Michigan Employers Try Various Strategies to Slow Health Cost Rise

Employers in Southeast Michigan expect medical benefit expenses to increase 7 percent this year, despite taking steps to shift costs to employees, using wellness programs as a cost-containment device and offering more high-deductible health insurance plans, according to Troy, Michigan-based McGraw Wentworth’s seventh annual 2010 Southeast Michigan Mid-Market Group Benefits Survey.

“We saw big changes this year in benefit plans that surpassed national averages in some respects,” said Rebecca McLaughlan, McGraw Wentworth’s managing director.

McLaughlan said the survey showed that Michigan employers continue to cut back on historically rich benefits to come in line with national trends.

With Michigan’s economy in recovery, McLaughlan said some companies made tough choices to reduce costs in 2009 by changing benefit plans, but other companies are “catching up” this year.

“Employers are under real pressure nationally to cut costs” because the poor economy is still putting a damper on revenue growth, said Karen Alter, account director with McGraw Wentworth and the survey leader.

The expected 7 percent increase in costs is up from a 5 percent increase in 2009.

Nationally, total health benefit costs are projected to increase in 2010 by 9 percent, but cost-cutting is expected to trim that to 6 percent, according to Mercer, a New York-based employee benefits company.

Jerry Konal, a principal in the health and benefits group at Mercer’s Detroit office, said Southeast Michigan companies have taken important steps to reduce benefit costs.

“We are not yet at par with the nation but [are] closer to the norm because more organizations have put in payroll contribution requirements,” in which companies charge employees an increasing percentage of health benefit costs, Konal said. “There also is an understanding between management and labor that the status quo could not continue.”

In 2010, workers are paying an average of 43 percent of total health benefit costs for a median PPO plan, up from 33 percent in 2004, the survey said. In 2009, employees paid an average of 41 percent of total health benefit costs.

For the median HMO plan, employees paid an average 31 percent of total benefit costs this year, compared with 28 percent in 2009.

McGraw Wentworth surveyed 414 Southeast Michigan-based companies. Of the companies, 56 percent employed 100 to 499 workers, 15 percent employed fewer than 100, and 13 percent employed 500 to 999.

In 2010, 92 percent of companies are offering PPO plans and 43 percent are offering HMOs, slightly lower percentages than last year.

While the percentage of PPO and HMO plans offered by employers have declined, there was a 4 percentage point increase in companies using consumer-driven health plans in 2010, to 23 percent of all companies.

But in a major shift of philosophy, employers have decided to increase employee contributions to consumer-driven health plans to an average of $75 per month for a single employee, from $41 in 2009, Alter said.

Consumer-driven health plans combine a high deductible of $2,500 to $5,000 with a tax-exempt health savings account when the funds are used for qualified medical expenses.

“Companies are changing how they structure plans and want to get more of the cost to enroll. Early on, to encourage employees to participate, they offered lower costs. Now employers want employees to contribute more to the costs,” Alter said.

McLaughlan said that after payroll deductions, employers now are paying slightly higher costs for consumer-driven plans, at an average $6,984 per year for single coverage, compared with $6,960 for PPOs.

“Michigan is an anomaly in this respect” with higher consumer-driven health plan costs, McLaughlan said. “Nationally, consumer-driven health plans are the lowest-cost plans.”

Konal said Mercer’s 2009 data show that consumer-driven health plans lower total benefit costs.

For example, total per capita costs for consumer-driven health plans with health savings accounts were $6,393, compared with PPO per capita costs of $8,223.

On the other hand, PPO enrollment increased to 65 percent this year, from 59 percent in 2009. HMO enrollment remained the same at 22 percent.

“The increase in PPO plans is most likely due to the elimination of point-of-service or indemnity plans and migration from these plans to the PPO,” Alter said.

Despite the poor economy, employers continue to invest in wellness programs, with more employers tying achievement of health goals to incentives.

In 2010, 17 percent of employers offered a full wellness program, up from 14 percent last year. An additional 16 percent in 2010 offered a wellness program through a health plan.

Filed by Jay Greene of Crain’s Detroit Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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