General Business Issues

Featured Health Business Daily Story March 16, 2009

Employers Are Responding to Economic Meltdown With Higher Deductibles and More Limited Benefits

Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans.

By Steve Davis, Managing Editor (sdavis@aispub.com)

Employers going through belt tightening during the economic meltdown are investigating new benefit plan designs and shifting more costs to employees in attempts to hold onto cash, three health insurance brokers said during AIS's recent "Designing and Marketing Individual and Small-Group Insurance Products for an Economic Slowdown" audioconference.

All of the panelists said they have seen differences in sales volume or patterns over the last several months that are tied to the slumping economy. Scott Leavitt, owner of Scott Leavitt Insurance & Financial Services in Boise, Idaho, says his small-employer clients are dropping benefits, and more people are looking for individual products after layoffs. "People are looking to not have gaps in their coverage. So they're looking at individual products they can afford, typically the higher-deductible health plans," he said.

Mark Carroll, founding partner of Small Business Insurance Solutions (SBIS), says he has seen a reduction in sales, but, more notably, some of his clients are now adopting plans that include a health reimbursement arrangement (HRA) or are compatible with a health savings account (HSA). SBIS serves Washington, D.C., Maryland and northern Virginia.

And Joe Dibella, executive vice president of Conner Strong Companies, Inc. in New Jersey, told listeners that his employer clients are "starting to offer a low-cost limited medical option as a platform to attract employees who may not be able to pay for increased contributions." Employers are also shifting costs by increasing copayments and deductibles, and are promoting wellness features. "We're concerned that they would abandon wellness features to cut administrative expenses. We haven't seen it yet, but are concerned that it will be next," Dibella added.

Leavitt said limited-benefit plans are popular in his market as well. They are "carved out of about eight different offerings out of core plans," and the plans "put limitations on how many times [members] can see a doctor," for example. Through these, employers have seen a decrease of 30% to 40% in premiums, he said.

Dibella added that large clients having a part-time staff with a high turnover rate — in the retail industry, for example — are very interested in the limited-benefit plans. "We're seeing many of the commercial carriers market this as a way to continue to provide some level of coverage for a much more affordable price," he said. "And [they're also] getting tremendous benefits….The reason these are much less expensive is that the risk taker knows how much the plan is going to pay," he said.

The limited-benefit plans are not offered in Maryland or the District of Columbia and are not popular in northern Virginia, Carroll said. Instead, clients in that market like high-deductible PPOs with 100% coverage after the deductible as an alternative to HSA-based plans. "We've been seeing that, from a price point, this is very competitive with HSAs, but is an easier concept to apply....[it's] easy to communicate. And the numbers on the back end totally justify them, and we have seen employers accepting them in the last six months," he said.

"We have seen more high-deductible HMOs come into play as employers are trying to cut costs," Carroll added. "We are working with [clients] doing cost analyses on HSAs and HRAs, where typically the price point of them is $1,000 deductible or $1,500 deductible, and that seems to be where all the carriers are pricing to."

All of the panelists said employees are tolerating the cost shifting through products with higher deductibles and out-of-pocket costs. "We have assisted [employers] in developing a communication campaign that says their options as an employer are limited: They can discontinue [benefits] or they can make the necessary changes to increase copays, deductibles and coinsurances to maintain some level of coverage," Dibella explained. "We are beginning to see employees who are just happy to have a job. So people are much more tolerant, though privately they are not happy with it."

The panelists also said they have seen employers that wait until the last minute to renew coverage or are slower in paying premiums. "We have seen more and more of our clients from the small-group to the individual side paying within the [30-day] grace period. And we're seeing more and more people do that to balance their budgets and make sure they have funds to pay that," said Leavitt.

To purchase a recording of AIS's Jan. 29 audioconference Designing and Marketing Individual and Small-Group Insurance Products for an Economic Slowdown, please call (800) 521-4323 or click here.

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