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Get ready to pay more for your health coverage

No matter what happens with national health care reform, employers are already shifting part of the rising cost of care to employees.  By's John W. Schoen.

With annual “open enrollment” season approaching for choosing health care options, get ready to pay more. No matter what happens with national health care reform, employers already are shifting part of the rising cost of care to employees.

For decades, most company-sponsored health plans gave employees relatively little financial responsibility for the cost of their care — often a small “co-pay” portion of a medical bill or prescription refill. But the relentless rise in health care, often invisible to workers, has prompted companies to begin passing along those steeper costs.

“Employers are in a desperate bind,” said Dahlia Remler, a health economist at Baruch College at the City University of New York. “There are only three ways they can deal with (higher health care costs): they can have lower profits, higher prices or lower wages.”

The sharp increase in health insurance premiums is hitting both employers and employees hard. Over the past decade, the average annual health insurance premium for all workers rose 131 percent to $13,375 — or more than four times the rate of inflation, according to the Kaiser Family Foundation. In response, some companies have dropped coverage altogether. As of this year, 60 percent of employers offered health benefits — down from 69 percent in 2000.

Aside from saving money, companies are hoping that workers who bear more health costs directly will become better consumers of care. The hope is that by giving employees more responsibility for paying the bills, they’ll be more likely to control costs by, say, opting for a cheaper generic drug when it’s available.

“We hope that they would then shop health care like they would shop for cars (and) for other things online, learn all the advantages of their own personal health and what they can do to improve their health,” said Donald Hendler, CEO of a Melville, N.Y.-based lighting equipment manufacturer that now offers workers a choice of paying lower premiums in return for higher out-of-pocket costs. 

As they shift more of the financial burden of health care to workers, employers say they’re also stressing preventive care, most of which is still covered at no cost.

“Up to half of our (health care) spending is impacted directly by our own personal health behaviors,” said David Guilmette, a health benefits consultant with Towers Perrin. “Whether we smoke, whether we eat right, whether we're exercising. So big businesses said, ‘If we're going to stay in this game, and provide heavily subsidized health care coverage, we want to do everything we can to make sure our employees are doing everything they can to stay healthy.’”

Some employers are offering workers a choice: Pay a higher premium for your current low deductible or pay a much lower premium with a much higher annual deductible — the amount you're responsible for paying out of pocket before full coverage kicks in.

Those higher deductibles can range from $1,000 to as much as $5,000; employers typically then contribute a portion of that amount to an account employees can use to pay their medical bills. Some plans allow you to roll the money over from one year to the next. Plans that offer so-called Health Savings Accounts allow you to take the money with you if you change jobs.

“This is a good deal for certain kinds of people who are healthier,” said Remler. “Insurance is about pooling costs, which means it’s about taking money away from healthy people and giving it to sick people.” 

But not all employers are offering a choice: some workers are getting hit with higher premiums and higher deductibles.

The cost shifting has come as something of a financial shock to households with higher health care costs. Though workers' out-of-pocket health care costs have more than doubled in the past decade, average wages are up by only a third.  And for some households, company-funded health savings accounts don’t make up for their out-of-pocket costs. 

Debbie Ellers, a 58-year-old single mom from Bristol, Tenn., saw the deductible for her plan jump to $2,500 this year. Her employer pays $85 a month to help offset out-of-pocket costs, and she pays $76 every two weeks toward the plan’s premium. Because of the higher cost, she said she has stopped taking one of her medications.

"If I don't have the money to buy the prescriptions, I don’t buy them like I did,” she said. “They're nearly $60 a month. And it doesn't count toward the deductible."

Ellers said her son had an emergency appendectomy earlier this year that cost $28,000, but because he’s 21, the procedure wasn’t covered by her plan.

Employers have borne the brunt of the increased cost of health care, but they also have been passing along costs to workers at a healthy clip. This year, some 22 percent of workers paid a deductible of at least $1,000, up from just 10 percent in 2006, according to the Kaiser survey. Another 16 percent of companies said they’re “very likely” to raise deductibles next year; 21 percent said they’re “very likely” to raise employees’ contribution to premiums.

Companies also are cutting health benefits for retirees; some 23 percent have cut or eliminated health coverage for existing retirees and another 29 percent said they are considering doing so, according to Towers Perrin. More than half said they’ve cut or eliminated coverage or future retirees.

Some employees who have seen their costs rise say the transition has been rocky. Linda Fluent, of Eugene, Ore., and her husband, a physician who works in a local hospital, saw their deductible jump from zero to $3,000 this year. She said she would have preferred to pay a higher premium for a lower deductible, but wasn’t given the choice.

“I find this appalling,” she said in an e-mail. “Increasing a deductible late in the year means any care for the rest of the year will be out of pocket. How much preventive care will be reduced by this change?”

It remains to be seen whether these new plan options lower overall costs. While consumers may be more careful with the relatively small out-of-pocket expenses, they have little control over the most costly tests and procedures. Something like 1 percent of patients represent 25 percent of all health care costs; 5 percent of patients account for half of the total, said Remler, the health economist.

“I find the rhetoric overblown about the consumer-driven health plans,” she said. “Most of the money is spent on the really expensive episodes. If you give people a $2,000, $3,000 even $5,000 (deductible), that’s not going to hit the really big expenditures. So there is a limit to the cost containment you can get from these kinds of plans."