A Premium Sucker Punch

by Lesley Politi on February 5, 2009

A Premium Sucker Punch
Soaring Insurance Costs Are a Blow, Even When Employers Cover More of the Tab

By V. Dion Haynes
Washington Post Staff Writer
Sunday, January 25, 2009; F01


Donna Carter hoped that her savings from lower gas prices would defray rising health insurance costs.

No such luck.

Carter, a technical editor for a District consulting firm and mother of twin boys and a girl, is facing steep increases in out-of-pocket expenses for health coverage this year. What she shells out for premiums and co-pays more than offsets any fuel savings. Her employer picks up 50 percent of the coverage for her family, up from 33 percent a few years ago. But because insurance costs have soared, she says she’s actually paying $200 a month more in premiums.

Her co-pays also have risen to $30 from $20. That extra $10 adds up, Carter of Bowie says, with “accident prone” teenagers in and out of the emergency room: Her 19-year-old track star son suffered a lacerated liver, broken rib and concussion when he slipped and fell on wet pavement. Her 16-year-old cheerleader daughter who is asthmatic is in physical therapy three days a week for a dislocated knee. Carter and her other son contribute to the costs with visits to the doctor for serious flare-ups of asthma.

“Once or twice a month, somebody is at the hospital,” said Carter, whose policy also covers her husband. “It’s very difficult at this point to keep up.”

A growing number of workers in 2009 will pay more for health benefits — and in some cases receive less coverage — as their employers grapple with the financial fallout of rising medical expenses and diminished revenue and profits, recent surveys of human resource officials show.

The Corporate Executive Board found in its survey that a quarter of officials from 350 large corporations said they had increased deductibles an average of 9 percent in 2008. But 30 percent of the employers said they expected to raise deductibles an average of 14 percent in 2009. Mercer, a global benefits consulting firm, surveyed nearly 2,000 large corporations in a representative poll and found that 44 percent planned to increase employee-paid portion of premiums in 2009, compared with 40 percent in 2008.

The economic slowdown, according to analysts, is making it more difficult for many employers to subsidize health care costs at previous levels. On average, experts say, benefit packages contain the biggest increases for workers since the recession of 2001. Workers’ health costs are rising much faster than wages.

The cost-shifting is one more piece of bad news battering consumers, analysts said, reducing their spending power and giving them one more reason to hold on to their money. Adding to consumers’ financial squeeze is the plummeting stock market, which has crushed retirement funds. Many companies, including Sears, Starbucks, FedEx and GM, have stopped matching workers’ 401(k) contributions.

To cut costs, employers increasingly are introducing high-deductible “health savings accounts” and focusing on wellness programs aimed at keeping workers healthy through diet and exercise.

Employees are tightening their belts: Carter said her family no longer takes vacations to the Bahamas and Disney World; they stay home. They don’t go out to dinner and the movies; they order pizza and watch TV. She clips coupons to save on food and buys clothes on sale.

She has stopped taking her daughter to the doctor whenever she gets a cold or sinus infection. Carter now tries over-the-counter remedies.

Next month, Carter’s employer, information technology consulting firm Enlightened Inc., plans to offer a “flexible spending account,” allowing her to set aside about $1,200 before taxes to defray the $6,000 she spends in out-of-pocket medical expenses.

Paul Fronstin, director of health, research and education programs at the Employee Benefit Research Institute, said that Carter will save $33 a month in taxes on her $100 contribution to the account.

“If she’s allowed to put aside $1,200, she’ll reduce her taxable income by $1,200,” Fronstin said. “It’s an instant savings without making any other changes.”

While the account would put very little money back into her pocket, Carter said: “Every little bit helps at this point.”

Ten years ago, employers on average paid about 90 percent of their workers’ health costs, said Shub Debgupta, senior director of the Benefits Roundtable at the Corporate Executive Board. That is down to 73 percent, Debgupta said, and is expected to drop to 70 percent over the next few years.

Children’s Hospital and Research Center in Oakland, Calif., which previously charged workers nothing for health insurance, this year is requiring nonunion employees to pay up to $225 a month for dependents and is increasing deductibles by $100, a spokeswoman said. The hospital is losing millions of dollars on public-assistance patients whose care is not fully reimbursed by the federal government, a situation that worsened when the state’s unemployment rate soared to 8.4 percent.

Some small businesses, which lack financial reserves to offset revenue losses and have fewer workers to spread the insurance risk, are shifting even more to employees.

Officials at Maloney & Fox, a marketing firm in New York, opted this year to reduce the employer-paid proportion of health coverage from 80 percent to 50 percent as an alternative to laying off workers. “We’ve had two clients drop off [and remaining clients are] being conservative with their marketing dollars,” said Margie Fox, co-president.

Even government employees are feeling the pain.

“I’m hearing from [federal workers] across the country that once their January pay raise is implemented they will take home less because of the increase in their health insurance premiums,” said Colleen Kelley, national president of the 150,000-member National Treasury Employees Union based in Washington. The workers on average will get a 3.9 percent raise, but, depending on the plan they have, their health care premiums will increase 7 to 13 percent, Kelley said. Premiums in 2008, she added, rose between 2.1 percent and 8.5 percent.

Premiums for employer-sponsored plans over a decade on average have risen to $12,680 a year from $5,791, according to the Henry J. Kaiser Family Foundation. The median deductible for the plans was $1,000 in 2008, compared with $500 from 2001 to 2007, according to a survey of 2,900 employers conducted by Mercer.

To cut costs, employers increasingly are offering health savings accounts. The plans, which were pushed by the Bush administration, allow workers to set aside up to $5,950 tax free to cover medical expenses in exchange for an insurance plan with low premiums and a deductible as high as $3,000.

Unlike money in flexible spending accounts, which workers can lose annually if not used, leftover contributions to health savings accounts can be rolled over from one year to the next.

Last year, 8 percent of U.S. employees were using a health savings account, up from 4 percent a decade ago, according to the Kaiser foundation.

The account “keeps the premium payment down, helps cash flow, provides tax benefits, and I feel I have flexibility I didn’t have before,” said Lena Barnett, 49, a self-employed estate planning attorney in Bethesda. Premiums under a self-employed insurance plan administered by Maryland that she previously used tripled from 1999 to 2007, she said. “I’ve saved $210 a month in insurance premiums” since switching to the health savings plan a year ago, said Barnett, who is single and has no children.

Carter’s company is studying the possibility of offering a health savings account in November, said Kandice Zeman, Enlightened’s human resource manager.

For employees like Carter, switching from a traditional health plan to a health savings account would require a radical shift in thinking, experts said.

Employees can use the accounts to pay 100 percent of the cost of doctor visits and prescriptions, rather than the modest co-pays they’re accustomed to spending under a traditional health plan. (Costs above the deductible would be picked up by their insurance policy.)

The idea is that employees spending their own money would be much more prone to seek doctors and hospitals with the best prices and to avoid needless care.

“The goal of a high-deductible health plan is for everyone to treat medical care like they buy a car or a vacuum cleaner and do comparative shopping,” said Sharon Bohlman, president of Strategic Benefits Solutions in Vienna.

Bohlman said in general such accounts work well for single, healthy people like Barnett.

But that may not always be the case for people with heavy medical expenses like Carter, Bohlman said. “For those who have large families and medical difficulties,” she said, “it’s critical to review the details of any plan offered because it could end up costing you more.”

Source: www.washingtonpost.com

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