As benefits shrink, premiums are growing on many health insurance plans

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Sunday, November 8, 2009
— It's that time of the year again: open enrollment for health insurance.

Employees are called to mandatory meetings to learn about changes in their employer-sponsored benefits for the coming year.

They often leave with the belief that open enrollment means open season on their pocketbooks.

Employers are in the same boat, and runaway health costs are fueling efforts to overhaul the nation's health system.

In 2009, the average annual premium for employer-sponsored family coverage outpaced inflation, rising 5 percent for the third straight year and topping $13,000 for the first time, according to statistics from the Kaiser Family Foundation.

Businesses are doing all they can to lower expenses for 2010, and the results being unveiled in open enrollment sessions are higher premiums and higher deductibles.

They also could include a type of plan that can cut premiums by nearly 20 percent and give consumers a tax break.

But with the plans, called consumer-directed health plans, there's a tradeoff: higher deductibles, which have the potential to swamp customers with big medical bills.

'You have to be careful'

Consumer-directed health plans have been around for years, but more employers now are considering them. Such a plan typically pairs insurance that carries a high annual deductible with a health savings account fed either by the employer or by the employee through pre-tax contributions.

Deductibles start around $1,200 a year, and deductibles can approach $10,000 for family coverage. The plans make the customer pay more out-of-pocket before most coverage starts. The idea is to give clients an economic incentive to spend carefully, while providing protection from devastating medical bills.

Industry analysts say consumer-directed health plans can benefit people on both ends of the health care spending spectrum, but they can be risky for people with tight budgets and little savings.

"Those are plans that you have to be really careful with," said Bill Boyd, a partner and chief financial officer of Boyd Consulting Group in Janesville. "It really depends on the group of employees you're taking it to."

Premium increases

Since its inception in 1995, Boyd Consulting Group has grown from a two-person operation to a company that designs and implements employee benefit plans for more than 100 companies in six states.

Plenty of those are in the Janesville area, and Boyd is seeing health insurance plans that include premium increases averaging 8 percent to 9 percent.

"It really depends on the (insurance) company you're working with," he said. "We're seeing some of the Mercy and Dean plans come in with increases in the single digits."

Others, such as United Healthcare and WPS, have been carrying 12 percent to 14 percent premium increases, he said.

Boyd recently worked with three companies who experienced MercyCare premium hikes of 0 percent to 2.5 percent.

"A lot of that is because of steerage," Boyd said. "The Mercy and Dean plans can steer employees into their system, and they can therefore offer deeper discounts."

Boyd said employers are asking what they can do with deductibles to lower premiums.

Several are looking at new or higher deductibles on drug plans.

They're also considering value-added options and benefits that give employees more services and allow the employers to realize package discounts from the insurance companies, he said.

Carving out spouses

Dan Robinson, a vice president of Hays Companies, said he's seeing another trend: a move to "spousal carve-out" plans where an employer that self-funds its plan will cover an employee but not his or her spouse if the spouse can get coverage at his or her workplace.

"It's not unusual at all for an employer to spend more on a per capita basis on a spouse than the employee," said Robinson, whose insurance brokerage company works with 145 businesses in Wisconsin, including several in southern Wisconsin.

Robinson said the plans allow employers to cut costs, but they're not particularly appealing to employees.

Such a plan likely drives up insurance costs for the employee and spouse, who must decided where to insure dependents. The employee than is left to pay for himself and dependents while the spouse pays for single coverage.

That—or separate single coverage plans—usually cost more than the original family coverage, he said.

"There is a pushback, and people don't like it, but about 25 percent of the companies I work with are going to this type of plan," he said.

Robinson said his underwriters are projecting an 11 percent increase in health care costs for 2010. Increases in premiums are averaging about 6 percent to 7 percent.

Material from the Associated Press was used in this story.

Open enrollment season for employer-sponsored health benefits can come loaded with confusing terms. Here is a glossary of common words or phrases:

Coinsurance: This is the percentage a patient pays for a medical service generally after a plan deductible is met, and it can vary by plan. Your insurer may pay 80 percent of the cost of your X-ray, and you pay the remaining 20 percent.

Consumer-directed health plans: These plans typically pair high-deductible insurance with a health savings account or an employer-funded health reimbursement arrangement to help manage out-of-pocket costs.

These plans often give the customer a lower premium, but they must pay a high deductible before coverage starts. For plans with health savings accounts, that deductible must be at least $1,200 for individuals and $2,400 for family coverage next year.

The idea behind them is to give customers an incentive to shop judiciously for health care.

Co-payment: or co-pay, the flat dollar amount a patient has to contribute toward the cost of a covered medical service. An example would be the $20 charge at the doctor's office. These amounts are spelled out in insurance plans and don't vary based on charges the way coinsurance does.

Deductible: the annual amount a patient pays out of pocket for care before insurance coverage starts. This varies widely by plan. Insurance with high deductibles, which generally means $1,200 or more, often comes with lower premiums.

Flexible spending account (FSA): This lets employees set aside pre-tax wages for certain medical expenses not covered by insurance. The money must be used in the year it is set aside or it is forfeited.

Health reimbursement arrangement (HRA): This is an employer contribution to certain medical expenses before deductible and coinsurance amounts are applied. These help the employee pay the higher out-of-pocket costs that come with a consumer-directed health plan.

The money in an HRA belongs to the employer. That means the employer keeps it when an employee leaves a plan or the company.

Health savings account (HSA): Like the HRA, these also help people in consumer-directed health plans pay out-of-pocket medical expenses. Unlike HRAs, employees or customers own the HSA. They can deposit pre-tax money in the account, and some employers also contribute to them.

Any unused balance grows, and the customer keeps the account when leaving a job.

Next year, customers will be able to set aside as much as $3,050 in an HSA for individual coverage and $6,150 for family plans. Account holders over age 55 can also make increased payments until they reach Medicare eligibility (usually at age 65).

High-deductible health plan: These can come with lower premiums than traditional coverage, but the patient pays more out of pocket before coverage starts. High deductibles generally top $1,200. If they are at least $1,200 for an individual or $2,400 for a family, the plan can be paired with a health savings account.

Consumer-directed health plans involve high-deductible insurance.

Out-of-pocket expense: the amount an employee or customer must pay toward the cost of care. This includes deductibles, co-payments or coinsurance.

Premium: This is the monthly bill to carry an insurance policy. Employers pick up 84 percent of the premium for single coverage, on average, and 74 percent for family plans.

Last updated: 12:00 pm Thursday, December 13, 2012

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