How can our company cut its soaring health care insurance costs without passing too much of a burden onto our employees?
That corporate tightrope has become an annual quandary for most Milwaukee-area companies that have absorbed double-digit annual health insurance cost increases for several years.
However, it can be done. In fact, some local companies have found ways to keep their costs from rising at all this year (see accompanying success stories).
One company, Glendale-based OnCourse Information Services Inc., actually cut its health benefits costs by 25 percent this year.
"We were very surprised," said Mike Sewart, vice president of operations for OnCourse. "Most companies that are buying health insurance, you’re just seeing these increases in health insurance premiums, and you don’t see any other options out there. I think there is an element of defeatism (in the business community), and people say, ‘There is nothing we can do about it. I guess we just have to accept these premiums.’"
In fact, some local companies are taking multi-faceted approaches to curb their costs. These approaches often involve switching to high-deductibles, creating a health reimbursement arrangement (HRA), enacting employee wellness and education programs and excluding high-cost medical systems from their network of preferred provider networks.
With an HRA, employers can reimburse their employees for medical expenses on a tax-free basis. HRAs are typically combined with a high-deductible plan, with the employer typically reimbursing half of the deductible.
For example, with an HRA, an employer would typically reimburse $500 of an employee’s $1,000 deductible or $1,000 of an employee’s $2,000 deductible.
Some employers that have added an HRA have doubled the deductibles for their employees, but then reimburse half of the higher deductible. In that scenario, the deductible cost for the employee remains the same.
However, the higher deductible allows the employer to get a much lower premium, said John Cyganiak Jr., an agent for Brookfield-based Cyganiak Planning.
"Increasing the deductible saves a ton of money on fixed premium costs that are going to the insurance company," Cyganiak said.
Employers can take the savings from the lower premiums and use the money for the reimbursements to their employees in an HRA.
If employees do not use the entire deductible, then employers do not have to pay the reimbursement.
Only about 18 percent of individuals with a $1,000 deductible will use all of it in a typical year, health benefits plan brokers say.
"If the claims are not incurred, there’s nothing to reimburse," Cyganiak said.
In addition, since employees have to pay the entire deductible upfront before being reimbursed, it provides a disincentive for seeking frivolous health care services.
HRAs are not the same as HSAs (health savings accounts). HSAs are individual accounts, which are owned by the employee. Employees can put their own money into a tax-deductible HSA, and the employer also can contribute to the HSA.
The money in an HSA can be used by employees to pay for qualified medical expenses, including their deductibles, prescription drugs and dental care.
Businesses can use both an HRA and an HSA, but it’s extremely complex to do so, Cyganiak said. Most firms only do one or the other, he said.
HSAs are used mostly as an employee benefit, compared with HRAs, which are primarily used as a technique for employers to reduce health insurance costs, Cyganiak said.
In addition to using a high-deductible health insurance plan with an HRA, businesses that want to eliminate increases in their health benefits costs should also take steps to reduce their employees’ utilization of health care by adding wellness programs and by educating their employees about how they consume health care, said Jim McCormack, chairman of Waukesha-based Diversified Insurance Services Inc.
Companies need to hold down their employees’ utilization of health care to negotiate a lower premium rate with their carrier.
If the amount of health insurance claims filed by the employees is higher than the premiums the company is paying, then the insurance company is losing money on the account and will not be willing to negotiate a lower premium rate, health insurance brokers say.
Instead, the health insurance carrier will request a rate increase, unless changes are made to the plan.
The Lutheran Home, a nursing home in Wauwatosa, faced such a situation in 2003, when it had a 125-percent claim-to-premium loss ratio. That resulted in The Lutheran Home’s health insurance carrier requesting a 51-percent increase in the cost of the plan.
"Our utilization was through the roof," said Heidi Krauske, vice president of employee services for The Lutheran Home.
The Lutheran Home increased its deductibles to reduce its cost increase for the plan that year to 18 percent.
The Lutheran Home also added wellness programs and informed its employees about ways they could help lower the company’s health insurance costs, such as not making unnecessary visits to the emergency room and using generic drugs whenever possible, Krauske said.
Wellness programs are designed to improve the health of employees and reduce their need for medical care, thereby reducing their health insurance claims.
