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The Picture of Health

by Jayne Jacova Feld

A year after the passage of federal health care reform, South Jersey employers are still struggling to keep the cost of benefits in check.

A decade ago, the Stone Mar Natural Stone Company in Mount Laurel attracted employees with a generous health insurance plan: an Aetna HMO, for which Stone Mar covered 75 percent of the premium. Today, says chief financial officer Sandra Katan, soaring health care costs have made providing employees with such affordable benefits all but impossible. The company’s current insurance, also provided by Aetna, covers just 80 percent of employees’ health care costs. And Stone Mar can afford to contribute only 10 percent of the premium. As a result, not one of Katan’s eight employees uses the insurance. Many instead sign on with their spouses’ plans.

“We try to make it up to them with salary,” Katan explains, adding, “There’s only so much we can do.”

With health insurance costs nearing $10,000 per employee per year, South Jersey businesses owners like Stone Mar are struggling to keep up—or making tough decisions about what benefits they can offer. The recently passed federal health care reform promises changes that may help local businesses offer more affordable options and attain tax advantages for providing coverage. Yet, neither business leaders nor insurance experts really understand what impact new rules will have on companies’ bottom lines.

“There is some uncertainty on the part of employers and employees about the ultimate shape of the recently passed health care legislation,” notes John D. Worrall, professor of economics at Rutgers-Camden. “Given the change in the Congress, some human resources and benefit managers are struggling to determine what benefits will ultimately be delivered and how they will be funded.”

What is certain is that health insurance costs have continued to skyrocket, on track for a projected 8.8 percent increase in 2011, according to the human resources consulting company Hewitt Associates. In the past 10 years, health care premiums have doubled, from $4,083 in 2001 to $9,821 in 2011, according to Hewitt. Employees’ share of medical costs—including their contributions and out-of-pocket costs—will have more than tripled, from $1,229 in 2001 to $4,386 in 2011. And elements of the health care reform act—including covering dependents up to age 26 and the elimination of certain lifetime and annual limits—are actually driving costs higher in the short term.

Employers, meanwhile, are no longer able to wait for reform to kick in; they’re trying a variety of tactics to keep health care costs in check.

For one thing, since the early 2000s, says Steven Sweeney, a regional sales manager for Marlton-based National Employee Management Resources, businesses have been gradually shifting health care costs back to employees. “Something had to give, given the escalating medical costs,” Sweeney says.

Many small and mid-sized companies have simply stopped offering family benefits, opting only to insure the employee, says Marty Mellman, a Certified Public Accountant with Gold Gocial Gerstein LLC in Moorestown. “It’s becoming so costly,” says Mellman. “Everyone is just trying to keep costs down.”

In the past few years, more companies have introduced health savings accounts (HSA), a savings vehicle often coupled with a high-deductible health plan that enables employees to pay for current health expenses and save for future medical bills on a tax-free basis. In many cases, both employees and employers contribute to the plan.

The flexible savings account (FSA), another tax-advantaged arrangement, is also becoming more popular. The FSA allows workers to set aside a portion of payroll tax-exempt earnings to pay for qualified expenses. Unlike HSAs, FSAs can be offered along with more traditional plans. Among advantages for employers, says Sweeney, both HSAs and FSAs encourage workers to make more educated decisions about their health, with costs in mind.

“It teaches people to be more involved in managing their own health care, while potentially saving money,” he says. “At the end of the day, health care costs are not something people place into their budget, but realistically it’s becoming a critical budget item for most families.”

Increasing employee co-pays for medical services is another tactic some companies are trying, says Worrall. This not only helps cut costs but also acts as an incentive to encourage employees to utilize medical benefits more sparingly. “As one might expect, this has been a bone of contention and, in union settings, has been a major area of contention in collective bargaining,” Worrall adds.

In another cost-saving measure that also gives employees more choice, companies have introduced broader menus of health care options, ranging from basic coverage to more inclusive, so-called Cadillac plans. Employees who select the basic plan have lower payroll deductions. Those who select more extensive coverage pay more.

In addition, some larger companies are investing in healthy lifestyle options for employees, including encouraging exercise, nutrition and stress management, Worrall says. Not only do these activities cut health care costs in the long term, they also are proven to reduce absenteeism and increase productivity, he says.

South Jersey Healthcare, for one, is offering its 3,200 workers access to discounts at the health system’s fitness centers. They’ve created indoor and outdoor walking areas at each hospital campus, promoted the use of stairs over the elevator, and offered employees incentives for regular check-ups and age-appropriate health screenings.

While many small to mid-sized companies don’t have the means to offer these healthy benefits, some insurance providers serving South Jersey have taken the lead, says Sweeney. For example, AmeriHealth, a major provider in South Jersey, offers reimbursement for gym memberships, weight loss and smoking cessation programs.

With many tools at hand to cut insurance costs, it often makes sense for businesses to customize plans based on employees’ needs, says Lenny Katz, a principal at Cherry Hill-based Katz/Pierz, which develops benefits programs for small and mid-sized companies.

For example, some companies have a large percentage of employees who rarely go to doctors but use several prescription drugs, while others have a base of younger workers who would likely benefit from a plan in which costs are low for routine check-ups and lab work, but higher for more specialized services. Plans can be fashioned to benefit both types of workers and to cut costs based on the profile of the business’ employees, says Katz.

“There are ways to control costs; they just have to be explored,” says Katz. “There really is no one size fits all.”

Published (and copyrighted) in South Jersey Biz, Volume 1, Issue 2 (February, 2011).
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