By Bruce L. Katcher, Ph.D. President, Discovery Surveys, Inc.

4 out of 10 employees say their benefits do not meet their needs.

Part 1 - THE PROBLEM:

The cost of benefits, especially health insurance, continues to rise at an alarming rate. According to Cynthia Harrington, some companies experienced 20 to 30 percent increases this year. (For the complete article, visit http://www.aicpa.org/pubs/jofa/may2003/harring.htm.)

Managed care programs were established to try to reduce these cost increases. Many experts, however, believe that they have been ineffective. Mark Manin of LaRhette Manin Benefits Services says that, "The health insurance experience of the past decade reveals that the early gains in cost containment brought about by managed care companies have evaporated. Two key drivers of this development include the fact that health care providers (hospitals and physicians) have banded together and managed care firms can no longer dictate fee payment schedules. Also the recent explosion of direct to consumer marketing by pharmaceutical companies has sent prescription drugs utilization through the roof."

Organizations are responding to these increases by:

• Shifting more of the premium expense to employees;

• Forcing employees to pay more for their health insurance by raising deductible and co-payment levels;

• Cutting back on the services that the health insurance covers;

• Increasing the eligibility requirements (e.g., increasing the waiting period for coverage of new employees); and

• Offering health insurance to employees but not their families.

About 2 out of every 5 organizations employing 200 or fewer workers do not pay for the health care of their workers and 50 million Americans currently have no health insurance.

Many employees are outraged. They feel that:

• They are entitled to health insurance from their employer;

• They and their families should be fully covered; and

• Their employer should absorb all, or most, of the cost increases.

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Part 2 - WHAT CAN BE DONE:

1. Re-evaluate Your Current Health Insurer(s)

   Conduct an extensive evaluation of the company's current offerings to make sure it has the best coverage available in the area at the best cost.

2. Switch to One Rather than Multiple Carriers

   This strategy eliminates choices for employees, but in the short term can help employers negotiate more favorable rates with insurance companies.

3. Communicate How Much the Organization is Paying for Increases

   Many organizations do a poor job of communicating about health insurance cost increases to their employees. If employees are going to be partners in paying for their benefits, they should be kept well informed about the coverage, the negotiations with the insurer, the cost increases, and the percentages of the increase that the employer is planning to pass on to employees.

4. Produce Total Compensation Statement

   s Organizations rarely receive any credit from employees for shouldering the bulk of the cost of employee benefits. This is due, in part, to a lack of information that is shared with employees. Annual total compensation statements can help employees gain a better understanding of what their employer is actually paying them for salary, bonuses, and benefits.

5. Increase Deductibles and Cop-payments Rather than Premiums

   Increasing the deductible and co-payment levels can help save money by making employees more accountable for their medical expenditures. Many people would prefer this type of cost increase over an increase in their monthly contributions.

6. Provide Choices

   Health plan products can be creatively designed to provide a range of options that can match a person's budget and family circumstances. Provide a broad range of options such as the number of doctors available in the plan and the co-payment and deductible amounts.

7. Establish Flexible Medical Spending Accounts

   These accounts allow an employee to purchase qualified benefits, including medical and dental expenses, using pretax dollars. At the beginning of each year, the employee designates how much he or she wants to contribute to the account.

8. Institute Health Care Reimbursement Accounts (HRAs)

   Another tax-free way that employers can help their employees pay for health costs is by establishing HRAs. Under this type of plan, the employer makes a tax-deductible deposit, usually $1,000 to $2,000 per year. The funds are then used for health care expenditures.

9. Promote Wellness

   According to Marijane Norris Geary of The Bostonian Group, an Employee Benefits Consulting firm, "employers have begun to embrace and facilitate workplace wellness to encourage workers to recognize and take greater control over their unhealthy high risk behaviors. The employers that promote positive behavioral changes such as smoking cessation, increasing weekly exercise programs and moderation of alcohol, are ahead of the curve relative to the long term control over their medical plan costs." For further information on this cost reduction approach, contact John Mancuso of The Bostonian Group at john.mancuso@bosgroup.com.

10. Help Make Employees Better Healthcare Consumers

    According to John Mancuso, employers can also help reduce their health care costs by making their employees better consumers of healthcare. For example, employers can provide education about disease management, behavioral change, and using web sources such as Web MD for health information.

In conclusion:

Healthcare costs will continue to be a major challenge for employers. There are, however, a variety of approaches that can be taken to reduce these costs.