"(Wellness programs) are very important," said Robert Riches, president of Milwaukee-based M/Barrington. "It’s very difficult to get an employer to understand the advantage of wellness."
A wellness program is a long-term project that takes time to make an impact on a company’s health insurance costs, McCormack said.
However, The Lutheran Home was able to hold its health insurance cost to a zero percent increase this year after its employees reduced their utilization of health care services and the company shifted to higher deductible health plans.
The break-even claim-to-premium loss ratio for a health insurance carrier is about 85 percent, said Erv Woller, member of Woller-Anger and Co. LLC in Elm Grove. If a company’s health insurance plan has a claim-to-premium loss ratio of about 70 percent, or less, carriers typically are willing to negotiate for a lower rate because they are making money at that level, he said.
"It’s really all driven by loss expense," Woller said.
However, despite the good intentions of wellness programs and corporate health care education campaigns, high-deductible plans are the best way to deter employees from using health care frivolously, Cyganiak said.
"Don’t get me wrong, (wellness programs) are helpful," Cyganiak said. "But the only thing that impacts (employee behavior) is money."
New Berlin Plastics Inc. was able to keep the increase in its health insurance costs below 5 percent each of the last two years by switching its insurance carrier to UnitedHealthcare and increasing its deductibles.
UnitedHealthcare has not included Milwaukee-based Aurora Health Care in its network since 1996, and New Berlin Plastics president Jeff Held said he is convinced that the Aurora exclusion was a big reason his firm has been able to hold down its health care costs. However, the increased deductibles may also have played a role in the cost savings.
An executive with another local company, who asked not to be named in this report, switched his firm’s carrier to HealthCare Direct, which also excludes Aurora from its network. With the exclusion of the typically more costly Aurora system from his plan, the company avoided an increase in its health benefits costs this year.
Aurora spokesman Ron Irwin declined to comment on the perceived savings of firms whose health insurance network excludes Aurora facilities and physicians.
However, Woller, who is the broker for New Berlin Plastics, said Aurora has taken steps in recent years to reduce its costs.
"They’ve kind of been exposed as the high-cost provider in the marketplace. If you were (Aurora chief executive officer) Ed Howe, that wouldn’t sit well with you," Woller said. "I think they have taken great strides to reduce their costs within the past year and a half or so."
"Aurora’s pricing has an impact on rates, I think that’s definitely clear," said Greg Enes, a benefits consultant for Mequon-based Fitzgerald, Clayton, James & Kasten. "I think the biggest thing we could have in the market is more information about the mystery of the pricing of hospitals and physicians, but that information is proprietary."
Health insurance rate increases in southeastern Wisconsin are softening a bit, insurance brokers say. This year, rates are going up about 7 to 18 percent, compared with 15 to 20 percent during the last three to five years, McCormack said.
"This is one of the first years in many years that the insurance companies are making money," McCormack said.
This year, more carriers are trying to gain marketshare and are willing to offer lower rates to attract new customers, he said.
"It’s definitely true that the medical trends have come down," Enes said. "Group medical average increases have lowered in the last year. But it’s still not (at a level) acceptable to the employer."
Area businesses that are seeking competitive bids for their health insurance plans are having some success finding carriers willing to offer lower rates.
Employers should seek competitive bids for their health benefits plans every year and should be willing to switch carriers frequently if someone else offers a lower rate, Cyganiak said.
"In my opinion, it needs to be renewed every year," he said. "It’s too expensive not to."
However, switching carriers frequently can disrupt employees who have to adjust to the new plan, take time to fill out paperwork and sometimes switch to different physicians, McCormack said.
"We have those (clients) that will go to the low bidder every year," he said. "It drives the HR departments and the employees crazy."
"HR departments are just lazy, and they don’t want to do a thing," Cyganiak said. "Whether you want to or not, you ought to."
However, some health insurance carriers do not want to do business with a customer that switches carriers so often, Riches said.
"If they look at your history and see you are moving around every year, they are not going to want to work with you," he said.
Still, many businesses that are tired of seeing their health insurance costs go up every year agree with Cyganiak that they have no choice but to consider changing carriers every year, if the price is right.
"It drives everyone crazy (to change plans frequently), but for the savings you are able to achieve, you are obligated to do it," Sewart said. "But we were not willing to go through the aggravation of changing plans without significant cost savings."
