Three years ago, Eileen Sanchez poured over a stack of insurance quotes, struggling to make a fundamental decision about health coverage for the small dental practice in Las Cruces, N.M., where she works as a business manager.
20 years of offering coverage, the 14-employee company was at
a crossroads: continue buying group health insurance that became
less affordable every year or pull out, giving employees a monthly
stipend to help purchase private insurance on their own.
Health care costs for the company had skyrocketed. Under the practice's small business group plan, premiums were determined in part by the "age band" in which employees fell. Coverage for one of the dentists, who was under 50 years old at the time, had climbed to $1,100 a month. A hygienist, who was 43, had a $900 premium. According to Sanchez, neither person had medical problems.
"That was ridiculous," Sanchez said. "I remember thinking, 'There's got to be something else out there.'"
Sanchez was not alone in her quandary. In 2003, health insurance premiums in the United States climbed on average 13.9 percent, marking the fourth straight year of accelerating growth. Between 2000 and 2006, the cost of health care -- driven by advances in technology and treatment -- increased at least twice as fast as earnings, inflation, and the GDP, according to a study released last year by the Kaiser Family Foundation. That means every year health care eats up a larger share of corporate spending and factors more into businesses' bottom line.
The trend has put U.S. employers in a difficult spot. Employer-sponsored health insurance continues to be the primary source of coverage for Americans under age 65. In 2005, 59 percent of the non-elderly population was insured through their employer or a family member's employer. Businesses know that offering competitive and affordable health benefits is essential to attracting and retaining employees.
To avoid covering only the sickest workers, most insurance companies require high levels of participation in group plans. That means employers must maintain enrollment by significantly subsidizing premiums. In 2006, the average annual employer contribution was $3,615 per individual (81 percent of the total cost) and $8,508 per family (76 percent of the total cost).
With figures like these, companies are now looking for ways to contain spending. The decisions they are making affect not only where Americans get coverage, but how they are covered.
Starting about five years ago, many employers began to move from more comprehensive payment to increased cost-sharing, according to Helen Darling, president of the National Business Group on Health, a trade group that represents the interests of large employers on health care issues.
Co-payments, a fee assessed when a patient visits the doctor or fills a prescription, became more widespread. And deductibles, the amount a patient must pay before his or her insurance kicks in, increased steeply for all types of coverage. People who have to pay to receive care or services, the theory goes, will avoid frivolous office visits and unnecessary treatments.
Another strategy has been to "tier" benefits. Many employer plans now require workers to use generic prescription drugs when possible or purchase medications through cheaper mail-order services rather than at a pharmacy.
Larger firms have even started to manage risk proactively giving employees a financial incentive, for instance, to cut down on smoking or to exercise if they are overweight.
Darling noted that the firms that are containing costs best "are those that are doing all of these things and doing them very seriously." She said that some companies have gone as far as hiring extra human resource personnel to identify risk factors and minimize premiums.
Small business challenges
For small businesses like the dental practice where Eileen Sanchez works, however, these kinds of measures are not always feasible.
"We make it doubly hard for small business to provide health care," said Mary Grealy, president of the Healthcare Leadership Council, a coalition of CEOs from across the health care industry that seeks to improve the affordability and quality of the nation's health care system. Companies with few employees have a smaller pool over which to spread risks, explained Grealy.
"Another challenge we see for small employers," she continued, "is that they don't have a [human resources] person to go out there and see what's available and what it's going to cost."
Sanchez said that she spent two to three hours a day for a few weeks trying to figure out which plan to carry. In the end, a patient recommended that she call Grealy's organization, which consults with small businesses seeking to offer coverage.
The plan the dental practice now offers its employees, the one
HLC helped them find, reflects the broader changes in employer-based
health care. Instead of a $250 deductible with a $10 co-payment,
she and her coworkers have a $1,000 deductible with a $20 to $50
co-payment depending on whether they see a doctor in or out of
the network. The premiums, however, have gone down, allowing Sanchez,
her coworkers, and the practice to afford their monthly contributions.
Sanchez said she still worries about the future. "Most of the employees here are paycheck to paycheck," she said. "It's a feat to get them to even contribute 3 percent to an IRA." If premiums keep rising at the same pace, she said, the practice may have to drop coverage in another three to four years.