Businesses, employees, struggling with medical cost increases
By Randi F. Marshall
October 24, 2003, 12:39 PM EDT
Angela Mertz hates this time of year.
It's the time when she is overwhelmed by health care provider directories, prescription drug charts and enrollment forms. It's when she has to decide between five health plans -- all of which often have cost increases, deductible changes and policy shifts.
"I dread it every year," said Mertz, who lives in Wantagh with her husband, Gene, and 1-year-old son, Christopher. "But I try not to focus on it. You make your decision and you've got to move on."
Mertz just made her choices for this year's health insurance open enrollment period at The EGC Group, a Hicksville advertising agency where she is a media buyer. Her premiums rose 15 percent from last year, to about $800 a month. This year, she changed aspects of her plan, to include more doctors and a lower co-payment.
"My first concern is the health of my son," Mertz said. "But if it puts me in the bind of not being able to afford health care for him, that's a concern... . Every year, it seems like more and more money is spent on it than the year before."
It's the same story at companies across the region and the nation. As open enrollment season arrives, most employers are ripping open bills for health insurance premiums and finding double-digit increases for the third year in a row.
That's more than most employers are willing to absorb, so the majority are taking part of the hit and passing the rest to their employees, in the form of increased premiums, co-payments or deductibles, or plans with fewer choices and smaller networks.
For area workers, that means more of their budget spent on health care -- and less on everything else. "You say, 'What happened to the extra money?'" Mertz said. "But you have no choice."
Hewitt Associates, an Illinois-based consulting firm, is predicting a 12.4 percent rise in health care premiums for employers in 2004, only slightly less than this year's 14.7 percent hike.
Those increases hit the region particularly hard at a time when the economy remains in a holding pattern, other expenses continue to rise and raises are skimpy at best.
"We've had a fare increase and a tax increase, and then an increase in health insurance costs on top of all of that, while income remains flat," said James Parrott, chief economist with the Fiscal Policy Institute, a liberal think tank in Manhattan. "Something's got to give at some point."
For smaller businesses, it's an even harder pill to swallow, as owners have to deal with their personal health care costs rising as well as those of their employees.
"At the end of the month, when I go through my file of bills, it's always hard to come up with the money for it," said Jason Belkin, who co-owns Hampton Coffee Company in Water Mill. "We're probably always late with it."
Belkin and partner Pepe Martinez have decided to pay a flat fee -- $150 a month -- toward each full-time employee's health benefits. That's half of a single person's monthly cost, and only one- sixth of the $900-a-month bill for a family plan. The employees pick up the rest.
"One employee left and went to Starbuck's because he couldn't afford it," Belkin, 29, lamented. "They offer more -- and things like that we just can't compete with."
Hampton Coffee has five full-time employees -- but just three of them, including Belkin and Martinez, opt for its prescription plan. The others have chosen spousal plans that offer cheaper alternatives. And it's not just the premium increases. The cafe's prescription drug co- payments rose from $20 to $30 this year, and hospital deductibles now stand at $500 for overnight stays.
Said Belkin, "At this point, there's no choice."
It's a familiar refrain. And as baby boomers age, technology improves, drug research expands and consumers demand more from their health care, costs are likely to keep climbing, according to experts and insurance executives.
That amounts to a tax on businesses, particularly the smaller ones with higher expenses and fewer options, according to Bill Dunkelberg, chief economist for the National Federation of Independent Business.
"The more you pay for medical care or any other benefit, the less you can pay in take-home wages," Dunkelberg said. "It'll certainly slow wage growth down ... and sometimes, you have to give up offering it or limiting the kinds of things you'll cover."
Take Lynn Silverman. The owner of Creative Event Planning, a small Manhattan-based business, isn't able to afford health coverage for any of her employees.
"I would like to be able to provide health coverage because people look for that," Silverman said. "It's hard to grow your business if you don't give good perks."
Silverman gets her own health coverage, which doesn't include prescription drugs or dental care, through the Manhattan Chamber of Commerce, at a price of $317 a month.
"Everything is rising, and business is declining," said Silverman, a self-described baby boomer who noted that in the last year she spent $20,000 on four root canals and other dental work. "It's sucking the blood right out of your veins ... and it's getting worse every year."
Business owners who do carry health coverage say they need it to remain competitive in the labor marketplace, even at a time when they aren't hiring in droves.
"If we're trying to attract and retain the best and the brightest ... it's our job to find a way to continue to absorb the lion's share and pass on only some modest costs," said Len David, vice president of human resources for Henry Schein Inc., a Melville-based provider of dental equipment and services. "We want to be the employer of choice on the Island."
