Preventive Medicine

New hikes in health care insurance premiums are putting the squeeze on grocery retailers and food manufacturers, forcing many to ask employees to take more responsibility for their health as management looks for ways to cut expenses.

With arguments over key aspects of the Patient Protection and Affordable Care Act scheduled to be heard by the U.S. Supreme Court next spring, employers also face uncertainty as they design health coverage for the future. Add to that the large number of part-time workers and union employees in the grocery retail industry, and administering health care plans can be complex and costly, says Debra Gold, senior partner at Mercer, a benefits consulting firm in Chicago. A union environment "makes it more challenging to offer a lower-cost option," Gold says. Yet with margins thin, "employers are looking at a lot of different strategies to manage costs."

More cost increases coming

While the number of options might increase when the Affordable Care Act is in full swing, employers can't count on the legislation to guarantee savings. A new survey by Mercer indicates companies can expect a 5.4 percent increase in health benefits costs next year, the smallest increase in more than a decade but still ahead of most wage increases. That hike will be on top of the 9 percent average jump in premiums for family coverage this year from 2010, according to the Kaiser Family Foundation's annual national survey of employers. And from 2003 to 2009, premiums rose 41 percent, while deductibles climbed 77 percent, reports the Commonwealth Fund.

The first tier of new Affordable Care Act rules, such as the extension of coverage to adult children up to age 26, pushed up health care insurance costs slightly this year, experts say. At least 1 million adult children added health insurance in the first quarter of 2011 due to the new legislation, according to the National Center for Health Statistics.

Walmart backtracks

Amid escalating health care costs and thin retail margins, Walmart told employees in October that it was cutting back health care benefits, eliminating coverage for new part-timers who work less than 24 hours per week, and stripping spousal coverage for new employees working 24 hours to 33 hours a week. It was a departure from the company's position of a few years ago, when Walmart wanted to be out in front on health benefits for part-timers.

But even with the cutbacks, Walmart remains among a minority of companies that offer benefits to employees who work fewer than 30 hours, the Kaiser Foundation reports. In general, 41 percent of workers in retail firms are covered by employer-sponsored health benefits, compared with 65 percent of employees in all firms, Kaiser says.

Employees pay more

Walmart also is pushing more of the cost of premiums onto its workers, while raising deductibles and reducing the amount it contributes to workers' health savings accounts, according to news reports. In some plans offered by the company, premiums will increase more than 40 percent, The New York Times reported. In addition, Walmart will charge employees who smoke an extra $10 to $90 per pay period.

But other companies are taking the opposite tack, beefing up benefits for those with chronic diseases in hopes of encouraging them to stay on their prescription medications and seek medical help regularly before their illnesses become acute. Increasingly the debate about health care centers on short-term vs. long-term savings. "You have to look at absenteeism on the job. If [employees] are not taking a drug they should be [taking], they're not going to be as productive probably–or will miss work," says Kelli Kolsrud, senior information and research specialist at the International Foundation of Employee Benefit Plans, a nonprofit educational association for the employee benefits industry based in Brookfield, Wis.

"If [employees] are not taking a drug they should be [taking], they're probably not going to be as productive."

–Kelli Kolsrud,

International Foundation of Employee Benefit Plans

Consumer-driven strategies

More large employers also have added a consumer-driven health care plan option with a deductible of $1,200 or more for single coverage that must be paid before the insurance kicks in. These plans are designed to encourage workers to be better shoppers for health care services.

"The insurance part doesn't really kick in until after you reach those deductibles," Kolsrud says. With more of their own money on the line, consumers become more involved in their health care and take more of an interest in understanding what various treatments cost, she explains.

In the retail industry where labor is highly unionized, more comprehensive health plans remain common.

– Paul Fronstin,

Employee Benefit Research Institute

The theory is that by choosing less-expensive options, consumers will contribute to a general slowing in the growth rate of health care costs. Still, in the retail industry where labor is highly unionized, more comprehensive health plans remain common, says Paul Fronstin, director of the health research program at the Employee Benefit Research Institute in Washington, D.C.

