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As the open-enrollment period for health benefits begins in earnest this month, human resources departments are delivering a tough message: Health care is expensive, and employees need to become savvier consumers.
Workers need to review all those unread memos describing their choices in health plans, employers say, and put as much effort into researching their allergy drugs as they would before buying a DVD player.
"More of our clients are having open dialogues about where the true costs of health care are going," said Steve Harris, a benefits consultant at Lockton & Dunning. "There's more direct, in-your-face dialogue with their employees."
One of the types of plans employers are pushing most aggressively is known as "co-insurance," in which members are responsible for a fixed percentage of the total cost of care. With pharmaceutical co-insurance, employees might be encouraged to choose a generic equivalent over a name brand, as new plans force members to pay for a percentage of the bill instead of a co-payment for a fixed amount.
A concept that was popular before the days of managed care, co-insurance is also applied to hospital care. Employees will be asked to monitor quality and pricing reports from local hospitals. To avoid premium increases, many employees will have to choose coverage with greater restrictions, such as plans that require them to see a primary-care physician before they can have access to a specialist.
Also, employees are being guided to so-called consumer-driven plans, in which members pay higher amounts out of pocket before insurance kicks in.
Employers say they have little choice but to pass a greater share of expenses on to their staffs. Driven by greater demand for health care services, rising prescription drug prices, costly research and an aging population, employers are expected to face their fifth consecutive year of double-digit cost increases.
Though the rate of increase has stabilized somewhat, employers will still face a 12 percent cost increase in 2004, amounting to a $742 hike per employee from this year, according to Towers Perrin, a consulting firm that specializes in human resources issues. Those who have dependents and seek comprehensive options will feel the rate increase most severely.
"We're as generous as we can possibly be in a difficult market. But the truth is, like every employer, every year more and more health care will be borne by the associate," said Ross Perot Jr., president and chief executive of Perot Systems Corp., the Plano, Texas-based data services concern. "We have told our team that now for two to three years. This isn't going to last. People have to get ready for it."
For some companies, the cost increase has been so steep that they couldn't afford to wait for open enrollment in the fall.
In February, Wyndham International Inc. rolled out the first midyear benefit change in its history. To reduce costs, the Dallas-based hotel operator added a second preferred provider organization plan that has lower premiums but requires 40 percent co-insurance. The PPO plan also forbids patients to use doctors that aren't part of the network.
"Younger employees and lower-paid employees didn't want to pay higher insurance premiums," said Dixie Sweeney, Wyndham's vice president of compensation and benefits.
Wyndham left employee contributions for premiums on its other plans unchanged but raised the co-insurance from 10 percent to 15 percent in certain instances. And for some of Wyndham's plans, the co-payment for seeing a specialist rose from $35 to $50.
At Fort Worth, Texas-based Burlington Northern Santa Fe Corp., premiums will be 12 percent to 16 percent higher for employees next year.
"We're ever so slowly trying to pass on the cost to our employees," said Carlos Green, assistant vice president of compensation and benefits. "But if you choose the higher-cost plan, they are going to cost more."
Employers' newfound resolve to pass on more costs and decision-making to employees will encourage people to pay greater attention to benefit changes this year than ever before, experts said.
Already, employees have been paying higher premiums. Towers Perrin said that all health plans on average will cost $314 per month next year. Employee contributions to premiums for single coverage will rise to an average of $59 a month next year, compared with $48 in 2003. Family coverage will cost an employee on average $196 a month in 2004, compared with $160 this year, the firm said.
But the increases don't reflect the true cost of care because employers have been picking up so much of the bill.
Employers say workers will wake up to the reality of health care costs only when they are forced to pay a percentage of the bill out of their own pockets, such as through co-insurance. The thinking is that co-pays lull employees into being apathetic consumers.
Cost-sharing through co-insurance has been particularly popular for pharmaceutical benefits plans.
With a plan based on co-pays, an employee might pay $20 for a 30-day supply of 40-milligram Prozac capsules, which are used to treat depression. But with co-insurance, the employee would pay $36 - that's 20 percent of the $180 retail price for the drug. Most plans cap the employee share of co-insurance.
Baylor Health Care System is just one of many employers that has adopted a co-insurance strategy, and the idea has many benefit managers, if not fully convinced, at least intrigued.
Wyndham's Sweeney considered the proposal but decided against it. She said the company hasn't completely ruled it out for future. Wyndham instead has made buying biotech drugs more expensive by giving them a higher bracket of co-pay pricing.
Consumer-driven plans have been emerging as a legitimate replacement for traditional health maintenance organizations, which have lost some luster because they demand costly and time-consuming approvals when members want care. Largely aimed at younger, single and healthy workers, these plans help reduce demand for health care by passing on medical bills to employees over a fixed amount.
For example, an employer might contribute $1,000 for a staffer to spend for all health care services in the first year. Once that amount is exhausted, the employee pays the bills up to a deductible of $2,000. Then the core medical benefits of a PPO kick in.
Baylor liked the plan so much that it's rolling out a similar plan for next year with a deductible that's twice as high but with a lower premium.
Because of the low premiums, the plans have been a popular option at Baylor. About 35 percent of Baylor's employees have signed up for it, said Laurel Douty, vice president of benefits and compensation.
Electronic Data Systems Corp., which covers about 50,000 employees, said it will also offer such plans as an option next year.
Consumer-driven plans have their share of doubters.
Green at Burlington Northern calls them "a dramatic difference" from other plans and said they haven't been around long enough to know how effective they are.
"You just don't know the math," Green said. "We'd like to see more data."
Others worry that the plans may discourage employees too much from seeking care, potentially resulting in higher catastrophic payouts, said Lindsay Boykin, a consultant at Benefits Corporation of Texas.
As a way to skirt this dilemma, an employer might consider introducing a consumer-driven plan in which preventive wellness programs are paid for by the employer, he said.
Employers are also cutting costs by simplifying their offerings, said Rik Lindahl, a benefits consultant at Watson Wyatt's Dallas office.
For example, Burlington's two PPOs were cut to one last year to save "2 to 3 percent,'' Green said.
Wyndham has gone from 48 HMO plans to seven in the last three years.
Plano-based J.C. Penney Co. eliminated its 95 HMO plans nationwide and will replace them with a single PPO plan.
No matter what employers do, employees will have to make sacrifices, experts said.
"You can just play the pure cost game, and a lot of companies out there are doing that," said Burlington Northern's Green.
"But you've got to see health benefits as a strategic piece of the employee experience and make changes that are prudent but not draconian," he said.
Many employers stress the need for educating employees through wellness programs. Companies have set up kiosks and Web sites that promote programs to lose weight and to help employees monitor their medical conditions, exercise schedule, physician visits and other medical information.
Burlington Northern, for instance, will now publish the full price of drugs for employees when they buy medicine. The railway is introducing a "lifestyle" survey on the Web to make employees more aware of medical conditions, Green said.
Mindful of the conventional wisdom that 20 percent of employees account for 80 percent of the spending, large employers are also using technologies such as data mining to identify problems and health care consumption patterns early on, Boykin said.
"There really is a change in how we want to engage our employees and families," said Baylor's Douty. "It's not just a matter of (providing) a benefit package but to help them understand the decision they make day in and day out."
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(c) 2003, The Dallas Morning News. Distributed by Knight Ridder/Tribune News Service.
