Another brutal year

September 1, 2011

With the continuation of double-digit rate increases, employers are running scared of what might happen next.

Health insurance has remained the core of a comprehensive benefits package for American employers. But with the continuation of double-digit rate increases and a shaky recovery from the recession, employers are running scared of what might happen next.

"2011 saw a 2% to 4% impact of healthcare reform on top of a 10% or 12% trend increase," says Bill Lavis, vice president and partner in charge of the benefits practice of Sitzmann Morris and Lavis, an independent brokerage firm based in Oakland, Calif. "It's been another brutal year with employers trimming benefits and increasing contributions. Companies are more open to making vendor changes, even if they changed last year or two years ago."

Net employer contributions to health plans increased 11.4% for 2011, according to research from Lockton Dunning Benefits Co., and a similar increase is forecast for plans in 2012.

"Thoughtful employers are taking advantage of all the tools they have in the shed," Lutes says.

In fact, the overall administrative-services-only segment gained more than 1.9 million covered lives over the 12 month period ending March 2011, according to analyst firm Mark Farrah Associates. Fully-insured enrollment declined by 402,000 members in the same period.

"Companies with more than 500 covered lives are taking a good look at self-funded or alternatively funded plans to gain control of costs," according to Jim Miller, employee benefits consultant for the Graham Co., based in Philadelphia. "If you go self-funded, you have more options to custom fit a plan to your employees."

A change in the funding mechanism-such as moving from fully insured to self-insured-can translate to more options for employees to purchase a plan that fits their needs. At the same time, it allows the company to revisit its contribution strategy to ensure it is structured well enough to help contain costs. Some forward-looking companies have begun exploring value-based purchasing and contracting directly with providers or through third party administrators to deliver efficient, quality care.

Because health premium trends show no signs of slowing down, innovative employers are continuing to explore options to blunt price hikes. However, they still aim for providing attractive benefits to recruit and retain good workers.

Such options might include a move toward high-deductible consumer-directed plans.

According to a survey of 83 large employers released in August by the National Business Group on Health, 73% of respondents say they will offer employees at least one consumer directed health plan (CDHP) in 2012, up from 61% in 2011. In addition, about two in 10 employers (17%) will have or move to a total replacement consumer directed health plan in 2012.

That's the direction Garden Fresh Restaurant Corp. took for the 2010 plan year, dropping all other health coverage products in favor of one high-deductible health plan (HDHP).

"Benefit costs were flat last year and flat this year," says Lisa Sorce, director of compensation and benefits for the San Diego-based operator of Souplantation and Sweet Tomatoes restaurants. "We are making no significant changes for 2012. We tweaked the plan because of healthcare reform, which increased costs by 2%, but we absorbed those costs with no increase to employees."