Employers seek options as healthcare costs climb
By Daniel Yi, Staff Writer
Los Angeles Times
Sunday, November 20, 2006
Employers are running into limits on how much more they can
shift rising health benefit costs to workers, prompting them
to use other methods to cut costs, businesses and healthcare
In the latest evidence of this trend, a study to be released
today by Mercer Health & Benefits showed that deductibles
and co-payments leveled off this year. Those out-of-pocket
expenses had surged in the late 1990s and earlier this
decade, as employers required workers to pay for more of
their medical costs.
But as workers' share of healthcare costs have increased in
recent years, many have opted to go uninsured, experts say.
Those opting out usually have been among the healthiest.
Their departure from the benefits rolls exacerbates costs
for employers and those who remain. In effect, there are
fewer healthy people to subsidize the costs of the sick.
So to lure the healthy back and decrease costs, companies
are shifting their focus to other alternatives, experts say.
"Employers are realizing that if it is unaffordable, it is
not a benefit anymore," said Laura Baker, a principal in
Mercer's Los Angeles office.
Some businesses are electing not to provide any healthcare
benefits at all. But those continuing to offer benefits are
increasingly turning their attention to disease prevention
programs and consumer-directed health plans with low
premiums and high deductibles, Baker said. Those are more
attractive to those less likely to need healthcare, she
Such ideas have largely been overlooked over the years, but
Mercer consultants predict they will grow rapidly because
employers are simply running out of options. Those surveyed
by Mercer, a unit of Mercer Human Resource Consulting,
favored these alternatives over reducing benefits or
shifting more costs to employees.
The percentage of large companies, those with 500 or more
employees, that offer preventive health screenings nearly
doubled in the last three years. Overall, about a quarter of
the nearly 3,000 companies surveyed by Mercer offered such
screenings, which assess workers' condition and give tips on
how to stay healthy.
Consumer-directed plans, which allow workers to place money
in accounts earmarked for healthcare expenses, are offered
by 6% of employers, three times the level of last year. An
additional 14% said they were likely to offer such plans
The margin of error in the survey was plus or minus 1
The idea behind consumer-directed plans is that patients
will be more cost-conscious if they have a greater stake in
how much is paid for medical services and drugs.
"Everything else we've been doing to date has been ignoring
the root cause of the problem of rising healthcare costs,"
said Kirby Bosley, an analyst with Watson Wyatt Worldwide,
another benefit consulting firm. "Cost shifting or cost
sharing does nothing to reduce utilization, to create a
workforce that is healthier, and to get people to seek care
that is more efficient and cost effective."
Grocery chain Safeway Inc. got the message, company
spokesman Brian Dowling said.
Last year, the Pleasanton, Calif.-based company spent about
$1 billion in healthcare for its 200,000 employees. That was
19% more than its net income. So now, the company is testing
a health plan that encourages its workers to stay healthy.
Safeway offered the plan last year to its 30,000 nonunion
employees, mainly administrative workers. Just under half of
them enrolled. The company plans to roll out the plan to the
rest of its workers soon.
The new plan pays 100% for preventive care, such as physical
checkups and mammograms, but increases the stakes if workers
get sick by raising deductibles from $750 to $2,000. But the
company also created a health reimbursement account and
subsidized it with $1,000 per employee — giving them an
incentive to keep health expenses from exceeding the
The moves cut the company's healthcare costs by 11%, Safeway
said. Part of the savings has gone back to decreasing
Such a plan encourages employees to address illness early,
Safeway Chief Executive Steve Burd said. "You can provide
for a better quality of life and, frankly, lower your costs
over the long haul," he said.
Healthcare experts caution that it is still early to say
whether these measures will drive down costs across the
board. Consumer-driven plans represent only a fraction of
options available to workers, and wellness programs are
still taking hold.
But most agree that American workers are reaching the limit
of what they can afford. Average physician co-pays, for
example, held steady for the first time in five years,
according to the Mercer survey, potentially a sign that they
have reached a ceiling.
For employees enrolled in health management organization
plans, or HMOs, average co-pays remained unchanged at $18
last year, after rising steadily from $14 in 2002.
Average deductibles for preferred provider organization
plans, or PPOs, jumped from $523 in 2002 to $769 in 2005 but
saw a more modest increase this year to $846.
But premiums continue to rise steadily. Mercer's survey said
they rose 6.1% this year, to $7,523 per employee, less than
a high of 14.7% in 2002 but still way ahead of inflation and
wage increases. The numbers are similar to findings in other
Employees are typically responsible for 20% to 30% of the
premiums, and that number hasn't changed much over the
years. But the overall increase in the cost of benefits has
eroded worker incomes, and many are choosing to go without.
Close to 5 million workers have joined the ranks of the
uninsured since 2000, either because they couldn't afford
their employer-sponsored health plans or because their
companies could no longer afford to provide the benefit,
according to the Census Bureau.