Success stories
OnCourse Information Services Inc.
After absorbing a 15-percent health insurance cost increase in 2003 and a 25-percent increase in 2004, OnCourse Information Services Inc. executives wanted to try something different.
The firm switched carriers from UnitedHealthcare to Humana, increased its deductibles and added a health reimbursement arrangement (HRA).
Under the new plan, the company has cut its health benefits costs by about 25 percent and expects to save about $50,000 this year, said Mike Sewart, vice president of operations for OnCourse Information Services, a Glendale-based records and information management company with about 100 employees.
"We were very surprised (at the cost savings)," Sewart said. "Most companies buying health insurance, you’re just seeing these increases in health insurance premiums and you don’t see any other options out there."
The company’s old health benefits plan included a $1,000 annual deductible for each person, an 80 percent co-insurance rate and a $30 co-pay for routine doctors visits.
The company’s new plan features a $2,000 deductible per person, an 80 percent co-insurance rate and a $30 co-pay for routine doctors visits.
However, with the HRA, the company reimburses the first $1,000 of an employee’s deductible.
"We didn’t want to make this overly burdensome to our employees," Sewart said. "By us covering the first $1,000, we’re allowing them to accrue the second $1,000 with the savings from lower monthly premiums."
Most individuals do not use up an entire $1,000 deductible in a year, health benefits plan brokers say, so OnCourse only has to reimburse the employees for the deductible that they use. With a higher deductible, OnCourse also is able to negotiate a lower premium.
By keeping the $30 co-pay for routine office visits, the employees are still encouraged to receive preventative care, Sewart said.
"We still want people to see the doctor," Sewart said. "If someone is sick, we don’t want their first thought to be of it as an expense."
OnCourse wanted to find a way to reduce its health insurance costs and not force employees to pay so much for health insurance that they might look for jobs elsewhere, Sewart said.
"It was a serious employee retention issue for us," Sewart said.
Under the new plan, employees are saving $50 to $200 a month, depending on the size of their families, in health insurance premiums, he said.
Many OnCourse employees were happy to discover that they will not have to change doctors in the new plan, Sewart said.
"One of the real successes of this is that the amount of physicians in our group is substantially higher than it was before," he said. "It seems there isn’t a doctor in the state that isn’t in our group. That was a fear of some of our employees. They didn’t want to be part of the program if they had to switch doctors. There wasn’t an employee who looked through the plan and couldn’t find their doctor."
Production Plastics Corp. and Moldcraft Tool and Design Service Inc.
Production Plastics Corp. and Moldcraft Tool and Design Service Inc. share the same building in Saukville and the same health benefits plan. The costs of the two companies’ health benefits plan increased by about 20 percent per year for seven or eight years until 2003, said Dan Lyons, president of the two companies.
"We were experiencing double-digit premium increases, and that was jeopardizing our ability to continue with the group health insurance program that had a high level of benefits," Lyons said. "We asked ourselves, are we going to dilute our plan benefits or is there another way? We were open to changing the plan design so long as we could keep the employees whole and maintain the relatively high level of benefits we were providing."
So, in 2003, the companies, which have about 75 employees combined, added a health reimbursement arrangement (HRA) and increased the individual deductible in the health insurance plan from $100 to $1,000. However, with the HRA, the companies reimburse $900 of the employees’ deductibles, so the cost of the plan to the employees remains the same.
The higher deductibles allowed the companies to negotiate much lower premiums. Also, far fewer than 25 percent of their employees have used the entire $1,000 deductible each year, Lyons said. The company does not have to pay the reimbursements for deductible amounts not used by the employees.
"Our annual costs for health insurance, today in 2005 with the same level of benefits to the employees, is lower now than it was two years ago," Lyons said.
New Berlin Plastics Inc.
Like many businesses in the Milwaukee area, New Berlin Plastics Inc. was facing a significant increase in its employee health insurance costs heading into 2004.
Blue Cross Blue Shield, which had been the firm’s health insurance carrier for several years, first indicated that New Berlin Plastics would have to absorb a 30-percent increase in its health insurance costs for 2004. Later, Blue Cross Blue Shield lowered the quote to a percentage increase in the low 20s, but New Berlin Plastics executives still thought that was way too high, company president Jeff Held said.