So employers find ways to make up the cost increases. Henry Schein's premiums for next year are rising between 13 and 23 percent, depending on the plan, David said. Yet the company plans to keep its employee contribution at less than 20 percent, even in the most "choice-heavy" and expensive plans, he added.
"We're trying to be creative," David said, pointing to prescription drug plans and physician visit co-payments. And, the company encourages employees to use generic drugs, and to take part in its wellness programs -- from prostate testing to smoking cessation -- to prevent illnesses or catch them early before they become more expensive to treat and drive up premiums.
Manhattan-based Jefferies & Co., an investment banking firm, ended up with a tiny 1.2 percent increase in its health care costs for this year's open enrollment.
How? Jefferies is self-insured, so the company pays its employees' claims and hires an insurance company only to act as an administrator. The process, according to executive vice president Mel Locke, means that when Jefferies' employees don't use the budgeted funds, the savings are passed on to the following year. Indeed, Jefferies had increased premiums by 12 percent for 2003, but ended up not using all of those funds.
"Our employees have exercised good judgment and behavior, and as a result, our expenses for 2003 came in at significantly less than projected," said Locke, who heads Jefferies' "people services" office.
Jefferies also has begun offering incentives for employees to maintain healthier lifestyles, even offering to pay for an annual gym membership up front, so that the employee can pay it back in smaller increments over the course of the year.
"The time is shortly approaching where the American consumer is realizing that we're all in this problem together," said Dennis M. Donahue, the employee benefits practice leader for Acordia Inc., a Chicago-based division of Wells Fargo Companies. "Anytime wellness can be promoted, with nutrition and exercise, that will be the silver bullet -- and employers are seeing a return on their investment."
But Donahue argued that it would take more than increased contributions and wellness initiatives to rein in runaway costs.
"I don't think there's an end in sight," said Kevin Hill, Oxford Health Plans' executive vice president of sales and business development. "People are going to continue to get old, there's going to always be improved technology and drugs, and people are always going to want to live forever."
To meet that challenge, insurance companies such as Oxford are latching onto a new buzzword: consumer- directed health plans, which allow employers to create health reimbursement accounts for each employee, giving employer and worker more of a direct role in the decision-making.
"The trend is really emerging where consumers are encouraged to become more aware of what they're spending on health care and the true cost of what the care is," said James Reid, who heads small-group business in the Northeast for Aetna, which already offers a set of consumer-directed offerings.
For small businesses, part of the solution lies in giving employees more choice, through associations or other organizations that provide a wider range of potentially cheaper options. The LIA Health Alliance, sponsored by the Long Island Association, the region's largest business group, offers small employers with 2 to 50 employees a health program that includes five health providers, with 30 benefit plans among them. While there are still double-digit increases, the choice of plan is critical, according to LIA Health's executive vice president Fred J. Barba. Mertz, the media buyer, agrees. "Many other companies don't have that choice every year," said Mertz, whose company, The EGC Group, uses the alliance.
The good news for workers like Mertz is that most small businesses are not yet doing away with health insurance altogether. According to Manhattan certified financial planner and insurance broker Robert Wander, even the most tightly strapped businesses are trying to maintain coverage. Said Wander, "I have not had any clients who otherwise offered health insurance not offer it."
But it's becoming more and more difficult to keep up. Chemical and cosmetic product manufacturer United-Guardian Inc. in Hauppauge absorbed a 12 percent increase during its renewal in March, and is expecting the same next year, executive vice president Robert S. Rubinger said. He said maintaining good coverage at a reasonable cost for employees will likely become more of a challenge.
"We've avoided trying to hit them with big bites at a time," Rubinger said, noting that he might first look at reducing wage increases before he reduces benefit coverage. "There are a lot of jobs here that are hard to find people for, so we try to stay competitive... . We pretty much consider it a must in today's day and age."
United-Guardian maintenance mechanic Jason Mello agrees. The Centereach father of two watched his health insurance costs more than double in two years, even though he chose the less expensive of the two plans offered. "We're taking the brunt of the increase with less of a choice of doctors to see," Mello said with frustration. "There's got to be a way around raising it so much."
But Rubinger looks to the future with a wary eye, unsure of what his next health care premium bill will show. "We're doing well and thriving despite this, but it is starting to take its toll."
Copyright (c) 2003, Newsday, Inc.
This article originally appeared at: