Jessup, the company’s chief executive.

US Labs, which has about 350 local workers, has two insurance carriers and offers three health plans. The company’s workers have a choice among HMOs from Kaiser and Blue Shield of California and a preferred provider organization, via Blue Shield.

The company has sought to steer workers into the least costly plan by paying 100% of the premium for enrollees in that plan.

“That kind of encourages the individuals who just want to make sure they have health coverage and they don’t want to pay out-of-pocket that they go toward that plan, which in our case is Kaiser,” Jessup said.

US Labs feels “that in order to be competitive, we need to pay the entire single cost of something,” Jessup said.

The company isn’t picking up all of the premiums for workers’ family members but tries to urge workers to pick the most cost-effective plan, he said.

US Labs also upped co-payments on office visits, a move that Jessup said workers haven’t reacted badly to.

“A co-payment is a lot easier to sell than a huge increase in the amount that’s deducted in their paycheck for healthcare costs,” Jessup said.

There is some wiggle room for employers, according to a recent survey by Mercer Human Resources Consulting LLC, a unit of New York-based Marsh & McLennan Cos. with an office in Orange.

If businesses simply renewed their current health insurance plans without changes in 2005, they could be hit with an average cost hike of 13%, according to Mercer. But that increase could be brought down to 9.6% if employers changed plans, negotiated with insurers, or switched carriers, the survey found.

Another finding: “Considerable cost-shifting to employees” is likely.

MDS Inc., a Toronto-based supplier of medical devices and drugs that employs some 100 people at its MDS Pharma Services unit in Irvine, is expecting a 21% surge in healthcare costs for 2005, said Leslie Carroll, the company’s director of U.S. benefits based in OC.

The company won’t be passing all of the increase to workers, she said, though they’ll pay more.

Other cost mitigation strategies for MDS include nixing its “exclusive provider organization,” a health plan that is similar to an HMO but doesn’t have cost-savings mechanisms.

“That program has become too expensive,” Carroll said.

MDS has spent the past four months educating its 1,500 U.S. workers about the cost increases, Carroll said. She called workers’ response “quite mild.”

Other employers may opt to pass costs on to workers, said Ron Mason, health and welfare practice leader in the Irvine office of Stamford, Conn.-based management consultant Towers Perrin.

Some of his clients are seeking to “revise payroll deductions,that is, what an employee pays monthly. Not so many are raising co-pays or reducing benefits,” Mason said.

Those businesses with “negligible” health cost increases, say 3% to 6%, are absorbing the hikes, according to Mason.

“We’ve got one in Orange County, though, that’s over 20%, and it’s justified,” Mason said. “It’s claim activity.”

Mason said his company’s clients aren’t cutting healthcare benefits. That sends the wrong message to workers, he said.

Another strategy being touted by insurance brokers and health plan operators as a possible cost-containment move is so-called consumer-driven healthcare plans.

Those plans generally have a high deductible combined with a pretax account that workers can tap to reimburse certain healthcare expenses.

Some question whether consumer-driven plans are an absolute answer.

Last month the Commonwealth Fund, a New York-based think tank that studies health issues, came out with a study arguing that better management of high-cost patients would better reduce costs.

Fluor’s planning to look at consumer-driven healthcare more closely, Deacon said, noting that about 40% of the company’s salaried workers already are enrolled in a high-deductible health plan.

US Labs’ Jessup said his company isn’t planning to use consumer-driven healthcare, unless Kaiser offers a high-deductible health plan. About 45% of the company’s OC workforce belongs to Kaiser.

Kaiser said it is considering a high-deductible plan (see story, this page).

Overall, Jessup, who once worked for FHP Inc., now part of PacifiCare, said he has mixed feelings about consumer-driven healthcare.

He said it has some merit, but added: “What I worry about is that it’s going to be more attractive in the long run to the younger employees than it is to the older employees. As time passes, you could have disgruntled older employees.”

Employers are showing interest in consumer plans but have concerns about economies of scale, Towers Perrin’s Mason said.

“People are interested, but mostly they are circling it,” he said. “The reason is if you add consumer-driven to your current option, you’re going to get low enrollment. What they’re afraid of is that they’re going to get healthy people that they give a (health spending account) to and costs could actually go up.”

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