After Years of Shifting Health Costs to Employees, Employers May Be Slowing Down

Employers seem less inclined to pass along health care cost increases to employees, according to a new study.

Forty-one percent of companies say they are willing to absorb costs themselves, compared with 29 percent last year, according to a report by Watson Wyatt and the National Business Group on Health. The survey involved 555 employers, each with at least 1,000 employees.

Watson Wyatt suggests that, among other factors, a tight labor market is making employers more reluctant to shift costs to employees.

Matt Roberts, an employee benefits consultant for the health insurance broker Brown & Brown, says that the degree to which employers can shift costs to employees sometimes varies by region. In Rochester, New York, for example, where Roberts is based, of the three major area employers—Bausch & Lomb, Xerox and Kodak—the latter two are both struggling. The weak job market, according to Roberts, means that few Rochester employees have the luxury of comparing the benefits packages found in multiple job offers.

For employers who do shift costs to employees, a critical factor is communication, according to Gary Cunningham, an employment manager at the consulting firm Olenick & Associates. This year, Olenick implemented some cost-shifting in its rich PPO that previously included no deductible and no out-of-pocket costs. The company’s challenge was to explain to employees that their benefits were still highly competitive. “Employers have to identify how they make a good plan still be perceived as good. Perception is reality,” Olenick says.

Beyond cost-shifting, employers are looking at other ways to save money on benefits. Sixty-nine percent, for example, are using disease management programs through a health plan this year, according to the Watson Wyatt study. This represents a 50 percent increase compared with last year. And 32 percent offer obesity reduction programs, also a big jump from 2004, when just 14 percent were offered them.

Other popular strategies used by employers to limit health cost increases: changing health vendors and pharmacy benefits vendors; offering incentives to employees who complete health risk appraisals; and providing employees more information on the quality of health care providers.

Health savings accounts are another cost-control option being explored. Though only 8 percent of employers offer them now, another 18 percent plan to offer them in 2006 and 47 percent are considering HSAs.

Roberts is skeptical that health savings accounts are the cure for America’s rising health costs. “I’m not really a big believer in those,” he says. “I just don’t think they’re going to do much. Americans are very poor consumers. For every positive you have (about the accounts), there’s a negative.” Higher-deductible plans are sometimes hyped because employees may cut back on some unnecessary doctor’s visits, he says, but employees are also likely to cut back on substance abuse and mental health costs that could save a few dollars upfront but have “catastrophic” results on down the road.

He believes that more effective cost-cutting strategies would be to charge some employees, such as smokers, higher health premiums, and for companies to focus their efforts on all employees, not just on disease management programs affecting some employees.

In other news:

• Of more than 800 organizations surveyed in the United Kingdom, 51 percent extend health coverage to all employees, according to a Mercer Human Resource Consulting study. This compares with 41 percent in 2001.

  
  

• U.S. journalists at Reuters are launching a four-day “byline strike” and employees are “working to rule.” Employees are unhappy that the company is shifting health costs to employees and decreasing retirement benefits while increasing CEO pay. The employees are withholding bylines and credits from their work and will be “giving no more to their jobs than what is required,” according to the Newspaper Guild of New York.

• The Employee Benefit Research Institute has published a report on how changes in health care benefits are affecting retirees and future retirees. Among other conclusions, the study finds that “retirement behavior patterns may change as employees nearing retirement age postpone their decision to retire upon learning that, without a job, they may not be able to obtain health insurance coverage, or they are unable to afford insurance premiums and/or out-of-pocket expenses.”

• In the first strike at the Texarkana, Arkansas, factory of Cooper Tire & Rubber since 1978, union workers walked out over health care and retirement benefit issues, according to Rubber & Plastics News. The company is tight-lipped about the specific negotiations, but the local steelworkers union says Cooper wants to increase premiums and offer more limited coverage.