Changes related to health reform expected to add 1% higher costs to employee medical insurance plans for 2011.

Are you ready to absorb a new set of health care cost increases? If not, be prepared to brace yourself for a what many large companies are planning for you by adopting a new round of health care cost shifting tactics. It was widely reported this week that “those with employer-sponsored health insurance through large companies will be able to keep their adult children on their plans until age 26 regardless of their kids’ educational status, and workers generally won’t have to worry about lifetime or annual limits on coverage when enrollment opens for 2011 benefits.” (1)

Reports suggest beyond higher contribution premiums, employees will face higher out-of-pocket costs to offset health care insurance increases. The cause for this shift, the new health reform law provisions that start to impact your plan’s financial operation. New data, coming from the National Business Group on Health (“NBGH”), on the new law shows that 70% of employers are removing lifetime limits on overall benefits for next year, and just over a quarter are eliminating annual dollar limits. The survey by NBGH includes 72 large companies. 37% of companies also report they are changing annual limits on specific benefits within their plans. These include such items as substance-abuse treatment, durable medical equipment and physical therapy limits to comply with the new rules. Another 13% of employers are changing their plans to eliminate pre-existing health conditions limits on dependent children.

Others experts report bad news, the Segal Company reports that, “The mandatory inclusion of adult children who don’t have other employer-sponsored coverage available to them is likely the biggest additional cost increase for 2011. In industries where there [have] been layoffs of the younger workforce and the remaining workforce is older, you could see a 3% or 4% increase in total plan costs.” (2)

A 9% Hidden Pay Cut is Coming your Way- Here is how will happen to you if your companies learns a better solution. Large employers are budgeting for an average 9% jump in health-care costs next year compared with an average 7% increase this year, the NBGH survey found. The figures reflect costs after employers have made the required plan-design changes. That means some employers are seeing rate increases of 18% while others have no increase. Overall the “changes related to the health-reform law account for about 1% of next year’s additional cost increase, while higher prices from health-care providers account for the other 1%, Helen Darling said.(3)

So no surprise here, the new health reform law is adding cost not lowering the cost of healthcare. What are large companies doing? Many are simply passing on at least some of the added cost to their employees. The typical method is to increase the percentage that employees contribute to their premium costs. What cost sharing percentage does your company premium split with you? Here is an example how this works.
The monthly projected premium cost for :

  • a single employee is $450;
  • a employee plus one dependent is $900
  • a family (employee plus more than one dependents) is $1800

If your premium contribution share is 20% you would pay:

  • $90/month for single coverage
  • $180/month for employee plus one dependent
  • $360/month for family coverage

and if your employer shifts just 2% that would increase by $9/month, $18/month and $36/month respectively.

This cost shifting tactic is projected to be used by 63% of companies for next year’s benefits. This is up compared 57% who boosted premium contribution rates for 2010. Another 46% will increase the out-of-pocket maximums, up from 36% in the prior year. We can also expect 44% of companies raise in-network deductibles. In addition, 25% will raise the coinsurance or copayment required for retail pharmacy benefits in 2011, the survey reported. These are all ways by employers to avoid cost increases by shifting more of the cost to the employee. Sort of a hidden pay decrease. Does one or two percent seem small. Think again.

“It’s worse this year because people are poorer,” Darling said. “Even people who are middle- and high-income are feeling a different kind of pinch than we have, most of us, in our lifetimes.” “Employers increase workers’ costs as a last resort, Kaplan said. There’s been an erosion of benefits and employees’ out-of-pocket costs have gone up over the last 10 years.My clients are very sensitive to that.”
“Most of [the cost increase] is underlying medical inflation and the lack of real solutions there,” he goes on to say. “A 1% or 2% additional cost for health reform isn’t going to break the bank for most, but there are some employers that are really struggling.”

Tell that to your boss or shareholder and see what how they respond. Did you know many broker/advisors get paid commissions based on a percentage of premium? They do. They profit as cost go up and present a hope that costs will be stable. To be fair, he added, that health care reform law’s bigger changes starting in 2014, may “pave the way for cost control”(2), but that may be cold comfort for cash-strapped workers facing increases next year.

“Down the road, savings from uncompensated care and effectiveness research may pay off, but that’s years away,” Kaplan said.

Next year, more workers will have to dig deeper into their pockets if they need health care before their insurance kicks in. Among large employers, 64% said they’ll offer a high-deductible health plan with a health savings account for 2011, and the portion offering them exclusively doubled from a year ago. By next year, 20% of big employers will have moved to high-deductible plans with a health savings account as the only option, according to the survey.

Separately, only 3% of employers plan to offer a new voluntary benefit to offset future long-term-care costs starting next year, when the health-reform law first allows it. Two-thirds of employers surveyed said they won’t offer it in 2011 while 30% were still reviewing the issue.

Other large companies are trying to sit on the fence and weigh their options. They may choose to forego big changes to their health plans so they can hold onto their grandfathered status under the new health-reform law. While others are moving ahead because they find that losing the grandfathered status isn’t as onerous as they thought.

A health savings accounts are a good vehicle for some people. You need to understand the risks and rewards of this design. So are some voluntary plans that are offered.

Here is what others are planning for 2011. Some plans provide employer funding to cover the initial high deductible hole in coverage, while the many of companies with a high deduction plan with a health savings account, 68% of them, contribute only a set dollar amount per employee to help defray the upfront costs. This is where they hide the cost shift to the employee.

Then a few employers add some smoke, to cloud the fact, by offering a new voluntary benefit to offset future long-term-care costs starting next year, when the health-reform law first allows it. Generally speaking the program would let employee divert a small amount of money from their paychecks into a trust fund that would provide a benefit of no less than $50 a day when they need it for home care, assisted living or nursing-home care. Employees must contribute to the fund for at least five years and meet certain health criteria to be eligible for benefits.

“It’s not much of a benefit for the employee,” Darling said.

“It’s worse this year because people are poorer,” Darling said. “Even people who are middle- and high-income are feeling a different kind of pinch than we have, most of us, in our lifetimes.” The large-employer plans are still much richer even with these changes than” small company plans, Darling said.

Sure many employers are offering wellness incentives and some even plan to reduce workers’ premium costs for those who actively manage their health care, but most employees will experience a hit with higher health-care costs for many years to come.

“Employers increase workers’ costs as a last resort”, Kaplan said.

This statement makes me laugh because I know that there are alternatives to this tactic. My clients are experiencing 20-30% plan cost reductions without shifting cost to employees. Yes, medical inflation is a primary cost driver within all plans but there is no lack of solutions. Just a lack of innovation among Plan Advisors. Don’t let a 9% additional cost for health reform break the bank of your plan. You have options not offered by the mainstream advisors that are proven effective. Contact us today before the health-reform law’s bigger changes start in 2012 – 2014 trigger a death spiral of cost increases to your plan. Our solution could significantly impact your bottom line and your cash-strapped employees workers facing increases next year.

Your “High Priced Advisor” is selling you a plan design that you know already and does nothing more in the short term than shift cost to your employees disguised withing a long-term “consumerism” solution. They call it high deductible plan redesign.

For next year they plan to force more employees to dig deeper into their pockets if they need health care before their insurance kicks in. As you weigh your options, my recommendation is that change is required, but what changes you make are critical. Following the herd is not the answer.

  1. By Kristen Gerencher, MarketWatch, Aug 18, 2010
  2. By Edward Kaplan, national health practice leader for the New York-based Segal Company, which consults with large group plans.
  3. By Helen Darling, President the Washington based, National Business Group on Health (NBGH).


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