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A strong majority of U.S. executives rate health-care insurance costs as their No. 1 concern. A poster company for this problem is General Motors, which announced in June that it will lay off at least 25,000 employees or almost 8 percent of its U.S. workforce.

In a renewed effort to cut costs, it will focus on its $5.6 billion annual health-care bill that accounts for an average of $1,500 to the price of each car. “Intense” discussions have begun on health insurance among GM union leaders.

Conditions are also painful at the small-business end of the corporate spectrum. There are perhaps as many as 45 million U.S. citizens who don’t have any health-care insurance, largely because over 50 percent of small-business owners can’t afford to offer health insurance to their employees.

At many other small firms, the insurance offered is too expensive for many employees to subscribe to. As health-insurance costs have risen — on average 12.5 percent per year since 1997 — with no forecasted relief in sight, there are two clear patterns that have emerged:

• For every 10-percent increase in insurance costs, 1.3 million adults lose their employer-sponsored health insurance, according to a study conducted by the University of California-Berkley.

• Employee deductibles, co-pays and shares of the total health-insurance expenses are all rising. The average employee contribution for a family insurance plan in 2004 rose to $3,156, or 32 percent of the total cost ($9,862), from $1,670, or 25 percent, in 2000 (total cost $6,680).

Human Impact
 Shifting higher health-insurance costs to employees can only go so far. Is it any wonder that more employees are forced to drop the insurance that might be offered to them by employers each year?

More and more employees are opting out of company 401K plans — even with matching dollar inducements — because they can’t afford to save after paying higher medical expenses.

Many others are putting their children on state Medicaid insurance programs instead of company plans.

Small businesses face higher health-insurance costs per employee than big companies because of lack of buying clout, higher administration costs per employee, and more sensitivity to state insurance mandates.

The most populous and liberal states have been the most aggressive in trying to mandate the best and broadest insurance coverage for all their citizens/voters by getting state-based firms to pay for it.

For small businesses in these states, this means paying sky-high insurance premiums, dropping coverage altogether, going out of business, or relocating jobs out of the state.

Because the unintended consequences of mandates are dropped insurance coverage and disappearing jobs, 12 states are in the process of rolling back their mandates to become more business friendly.

HSAs: The Only Business ‘Solution’ on the Horizon
What “health savings accounts” (HSAs) are and the details about how they work can be found on many Web sites— just Google “health savings accounts.”

Because it is easy to get lost in the details of HSAs, make sure that you don’t miss the following underlying concepts and trends.

After 30-plus years of health care “reforms,” HSAs are the first “reform” that has addressed two of the core problems of our dysfunctional health-care system.

The first problem is that until now, only corporations have been able to buy (and save on) health insurance with tax-free dollars.

Another problem is that access to the finest, unlimited and unrationed health care, regardless of one’s personal health habits is not an entitlement: third parties — like corporations, government and our grandchildren — can’t afford it.

HSAs are also attempting to aid people in creating healthier lifestyles as they are now providing tax-free dollar incentives for individuals who are leading more healthful lives and who shop frugally for sufficient health-care solutions.

Because health-insurance costs and deductibles will continue to climb, most corporate health-insurance plans will soon have high enough deductibles for all employees to qualify for HSAs.

Since health-insurance dollars are part of total employee compensation, companies might as well let employees have the ownership and control of the premium savings from high-deductible, lower-premium policies by flowing as much of it as possible through their HSAs. It’s a simple empowering opportunity that treats employees like the adults that they are.

HSAs will be further enhanced through pending federal legislation which will provide tax credits for funding HSAs of low-wage earners.

They will also benefit from comparison-shopping opportunities for health-care provider solutions. Independent supportive shopping services like www.subimo.com are already rushing to fill the consumer health-care shopping information need.

Enrollment rates for HSAs to date — and by a greater variety of people — have surpassed all forecasts by all parties. The first wave of enrollees are not just the young, healthy, single and/or wealthy that the critics of HSAs predicted.

