If you think your health benefits are taking a big bite out of your paycheck, brace yourself. It's going to get worse. While just 56% of large companies charged employees more for their health plans this year, 78% say they'll likely raise rates in 2003, according to a new study by the Kaiser Family Foundation and the Health Research & Educational Trust. That's because monthly premiums for employer-sponsored health plans rose 12.7% in 2002 -- the biggest jump since 1990 -- and experts says they'll climb 15% more in 2003.
"Employers are shell-shocked," says Peter Lee, CEO of the Pacific Business Group on Health, a coalition of health-care purchasers in California. So, more than ever, corporations are forcing their workers to shoulder a bigger share of the health-care burden.
Next year, employers will expect workers to pay an average 26% of their total health-care costs, up from 24% this year, predicts consultant Hewitt Associates. More businesses will adopt tiered plans that charge extra for brand-name drugs or pricey hospital visits. Others will switch to plans in which employees are given a set sum of money they can use to pay for doctor visits and prescriptions. That means consumers will not only pay more out of their own pockets to stay healthy but they'll also have to make many more of their own health-care choices.
The trends behind health-care costs' continued rise are well known. Insurers are facing higher drug and hospitalization expenses, not to mention aging baby boomers demanding expensive treatments. What's more, they're under pressure on Wall Street to continually boost profits. As a result, double-digit annual premium increases could be the norm for many years to come. "There's no end in sight," says Blaine Bos, health-care practice leader for Mercer Human Resource Consulting.
To cushion the blow, employers are doing more than just passing on a bigger slice of health-plan premiums to workers. American Airlines will introduce a $50 deductible on prescription drugs, and it's boosting the co-pay on generics from $7 to $10. The airline, which is facing a $1.8 billion loss in 2002, expects to swallow $120 million in added health-plan costs this year. It hopes the changes will help it to offload about 17% of that to employees.
Other businesses are turning to so-called consumer-driven plans. A worker might be given $1,000 a year, for example, to pay for doctor visits and prescriptions. If he uses the money, he'll be covered under the company's major medical plan, which will require him to meet a high deductible -- typically $1,500 or more. Industrial manufacturer Textron will drop all HMO and PPO choices from its benefits menu starting Jan. 1, 2003, and will offer a single consumer-driven plan to its 29,000 employees.
Such plans save corporations big money, but they could also leave employees who suffer major accidents or other unexpected medical emergencies with huge out-of-pocket expenses. "You have to worry about the ability of low-wage workers to fend for themselves," says Drew E. Altman, president of the Kaiser Family Foundation.
Some companies are even considering asking employees to share more of the cost of hospital visits. This year, insurer Pacificare Health Systems introduced plans with tiered hospital coverage. Employees who choose more expensive hospitals, when the same quality of care is available at a cheaper hospital nearby, must shoulder higher co-payments. Since Pacificare introduced the plans in January, 70 companies have signed up. "Employers can no longer absorb as great a proportion of the health-care bill," says Pacificare CEO Howard Phanstiel. "They're demanding more radical plans."
PUSH FOR EARNINGS.
Maybe so, but critics say insurers are going overboard. They're hiking premiums not just to cover rising costs but also to appease profit-minded investors. In the second quarter of this year, the businesses in the Morgan Stanley Health-Care Payor Index enjoyed average year-over-year earnings gains of 69%. "We have for-profit, investor-owned insurance companies calling the shots," gripes Dr. Jack Lewin, president of the California Medical Assn.
As insurers rake in the profits, employers continue to look for shelter. Some have no choice but to stop offering health coverage altogether. PRPD, a small construction company in Newport Beach, Calif., dropped its health plan in July. "We were facing at least a 12% rate increase, and we couldn't afford it," says office manager Sandy Ryding. "Now, our employees are on their own." In the fight to stay healthy, even more workers will likely be digging deeper into their own pockets.
By Arlene Weintraub in Los Angeles and Andrew Park in Dallas, with Wendy Zellner in Dallas and Julie Forster in Chicago