Cut Your Health Care Costs Now
Nine ways to slash your insurance costs, from health savings accounts to getting tough with your broker to joining purchasing pools.
Mary Sadlier's latest defense against rising health care costs came down to a container of Clorox wipes. Last November, the executive vice president of Advertising Ventures received notice that health care premiums at her firm would jump nearly 19% in 2005. More grim news came two days later: One of the Providence-based company's workers had come down with a nasty case of flu. With the flu vaccine in short supply, Sadlier feared the agency's 24 other employees could easily get sick -- perhaps even require hospitalization -- raising her company's risk profile and triggering another premium hike in 2006. Enter the wipes. With her assistant's help, Sadlier started to clean everything germy in the office, from doorknobs to light switches. If the company could stave off illness, maybe, just maybe, it could deflect higher rates as well. "We had this fear that it could be a long, hard winter," Sadlier says.
Sadlier's ploy may have been unusual, but her predicament isn't. Health care costs have been climbing at double-digit rates for years now -- they were up 11.2% last year, down slightly from a 13.9% jump in 2003. Small companies have been among the hardest hit. In 2004, according to a survey by the Kaiser Family Foundation and the Health Research and Educational Trust, 63% of companies with fewer than 200 employees offered health benefits, down from 68% in 2001. "Small businesses are at the mercy of the insurance industry," says Mila Kofman, a professor at Georgetown University's Health Policy Institute.
How did we reach such a state? Much of the blame goes to the go-go '90s. As the war for talent raged on and unemployment hit record lows, companies beefed up benefits to attract and retain the best people, absorbing the bulk of the costs and offering low, flat copays. Now, in a much more dicey economic environment, businesses are full of workers who think the cost of health care amounts to the $20 copay printed on their plastic ID card. "Between office copays and drug benefits, we've created our own monster: the employee," says Richard Ramsburg, senior account executive at EBD Financial, an independent insurance brokerage in Herndon, Va. "If their friend Joe gets an MRI for a headache, then they need one too. Most people have no sense of the true cost of health care. And it's well in excess of what employers can afford."
Employees running for antibiotics when they get the sniffles, insurance carriers ready to pounce with higher rates as soon as one of your workers gets sick or, in many cases, just reaches the age of 40....Can't a business owner catch a break? Inc. has come up with nine things you can do right now to lower your health care costs -- or, at least, cut the amount of your annual increase. (Busting out the Clorox wipes is not one of them -- though Sadlier reports that while Advertising Ventures has seen a few cases of the sniffles this winter, her office so far has avoided a major flu outbreak.) Admittedly, these tactics are mere Band-Aids that do little to solve the overarching problems facing the health care system. But when you're bleeding, even a Band-Aid can help.
1. Shop around -- even in good years
Feeling relieved that your premiums inched up only a few percentage points? This is not the time to relax, says David Reid, vice president of Unison Benefits Management Inc. in Minnetonka, Minn. "Complacency will cost you a lot of money," Reid says. "Even in years when your rate increase is modest, you should still adopt the same techniques as if you're facing high increases. Competitive proposals yield genuine results."
Exhibit A: One 200-employee firm that Reid advises got hit with a relatively modest 7% hike last year from its insurance carrier. Nonetheless, Reid marketed the firm's plan to other insurers and got quotes that were 10% lower. He took those competitive bids to the client's current carrier, which reduced its increase to 5% -- and managed to hold on to the account. Reid estimates that as many as 90% of his clients renew with the same carrier, often with lower rate increases, after getting bids from other insurers. And if your carrier won't match the competitive bids? Don't be afraid to jump ship -- your peers certainly aren't. According to the Kaiser report, 57% of small businesses shopped for a new plan last year. Of those, 31% switched carriers and 34% changed health plans.
2. Consider health savings accounts
Much has been made of health savings accounts, or HSAs, which were introduced in January 2004 as part of the major Medicare legislation. The accounts are so new that few companies have implemented them. But industry experts expect that number to grow fast. One out of four small companies, according to the Kaiser survey, is very or somewhat likely to provide an HSA plan in the next two years.
A kind of 401(k) for health care costs, HSAs let individuals save money for health care expenses using pretax dollars. Employers offer the accounts in conjunction with a qualified health plan that has a high deductible -- at least $1,000 for single coverage, $2,000 for a family -- and an out-of-pocket maximum that doesn't exceed $5,000 for individuals and $10,000 for families (the deductible counts toward the limit). Both employers and employees can fund an HSA, but the total annual contribution can't be more than the plan deductible. Employers pay the premiums and employees use their own money to cover health-related expenses until the deductible is reached. Then, the health plan kicks in. Unlike flexible spending accounts, HSAs don't have a use-it-or-lose-it rule. Funds that aren't spent in one year roll over to the next. Employees can also take their HSAs with them should they leave a company.
