'Self-directed' health plans shift risk, cost to workers

Health-insurance costs are spiraling out of control again, and employers are demanding that employees take the hit.

They may not do so quietly. Three thousand Hershey Foods workers walked out in April, for example, when the company demanded that workers double their share of health-insurance premiums.

The strike at Hershey grew more tense when the AFL-CIO announced that chief executive officer Richard H. Lenny rakes in more than $22 million a year in total compensation – 600 times the annual average pay for a rank-and-file Hershey worker.

After six weeks on strike, the workers reached an agreement with the Pennsylvania chocolatemaker that leaves their cost-sharing unchanged in exchange for a smaller wage increases over the life of the four-year contract.

Unions are threatening to strike over the sharing of healthcare costs at dozens of major US companies that are currently in negotiations or heading into them.

Companies that used managed care and employee cost-sharing to rein in runaway benefit costs a decade ago are once again facing double-digit increases for healthcare programs, including even the most basic HMO plans.

"Double-digit increases in health-plan costs over the past two years, coupled with the expectation that this trend will continue in the near term, are simply not sustainable from an employer's perspective," says Brad Benton, a partner in the healthcare practice of KPMG LLP in Atlanta.

Health-insurance premiums are rising 10 to 15 percent per year nationwide, and even more in some parts of the country. Nancy Vice, a senior consultant with CBIZ Benefits & Insurance in Cleveland, reports that rate increases in northeast Ohio are averaging 20 to 40 percent.

Most of her clients have handled the rate hikes by redesigning their benefit plans and increasing employee contributions.

"There is no silver bullet to control costs at this time," Ms. Vice says.

According to the US Bureau of Labor Statistics (BLS), 3 out of 4 employees with company healthcare coverage are already in managed-care plans. For many employers, offering managed care no longer helps contain costs.

Among workers with single coverage under employer-sponsored health insurance, 68 percent contribute to the cost of premiums, up sharply from 28 percent 20 years ago, according to the latest survey from the BLS. For workers with family coverage, 81 percent share the cost, up from 49 percent in 1980.

The majority of insured workers in the BLS survey contributed a flat monthly amount toward premiums in 2000, averaging $54.40 a month for single coverage and $179.75 for family coverage, often in addition to deductibles and copayments.

A recent UCLA survey of 460 companies found that three quarters raised copayments or deductibles over the past year, and two-thirds raised employee contributions to premiums.

In a new survey from Watson Wyatt and the Washington Business Group on Health, two-thirds of employers reported that they are unwilling or unable to absorb additional healthcare cost increases.

According to Jane Cooper, president and CEO of Patient Care, a New Orleans patient advocacy company, "the majority of companies are renewing health plan options [for] late 2002 and early 2003 that increase the deductibles and coinsurance for employees and their families."

With managed care and increased cost-sharing, employers have been able to control the percentage of compensation paid in health-insurance costs despite steadily rising healthcare costs. But with costs now spiking to new levels, many companies may soon adopt a new approach to healthcare benefits.

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