Companies are singing the health-care blues again, thanks to another year of double-digit premium increases.
This year’s hike will be particularly stiff — the average company expects health-care costs to rise 14 percent, according to the National Survey of Employer-Sponsored Health Plans 2002, by Mercer Human Resource Consulting. Although the burden is felt at nearly every company, small companies will be hit especially hard. Premiums, which soared 18 percent last year for companies with fewer than 500 employees, are again expected to outpace those for large companies.
The simple truth is that small companies have fewer options for managing health-care costs. They lack the clout with insurers to carve out portions of the plan, such as prescription drugs or mental-health services. And they can’t self-insure — one catastrophic claim could bankrupt them.
In general, “small companies feel a lot more pain from health-care costs,” says Ed Kaplan, national health practice leader at Segal, a New York-based employee-benefits consulting firm. “They have higher administration fees and higher premiums, and they are forced to use off-the-shelf plan designs.” He adds that underwriting managers often heap higher margins and loads on premiums for small companies to compensate for high volatility in their claims experiences.
In the past, employers shifted costs by increasing copayments and raising the penalties for seeking care outside a preferred provider network. Now, though, businesses are simply asking employees to pick up a higher percentage of premium costs. “There are fewer employers that pay the full cost of coverage,” says John McDonough, associate professor at The Heller School for Social Policy and Management at Brandeis University.
Some small employers have been forced to reduce benefits or, worse, shutter plans entirely. “More and more evidence suggests that companies are moving to drop coverage completely,” confirms McDonough. In fact, according to the Mercer report, the percentage of businesses with 10 to 49 employees that sponsor a health plan fell from 66 percent to 62 percent last year. A separate survey by The Henry J. Kaiser Family Foundation and The Health Research and Educational Trust found that 5 percent of large companies are considering dropping their corporate-sponsored plan this year.
While these trends are not encouraging, the vast majority of companies are opting to shift more costs to employees rather than give up on the plans completely. For them, the question is, how much are employees willing to pay? Workers already paid 27 percent more for health care in 2002 than they did in 2001, according to the Kaiser report. And while passing the buck has been easier since the labor market has eased up, when the economy recovers it will be more difficult to ask employees to pay more. Indeed, even now there are protests: nearly 20,000 workers at General Electric went on a two-day strike in January to protest an increase in copayments.
“It has reached a crisis level,” says James Murphy, executive vice president and CFO of TruSecure, an IT security company based in Herndon, Virginia, that provides health care for 200 employees. “You need to ensure that the increases don’t have a material effect on your ability to do business,” he warns.