A Bad Case Of Sticker Shock
If you work for a company that starts its fiscal year on Jan. 1 -- and 70% of employers do -- the 2006 benefits package should soon hit your mailbox. Brace yourself for sticker shock: You may even feel a little sick when you see the combination of higher costs and reduced coverage.
That's because your employer is paying an average of 8% more, an extra $600, for your health insurance in 2006, according to human resources consultant Towers Perrin in Stamford, Conn. And since employers are foisting more of the burden off on employees, your tab will go up even higher: an average $155 more for health care in 2006, up 10% from 2005. To keep costs in line, there's a good chance you'll be offered the option of a high-deductible plan that lets you choose how you spend your health-care dollars. You can also expect to see higher costs for prescription drugs and larger deductibles. Also new: More companies are offering financial incentives to participate in wellness studies.
Here's a look at some of the key changes to 2006 benefits plans and what to consider before signing up:
Just a few years ago, these plans -- which make the employee responsible for a bigger portion of their medical costs in exchange for a lower premium -- were scarce. Now 20% of employers offer a high-deductible plan, according to the Henry J. Kaiser Family Foundation. Ray Herschman, a health-care consultant at Mercer Health & Benefits in Cleveland, predicts that half of the companies with 5,000 or more employees will offer a high-deductible plan next year, in addition to more standard choices such as indemnity, point of service, and health maintenance organization (HMO) plans. Some smaller companies may even replace conventional plans with high-deductible versions.
High-deductible plans come in two flavors: health reimbursement accounts (HRAs) or health savings accounts (HSAs). The key difference is the HRA is funded by the employers and any unused cash belongs to the company. With the HSA, employees make contributions with pretax dollars -- and employers may or may not match them -- and unused cash belongs to the employee. Because more of the financial burden is on the employee, consultants say more companies will choose HSAs.
With either account, employees can expect to pay deductibles of at least $1,000 for individuals and $2,000 for families. HSA participants may fund an account well beyond the deductible with pretax contributions up to $2,650 for individuals and $5,250 for families. (There's no limit on HRA contributions.) Both plans cover 100% of all medical expenses once the deductible has been reached. And both usually pay 100% of preventive-care costs that don't count toward the deductible. There are no co-payments.
Viewed as investments, HSAs are similar to a 401(k) -- the participants choose among an array of investment options. The account's earnings are not taxed -- whatever isn't used is rolled over to the following year.
HRAs and HSAs should appeal to you if you are generally healthy and don't rack up many bills. (The average person spends less than $700 for health care annually, according to David Stacey, senior consultant at Hewitt Associates (HEW ) in Lincolnshire, Ill.) That's why Ron Sussman, president of CPI Cos., a financial-services firm in Voorhees, N.J., plans to add an HSA at his 13-employee company. "The amount of money we are paying for health insurance is ridiculous, and it drives me nuts because we are not using the benefits," says Sussman, 47.
HSAs also are a good tool for self-employed workers who need tax shelters. "You not only get to write off premiums, but you get to make tax-deductible deposits into your HSA," says Steve Sharkey, a brokerage representative at John Alden, a unit of Assurant (AIZ ), in Philadelphia.
Before you sign up, pay attention to fees. Some plans charge up to $50 per year in administrative fees, although larger plans may drop those costs. In addition, look at the underlying investment options to make sure they'll help you meet your savings goals.
CO-PAYS AND DEDUCTIBLES
Those $15 or $20 co-payments you shell out for your point-of-service or preferred provider organization plan every time you visit the doctor may disappear for some plan participants. Instead, you'll be required to pay an up-front deductible of about $300. After you meet that deductible, expect your insurer to pay 90% of any costs if your doctor is within the plan's network. (Insurance often pays only 70% if it's out of network.)
Co-payments for brand-name drugs (typically $20 to $30 each time you fill a prescription) will be about $5 higher in 2006, although generic-drug co-payments ($10 to $15) should be about the same, consultants say. Pharmacy-benefit managers say that fewer than 20% of all employees currently take advantage of mail-order drug plans, but if you use one, you can save as much as half on any medications you take on a continuing basis. Plus, it's convenient. "It's a heck of a lot easier to have the stuff arrive in your mailbox every 30 days," says Tom Billet, a senior consultant at benefits firm Watson Wyatt (WW ) in Stamford, Conn.
If you don't go for online purchases, your plan might force you. More employers are implementing mandatory 90-day mail-order programs for maintenance drugs such as Lipitor, a cholesterol-fighting drug, to cut costs. If you take a drug on an ongoing basis, your only option may be to buy three months' worth through the mail. "You can't keep going back to your pharmacy and buying it over and over," Billet explains.
More companies are asking their employees to fill out online health assessments with financial incentives. At Xerox (XRX ), for instance, employees who participate in an online health appraisal earn $200 in health-care discounts. "After answering questions on stress, their weight, cholesterol, and other health topics, employees who are deemed to be high-risk in three areas are eligible to work with a free health coach," says Kara Choquette, a Xerox spokeswoman.
At international pharmaceutical giant AstraZeneca, employees save $50 a month if they take part in a new online health survey -- a quick $600 off their annual health-care bill. "In the first 10 days, we already had over 50% of employees participate in the assessment," says Carla Burigatto, an AstraZeneca (AZN ) spokeswoman. With health-care benefit costs continuing to move in just one direction, who wouldn't jump at any opportunity to save?
By Lauren Young