Employers Deal With Rising Health Costs
By VITA REED
Orange County employers are being hit with increases of up to 50% for health insurance this year. But instead of dropping coverage, they say they are living with it by shopping for the best deals, scaling back coverage or passing on some of the cost to workers.
This year’s surge in healthcare costs comes on top of steep rises last year. Smaller companies seem to be seeing the biggest percentage jumps, though big employers also are paying more. With a marked shift in the job market, workers can do little more than grumble about the situation.
“I’m seeing a change to lesser benefits, a lesser type of plan,” said Karen Lee Nixon, an independent insurance broker in Corona del Mar.
Nixon said her clients are planning to modify what they offer rather than eliminate coverage.
“Renewals have been coming in at between 15% and 35% with current carriers,” she said. “It’s prompted a lot of shopping.”
Don Goldmann, president of the Orange County Association of Health Underwriters, said he’s seeing an average increase of about 14%. “That is in line with the national average,” he said.
The forces behind the rises, according to industry officials, are familiar ones: rising drug prices, healthcare provider consolidation and a backlash against healthcare maintenance organizations.
Fullerton-based Beckman Coulter Inc. has seen its healthcare premium costs jump almost 20% for 2002, according to Claudia Ferguson, Beckman’s director of global benefits. In response, the maker of medical diagnostic products has changed the design of its healthcare plan, she said.
“We raised the deductibles and co-payments on our HMOs,” Ferguson said. “Also, we’ve made modifications to some of our prescription drug designs.”
Beckman also is adding co-payments on hospital admissions and other services, Ferguson said.
Beckman’s healthcare offerings include a self-insured preferred provider association and several HMOs, including PacifiCare of California, Kaiser Permanente and Blue Cross of California.
Overall, Beckman pays 85% of healthcare costs for its 2,340 Orange County employees and 70% of coverage costs for their dependents. Those percentages haven’t changed, Ferguson said. But both the company and its workers are absorbing this year’s added costs in their portions.
Beckman expects double-digit premium increases for the next two or three years, Ferguson said. “Certainly, we are going to have to look at ways to reduce costs,” she said. “Hopefully, employees will become better consumers.”
Workers may have no choice but to try and cut healthcare costs themselves by switching to HMOs or limiting doctor visits. Layoffs and the slowing economy mean that workers aren’t calling the shots like they once were.
As recently as two years ago, many employers would have absorbed added healthcare costs in a bid to keep workers in a tight labor market.
Employers had seen about five or six “glory years” where premiums remained flat, said Michael Wilson, a principal in the Orange office of the William M. Mercer Inc. consulting firm.
A backlash against managed healthcare service plans has played a part in higher costs. Health plans have loosened some of the reins, leading to more use of healthcare resources and increased costs for the plans.
At the same time, plans have been under pressure from rising pharmaceutical prices and demands for higher reimbursements from hospitals and doctors,so-called “provider pushback.”
Provider pushback played out in OC in well-publicized contractual crackups between Orange-based St. Joseph Health System and two health plans, Health Net and PacifiCare of California, a subsidiary of Santa Ana-based PacifiCare Health Systems Inc.
Mercer’s Wilson estimated that the St. Joseph situation increased healthcare rates in Orange County by 8% alone. He also said that the area’s healthcare payment market has switched from approximately 70% capitation, or fixed payments, two years ago, to about 25% today, as providers have insisted on contracts that take their rising costs into account.
In response to all these pressures, health plans began raising rates as of the beginning of last year to protect their bottom lines.
Steve Richter, a Watson Wyatt consultant whose territory includes OC, said larger companies, which often take on insurance risks through self-insurance, have more rate stability.
“Smaller companies are more susceptible (because) there’s quite a bit more overhead charged by the health plans,” he said.
Mercer’s Wilson also pointed out that large employers’ premium rates are based on how much healthcare benefits they actually use in a given year.
And not all small companies can pass on their costs or trim benefits.
“So far, we will continue to pay under our same policy,” said Mark Franzen, chief financial officer of Y Media Corp., an Irvine-based company that designs chips for digital cameras. Y Media, which employs 40 people, expects its health insurance premiums to go up 20% to 25% this year.
Y Media, which is venture-backed, pays 90% of healthcare costs for workers and their dependents, a rather high percentage. That is because it employs sensory-image engineers, who are difficult to recruit and retain, Franzen said.
“There aren’t a lot of them out there,” he said. “Once we find them, we want to keep them happy.”
Y Media offers a point-of-service plan for its workers and their dependents through Woodland Hills-based Health Net Inc.
Changing Y Media’s policy of paying 90% of its healthcare costs is under consideration, Franzen said, but no decisions have been made. Even at 10%, Y Media employees still will end up paying more in 2002, because of the rate increase, Franzen said.
