BENEFITS COSTS ARE DRIVING
EMPLOYEES BERSERK AND EMPLOYERS BUST
By Bruce L. Katcher, Ph.D. President, Discovery Surveys, Inc.
4 out of 10 employees say their
benefits do not meet their needs.
Part 1 - THE PROBLEM:
The cost of benefits, especially health insurance, continues to
rise at an alarming rate. According to Cynthia Harrington, some companies
experienced 20 to 30 percent increases this year. (For the complete article,
Managed care programs were established to try to reduce these cost
increases. Many experts, however, believe that they have been ineffective. Mark
Manin Benefits Services says that, "The health insurance experience of the
past decade reveals that the early gains in cost containment brought about by
managed care companies have evaporated. Two key drivers of this development
include the fact that health care providers (hospitals and physicians) have
banded together and managed care firms can no longer dictate fee payment
schedules. Also the recent explosion of direct to consumer marketing by
pharmaceutical companies has sent prescription drugs utilization through the
Organizations are responding to these increases by:
Shifting more of the
premium expense to employees;
Forcing employees to pay
more for their health insurance by raising deductible and co-payment
Cutting back on the
services that the health insurance covers;
Increasing the eligibility
requirements (e.g., increasing the waiting period for coverage of new
Offering health insurance
to employees but not their families.
About 2 out of every 5 organizations employing 200 or fewer
workers do not pay for the health care of their workers and 50 million
Americans currently have no health insurance.
Many employees are outraged. They feel that:
They are entitled to
health insurance from their employer;
They and their families
should be fully covered; and
Their employer should
absorb all, or most, of the cost increases.
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Part 2 - WHAT CAN BE DONE:
- Re-evaluate Your Current Health Insurer(s)
Conduct an extensive
evaluation of the company's current offerings to make sure it has the best
coverage available in the area at the best cost.
- Switch to One Rather
than Multiple Carriers
This strategy eliminates
choices for employees, but in the short term can help employers negotiate more
favorable rates with insurance companies.
- Communicate How Much
the Organization is Paying for Increases
Many organizations do a
poor job of communicating about health insurance cost increases to their
employees. If employees are going to be partners in paying for their benefits,
they should be kept well informed about the coverage, the negotiations with the
insurer, the cost increases, and the percentages of the increase that the
employer is planning to pass on to employees.
- Produce Total
s Organizations rarely
receive any credit from employees for shouldering the bulk of the cost of
employee benefits. This is due, in part, to a lack of information that is
shared with employees. Annual total compensation statements can help employees
gain a better understanding of what their employer is actually paying them for
salary, bonuses, and benefits.
- Increase Deductibles
and Cop-payments Rather than Premiums
Increasing the deductible
and co-payment levels can help save money by making employees more accountable
for their medical expenditures. Many people would prefer this type of cost
increase over an increase in their monthly contributions.
- Provide Choices
Health plan products can
be creatively designed to provide a range of options that can match a person's
budget and family circumstances. Provide a broad range of options such as the
number of doctors available in the plan and the co-payment and deductible
- Establish Flexible
Medical Spending Accounts
These accounts allow an
employee to purchase qualified benefits, including medical and dental expenses,
using pretax dollars. At the beginning of each year, the employee designates
how much he or she wants to contribute to the account.
- Institute Health Care
Reimbursement Accounts (HRAs)
Another tax-free way that
employers can help their employees pay for health costs is by establishing
HRAs. Under this type of plan, the employer makes a tax-deductible deposit,
usually $1,000 to $2,000 per year. The funds are then used for health care
- Promote Wellness
According to Marijane
Norris Geary of The Bostonian Group, an Employee Benefits Consulting firm,
"employers have begun to embrace and facilitate workplace wellness to encourage
workers to recognize and take greater control over their unhealthy high risk
behaviors. The employers that promote positive behavioral changes such as
smoking cessation, increasing weekly exercise programs and moderation of
alcohol, are ahead of the curve relative to the long term control over their
medical plan costs." For further information on this cost reduction approach,
contact John Mancuso of The Bostonian Group at
- Help Make Employees
Better Healthcare Consumers
According to John
Mancuso, employers can also help reduce their health care costs by making their
employees better consumers of healthcare. For example, employers can provide
education about disease management, behavioral change, and using web sources
such as Web MD for health information.
Healthcare costs will continue to be a
major challenge for employers. There are, however, a variety of approaches that
can be taken to reduce these costs.
I am very much
interested in your views on this topic.
Please reply with your comments and
suggestions to .
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