What are the most current, revised future forecasts for adoption of HSAs? Who really knows? Forrester Research, for example, recently upped their forecast for 2012 to 17.6 million HSAs with deposits/assets totaling $35 billion. The point is that this wave is big and broad.

While HSAs are not the solution for all of our nation’s health-care problems, there is no political momentum for creating any other type of significant “reforms” on the horizon. Perhaps the health-care crisis will be a big election issue in 2008, but in the mean time, every business has a duty to continually study HSAs and incorporate them when determined viable.

HSAs are already providing some sustainable and continuously improving cost savings instead of the simple cost-shifting that critics feared.

True Savings From HSAs?
 Where is the free lunch with HSAs? When employees are spending their own money for outpatient care, they start asking and negotiating with doctors about what the minimally sufficient, cost-effective solutions are.

Both insurance companies and doctors are starting to offer discounted premiums and fees that reflect the reduced cost of not having third-party paperwork costs for the first $2,500 of care that is paid with credit cards out of HSAs.

Five insurance companies announced premium rate cuts on policies for HSAs in May 2005 due to competition and better design of policies that let individuals custom-tailor their deductibles and co-pays to get only the insurance coverage that they want. One industry estimate is that by September, rates for HSAs will settle 30 percent lower than rates in mid-summer 2004.

Doctors offices are starting to post discounts for services that are paid with credit cards and some doctors are moving completely to “cash or credit-card only” practices. Check out www.simplecare.com for one national network of primary care physicians doing this.

The best, most mature proof for savings from HSAs comes from South Africa, where HSAs have been legal — in a more expansive form than in the United States — for 11 years. Here are some key questions with the short answers that I developed based on testimony that drew significantly on South Africa’s experiential outcomes.

• Will HSAs control costs? Yes.

• Will HSAs encourage people to forgo needed care? No, they’ve increased in several studies. Policies that provide first-dollar coverage for annual checkups and hospitalization while applying all other outpatient care costs to the deductible are a big reason for this.

• Will HSAs only appeal to healthy, young, single and/or wealthy people? No. The demographics for U.S. enrollees show broad demographics and even counter-intuitive averages.

• Will HSAs encourage employers to reduce benefits? No. Employers don’t need an excuse to cut benefits or raise the employee’s cost for insurance because they have to provide the best competitive compensation/benefit package that they can afford to attract and retain good employees.

• Will HSAs force patients to pay retail prices while HMOs pay wholesale? No. HSAs can be part of provider networks that get network prices, and cash only doctors are sprouting up to offer the same services that network providers do for dramatically lower prices due to the absence of network overhead costs.

Conclusions
If companies look at the full cost of their employees and flow as much of their health-insurance dollars through employee HSAs as possible, the cost effect can be positive. We shouldn’t underestimate the power of employees wanting to save their own tax-free dollars or the speed at which health suppliers will change to meet consumer needs empowered by HSAs.

Because all employees will have instant motivation to be incrementally more healthy and more savvy medical shoppers, they all have a chance to save money by shopping for sufficient solutions.

To help employees become more healthy, every company, regardless of size should (re)start a simple-to-scale wellness program with the goal of creating a wellness, total-health productivity culture. It’s possible that, in a few years time, offering HSAs will become an expected option and a necessity for luring the most responsible, health-conscious employees from other employers that also have HSAs. Because HSAs have better total tax and spending characteristics than IRAs and 401K plans, they may well become the preferred vehicle for most employees to save.

But, why stop at empowering employees just for healthcare spending? Why not ask the employees to become “engaged” in creating better service value propositions for the right core and target customers in the right target customer niches? If employees could understand the chain of connections between their efforts, better service value, better customer retention, and bigger gainsharing bonuses, they could help to make it happen. Otherwise, most employees simply don’t care about saving the company’s money to improve the shareholders’ return on investment; many even think profits are evil. They don’t realize that company profits reinvested per employee per year is the cost of their having a secure and expanding career. Teach them so they can appreciate, play and win in the game of business, too.

D. Bruce Merrifield Jr. is president of The Merrifield Consulting Group, Chapel Hill, N.C. His Web site is: www.merrifield.com.




POSTED ON: 9/1/2005