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Health Care & Insurance

What Firms Will Do
With Health Care Reform

Look for higher premiums, more wellness plans in efforts to cut costs.

Employers are taking matters into their own hands as they get ready for the 2011 benefit plan year. There’s a growing recognition that the health care bill passed by Congress on March 21 won’t help lower costs in the short term, forcing firms to act on their own if they want to survive. In fact, many employers believe the pending health bill will only add to their problems. “Health reform will result in increased costs for employers, and that will mean less generous benefits for employees,” says Helen Darling, president of the National Business Group on Health.

Most companies will make workers pay a bigger share by raising premiums, deductibles and copayments. These increases will affect both the medical and pharmacy plans. Surcharges for providing health care coverage to working spouses will also increase, to encourage those spouses to use their own employer’s health plan.

But the real emphasis will be on behavior, with businesses using more sticks and fewer carrots to pressure employees to adopt healthier lifestyles and participate in programs to manage their chronic illnesses. In a recent survey by Hewitt Associates, nearly half of employers say they plan to use financial penalties for workers who don’t participate in certain health improvement programs. “Employers have come to realize that they have to manage their risks, not just costs,” says Rick McGill of Hewitt, a benefits consulting firm.

Big bucks are at stake. About 70% of health care costs are driven by behaviors. The difference in cost between a diabetic who manages his or her disease compared with one who doesn’t can be 10 times higher, says McGill.


Workers who don’t play ball will pay more. Employers are realizing that penalties work better than rewards and are planning to ramp them up. To avoid running afoul of federal antidiscrimination laws, businesses can’t base penalties or rewards on results, but they can discount rates for participation. For example, employers will impose higher premiums for smokers who refuse to participate in a smoking cessation class, or will relegate wage earners who refuse to participate in wellness activities to a health plan with leaner benefits.

More firms are also using their own clinics to cut costs, on-site if the company is big or nearby when smaller businesses work together. Clinics offer low prices, convenience and noteworthy success rates.

Also growing: Consumer directed health plans (CDHPs) combining high deductible plans with a tax advantaged savings account. About 60% of companies will make them an option in 2011, up from 54% this year, and 12% will make them the only option, up from 8% in 2010, according to a recent employer survey by Towers Watson and the National Business Group on Health. “Employers offer substantially reduced premiums of between 30% and 50% to encourage employees to choose the CDHP option,” says Ted Nussbaum of Towers Watson.

Having more-educated health consumers is a key goal, with insurers helping firms provide information to employees on cost-effective treatments and comparative pricing. Employers will also provide incentives such as lower copays or no deductibles to encourage workers to use the top performers. There’s ample evidence that higher quality providers have lower costs and employees get back to work quicker, says Nussbaum.


Several big firms are sharing success stories, making it more likely that others will follow suit. For example:

•At PepsiCo., smokers who won’t join programs pay $600 more a year, a policy that has hiked participation 10-fold and boosted smoking cessation rates 14%.
•Boeing targeted employees with complex medical problems for a program in which specialized teams of nurses and doctors monitor care. Average absence rates fell from 7.8 days per six months to 3.4 days. The first two years of the program resulted in a savings of 20%.
•Perdue Farms has 18 on-site clinics and credits them with helping keep worker diabetes control rates at 68%, double the national average.

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