So, the company, which has 130 employees, switched insurance carriers to UnitedHealthcare with a higher deductible plan. With the new plan, the company’s employee deductibles increased from $250 to $500 for individuals and from $750 to $1,000 for families.
The other major change with the new plan is the exclusion of Milwaukee-based Aurora Health Care, which has not been part of UnitedHealthcare’s network since 1996. Employees can still go to Aurora facilities, but they must pay higher out-of-network deductibles of $1,000 for individuals and $2,000 for families when doing so.
The switch to the UnitedHealthcare plan resulted in an increase of less than 5 percent for the company’s health benefit costs in 2004 and 2005, Held said.
Held is convinced the exclusion of Aurora from its network has made a big difference in the costs.
"We were able to get a fairly substantial reduction in our premiums by not including Aurora in our preferred provider network," Held said. "We were given two options, one with Aurora and one without. If we chose the one that included Aurora, we would have had to pay a significantly higher premium."
New Berlin Plastics surveyed its employees before changing health plans to find out how many would be affected by shifting to a plan that excluded Aurora.
"(The change) only impacted a few people," Held said. "We try to keep our employees informed. As we were going through the process, we let them know we were facing a substantial increase and we were looking at alternatives."
When the employees understood the costs at stake, they were supportive of the change, Held said.
New Berlin Plastics has also instituted some wellness programs for its employees, including walking contests, to keep employees healthy and hold down health insurance claims. However, the benefits of a wellness program are difficult to quantify, Held said.
"That’s really hard to measure," he said. "It’s just good for everyone to get a little exercise. We try to encourage that."
The Lutheran Home Inc.
The Lutheran Home, a nursing home in Wauwatosa, changed to a high-deductible health benefits plan to bring down its premiums and trim its employees’ health care utilization.
After two consecutive years of 20 percent insurance increases, the Lutheran Home faced a 51-percent hike in 2003. The spike came because Lutheran Home employees were filing more in health care claims than the company was paying in premiums, said Heidi Krauske, vice president of employee services.
The claim-to-premium loss ratio was at about 125 percent, or about 40 percent higher than the break-even point for most insurance carriers.
"Our utilization was through the roof," Krauske said. "UnitedHealthcare provided us with data which revealed that our group had a high emergency room utilization rate."
In an attempt to improve employee health and therefore reduce health care utilization, The Lutheran Home started several employee wellness initiatives, including a 10,000-step-a-day program with pedometers, an employee wellness week and classes on stress reduction and weight loss.
"Participation in these efforts continues to grow," Krauske said. "This year, we plan to add health risk assessments."
In another attempt to reduce utilization costs, The Lutheran Home also worked to educate its employees about avoiding unnecessary visits to emergency rooms and to encourage them to buy generic drugs when possible.
"Our employees have really worked hard to change the way we use our plans and are trying to keep themselves healthier," Krauske said.
The Lutheran Home and its employees could not absorb a 51 percent increase in the costs of health insurance, so the company changed to a plan with higher deductibles, which lowered its 2003 cost increase to about 18 percent, Krauske said.
At that point, The Lutheran Home increased the monthly premium for employees on its $250 deductible plan from $188 to $207, but froze the monthly premium for employees on its $1,000 deductible plan at $88.
The Lutheran Home worked to educate its employees about the cost benefits of the higher-deductible plan, Krauske said.
For this year, The Lutheran Home increased its $250 deductible plan to $500, and in doing so, convinced its health insurance carrier to offer the company a zero percent increase in costs.
Only three employees are on the $500 deductible plan, Krauske said.
The wellness programs, the education campaign and the higher deductible plans all have helped to discourage employees from frivolously using the health care system, Krauske said.
"This strategy worked," Krauske said. "Our plan utilization for 2004 came in at 85 percent (of claims)."
The company received bids from other health insurance carriers to maintain its 2005 health insurance costs at the 2004 rate, with a $1,000 deductible plan and a $500 deductible plan. UnitedHealthcare matched the zero percent increase bid to keep The Lutheran Home’s business.
Eventually, The Lutheran Home plans to add a health reimbursement arrangement (HRA).
"This is the goal," Krauske said. "To get to that to help our employees with their deductibles. But, first we’ve got to get our premiums down."
February 18, 2005, Small Business Times, Milwaukee, WI
