November 11, 2002

BY KIM NORRIS FREE PRESS BUSINESS WRITER

Fueled by increased use of hospital services and prescription drugs, health care insurance premiums are rising at their fastest rate in a decade.

RELATED CONTENT # Flexible spending accounts can help ease pain of higher costs

Premiums are expected to jump an average of 15.4 percent for employers in 2003. It's the third consecutive year of double-digit premium increases.

Employers, who provide health coverage to about 65 percent of the nation's non-elderly population, say they can't keep absorbing the increases. Stopgap measures, such as cutting benefits and passing more costs on to employees, are starting to annoy workers and compromise companies' competitiveness in the job market. Passing the costs on to customers would have a similar effect.

"We're seeing anywhere from 15 to 22 percent increases in premiums among our members," said Mary Lee Corrado, executive vice president of the American Society of Employers. ASE's 1,000-plus Michigan members range in size from a single worker to the 355,000-employee General Motors Corp.

"It's a little different this year than in the past three or four years when the economy was better," Corrado said. "Employers can't pass these costs on to their customers, who are asking them to keep their costs constant or even lower them. And employers can't absorb the costs due to declining profits."

As many companies in southeast Michigan and the country enter open-enrollment periods in which they present 2003 benefits packages to their workers, the stark realities of the situation are becoming evident to workers, too.

At best, passing health care costs on to workers effectively reduces any raises they might receive. At worst, it amounts to pay cuts.

Some employers are asking workers to pay between 10 percent and 30 percent more in premiums next year and raising deductibles and copayments for office visits and medications.

Benefit-consulting firm Hewitt Associates estimates that employees' costs -- for premiums, copays and deductibles -- will rise next year an average of $342, to $1,753.

As employers look to workers to share the burden, the issue promises to further complicate employer-employee relationships. Workers at General Electric Co. are threatening to strike in January if the company passes on expected increases to workers. It would be the first national strike at GE since 1969.

"Getting savings out of health plans is a short-term strategy, and we really need to look at long-term solutions that work for our community, our region, our state and our country," Corrado said. Seeking a cure

Martha T. Berry Medical Care Facility is one business that is trying a different approach.

The Mt. Clemens nursing home is understaffed and desperate to hire more nurses. But the county-owned, long-term-care facility wasn't paying enough to compete with hospitals and other health-care entities vying to recruit the in-demand professionals.

Even after reopening the contract to accelerate a pay raise by six months, the county knew it wasn't enough to attract candidates.

But how could the county afford to boost salaries in a sagging economy as other benefit costs -- especially health care -- were rising precipitously?

The negotiating team hit on an innovative solution: Tie salary increases to health care benefits. The more expensive the health care benefit, the smaller the salary increase and visa versa.

Under the most extreme plan, Tier 3, employees who are willing to forgo all health care benefits and all paid time off would receive an immediate 31-percent increase in their hourly wages. That would bring base pay up to $26.25 an hour.

Two more-moderate plans allow employees to choose between Blue Care Network preferred provider organizationplans or less-expensive Health Alliance Plan health-maintenance organization and receive correspondingly smaller raises. PPOs generally are more expensive and offer more flexibility in choosing care providers than cheaper HMOs.

For Carol Warren, the lure of more than $26 an hour convinced her to switch from contingency to full-time status.

"I like the money idea of it definitely," said Warren, a 43-year-old single mother. "It puts me at a higher pay level for when I retire."

Even with two children still depending on her to cover their health-care expenses, Warren prefers to have control over her health care dollars, rather than have expensive benefits she might not use and can't turn into cash.

"You don't have to rely on anyone else to pay your bills," she said. "If I'm sick, I go to the doctor. I don't have dental, but I still go for checkups. Same with my children."

When the three-tier approach to raises and health benefits was proposed, it wasn't exactly greeted with enthusiasm.

"We were pretty much against it at first because we had been expecting more raise money," said registered nurse Kathy Flanagan, who leads the bargaining unit at Martha T. Berry.

Flanagan, who has been at the nursing home for 5 1/2 years is staying with HAP, which means she will get a 10.4 percent raise under the Tier 2 plan.

"This isn't necessarily a permanent thing," said Flanagan, who thinks salaries still need to be higher for workers who want both benefits and raises.

Still, she said, "It's the start of a good idea."

Preliminary responses indicate the approach might be garnering some of the looked-for results.

"It raised some eyebrows and interest," said Josephine Savalle-Dunn, administrator of Martha T. Berry. "We've had at least eight phone calls and have one offer of employment out." Evolution not revolution

Although it is a tiny ripple in the vast sea of employer benefits, what happened at Martha T. Berry could be a harbinger of things to come in the workplace.

In June, the federal government issued guidelines that would make health-reimbursement arrangements, HSAs, more palatable to employers and workers. HSAs are tax-free employee health care accounts funded by employers. Employers generally cover all workers with a high-deductible catastrophic plan and then deposit a specified amount of money in workers' accounts each year. Workers decide how to spend the money on health care. Unused amounts are rolled over each year without tax consequences for either side.

In theory, employees who have to pay costs from their own account will be more discriminating in their health care spending.

But a wholesale shift to these so-called consumer-driven benefit plans is at least years away.

For the foreseeable future it appears companies will continue what has become an annual ritual of tweaking benefits and shifting costs to workers.

It is a process just completed at Troy Design Inc., where the company's 450 employees are about to learn how much of this year's premium increase they will have to pay. The company's open enrollment period starts next week.

"We've had to pass the buck on to employees for the last five years, but they got hit hard last year and are going to get hit hard again this year," said Diane Oberlitner, human resources director for the company, which does consulting and provides contract workers to the auto industry.

For 2002, Troy Design experienced a 12-percent increase in insurance premiums. Employees were asked to share half the cost of the increase. For 2003, the company expects costs to rise 22.5 percent and workers probably will be asked to pay at least half of that, Oberlitner said.

In addition to passing on a good chunk of the increase, Troy Design is adopting a two-tier copayment for prescription drugs. Instead of paying a flat $10, employees will pay more for brand drugs than for generic equivalents. Some companies are going to three-tier systems with brand-name drugs costing as much as $30 or $40, while drugs on a preferred list cost the least.

Troy Design also is adding a sixth plan: a low-cost PPO that carries a high out-of-pocket deductible. The company debated eliminating coverage of so-called lifestyle drugs, such as Viagara and smoking-cessation aids,and increasing the copay on visits to the emergency department,but decided not to -- this time.

"This is not an easy time," Oberlitner said. "We're making some very tough choices."

Employee Mario Fiorino is more sanguine than many workers about having to shoulder more of the burden of health care costs. Having worked for a bankrupt company that stuck its workers with bills from doctors, Fiorino is willing to pay for good coverage. But the 43-year old customer-service manager worries that one day it will cost too much even for him.

"Right now, employees are willing to absorb the cost, but if they are going to start passing on 10- to 20-percent increases and workers are only getting 3-percent raises, that's a lot."

-- Anonymous, November 13, 2002