Economy’s Plunge Spares Health Benefits — For Now

Employers haven't accelerated health-care cost-shifting to employees in response to the recession. but the outlook for 2010 is up in the air.

The recession has clearly led increasing numbers of companies to eliminate or reduce fund matches in 401(k) programs and to change their severance policies. But the most costly benefit of all, health care, has been little affected so far.

One reason could be the timing of the annual benefits cycle. Companies with a calendar fiscal year generally prepare their programs in the middle of the year. Those companies had already made their 2009 benefit-design choices before the bottom dropped out of the economy.

Employers’ median health-care costs are expected to rise by 6% in 2009, the same as the two previous years, according to consulting firm Watson Wyatt, which in November and December surveyed 489 companies with at least 1,000 employees. That level of increase is significantly lower than the spikes seen between 1999 and 2006, peaking at 14.7% in 2002. Other benefits consultants agree that this year’s hike will be in the 6% to 7% range.

Some companies did make changes in plan design and employee contributions for this year. Among the employers Watson Wyatt surveyed, 23% implemented “significant” increases in employee health-care premiums, and between 16% and 18% did so for medical services deductibles, co-pays, and pharmacy costs.

Such moves, though, had a relatively minor impact on medical premiums. Without the changes, the median cost to employers would have risen by 8% rather than 6% this year, Watson Wyatt noted.

What’s more, despite the economic doldrums, companies by and large aren’t anticipating wholesale changes in their programs for 2010. Only 10% said premiums would go up significantly, 14% said the same for deductibles, and 9% said so for both co-pays and pharmacy costs. In all of those categories, from 67% to 74% of survey respondents said no significant increases are in place for 2009 or planned for next year.

“From the survey results and working with clients, I don’t see most companies taking dramatic actions on benefits,” said Tom Billet, a Watson Wyatt senior consultant. “Health-care strategies don’t change on a dime — most companies like to stick with a strategy for three to five years and then re-evaluate. A short-term change in the financials is not enough to get them to completely change their strategies.”

Companies are even more unlikely to eliminate any health benefits to save expenses. According to research by Mercer, 84% of 1,028 organizations that were surveyed late last year said they plan no such change.

While the surveys were conducted a few months ago, Billet said he’s seen nothing yet to suggest that companies won’t follow through on the intentions they stated at that time. He acknowledged, though, that the picture could evolve as plans are submitted to company management for approval over the next few months.

Others agreed. “I think in another month or two we’ll have better information,” said Paul Fronstin, a senior research associate with the Employee Benefits Research Institute. “Right now companies are still figuring out what they’re going to do.”

To the extent employees are required to pay more, though, the economy might not be to blame, Fronstin suggested. He pointed out that companies put more of the cost burden on the work force year after year even when the economy was performing superbly between 2003 and 2007. “I’m skeptical — how much of the change would have taken place anyway as part of the trend we’ve been seeing for some time?” he said.

One possible shift to watch for, Fronstin said, actually would reduce many employees’ costs. He said he recently spoke with a “leading” company that is eliminating co-pays for primary-care visits while ratcheting them up for visits to specialists. The idea is to motivate employees to see their primary doctors and thus prevent costly medical conditions from developing. “When it gets out that this is what this company is doing, others are going to take a close look at it,” Fronstin said.

A fair number of companies already reduce or waive co-pays for primary-care visits — 24% of them, according to the Watson Wyatt survey, though only 2% more said they are planning to adopt that policy for 2010.

Something that companies already are doing in droves is reviewing whether those enrolled in health benefits programs are actually eligible. For 2009, 61% of the surveyed companies have undertaken such an effort, and 20% more are planning to do so next year.

The savings could be considerable. Research has shown that as many as 7% of those enrolled may be ineligible, Billet said. Usually that happens when an employee divorces his or her spouse, or a child goes past the age limit for coverage, and the employee neglects to report the change in status. In some cases there is willful fraud, such as deliberately putting a nephew on the plan, for example, disguised as a son.

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