Safeway solutions

But Safeway, where 80 percent of the company's 180,000 employees are union workers, was an early adopter of consumer-driven health care. In 2007, union workers at the company's Southern California Vons and Pavilions stores ratified a 48-month contract that ran through March 6, 2011, and offered a health plan tied to health reimbursement accounts. With a focus on preventive care, the plan fully covered physicals, well visits, immunizations and routine screenings.

Safeway chief executive officer Steve Burd, an ardent supporter of preventive health care and the founder of the Coalition to Advance Healthcare Reform, had lobbied Congress to include consumer-driven solutions in the health care reform legislation. In making his case, Burd wrote a June 2009 article in The Wall Street Journal that explained how by incenting employees' healthy behaviors, Safeway had kept its health care costs unchanged over four years. Burd said the company's Healthy Measures program screened participating employees for tobacco use, weight, blood pressure and cholesterol levels and provided financial rewards for healthy behaviors, such as a $312 bonus annually for employees who didn't smoke. While Burd said the plan was well-received by 78 percent of participating employees, an account in The Washington Post in 2010 suggested Burd's claims were misleading because the program was offered only to nonunion workers on a voluntary basis. And Safeway forecasted its per capita spending for health care would climb 8.5 percent in 2009, the Post pointed out.

Nevertheless, Safeway has continued to embrace wellness as a health care strategy: This fall the company created the position of chief medical officer.

Average annual firm and worker premium contributions and total premiums for covered workers for single and family coverage, by plan type, 2011
* Estimate is statistically different from All Plans estimate by coverage type (p< .05).
Source: Kaiser Family Foundation

Percentage of covered workers enrolled in a plan with a general deductible of $1,000 or more for single coverage, by firm size, 2006-2011
* Estimate is statistically different from estimate for the previous year shown (p< .05).
Source: Kaiser Family Foundation

Productivity gains?

Despite the controversy over Burd's claims, the so-called Safeway amendment became a wellness provision in the Affordable Care Act, allowing companies with self-funded plans to offer premium reductions of 30 percent or more as incentives to employees to get regular health screenings and adhere to healthy behaviors. Starting this year, the act also eliminated out-of-pocket costs for certain preventive-care benefits. Regardless of whether the strategy leads to a decline in health care costs, it could spur higher productivity. A recent Gallup survey of 110,000 workers indicates full-time workers with chronic health problems miss more work, resulting in $153 billion in lost productivity annually.

Top tactics for cutting employer health care costs

Self-funded plans. Most large companies now use self-funded insurance plans because it allows them to avoid having to comply with state benefits mandates, says Paul Fronstin at the Employee Benefit Research Institute. The savings come in lower administrative costs, although the cost of premiums for self-funded plans was $700 lower than for fully funded plans in 2010, the Kaiser Foundation reports.

Consumer-driven plans. A Kaiser Family Foundation study indicates these plans, which generally carry deductibles of $1,200 or more attached to health savings accounts, now are offered by about 40 percent of large employers. Yet just 15 percent of employees in large firms enroll in high-deductible plans, the Kaiser survey indicates.

Value-based benefit design. These plans encourage employees with chronic diseases, such as diabetes or hypertension, to seek preventive care by eliminating or reducing co-pays for treatment and prescription drugs.

Health risk assessments. Employees fill out a questionnaire about their health and lifestyle choices to get access to certain health plans, and the information is used to help plan strategies for their care.

Plan audits. Employers verify they are covering only people who are eligible for health benefits. Increasingly, employers are eliminating coverage for spouses who can get coverage from their own employers, or imposing surcharges.

Reference-based pricing. Employer plans establish a set reimbursement amount for medical treatments and encourage employees to shop around for care that fits within the budget. Employees have the option of paying out of pocket for care that exceeds the established reimbursement level.

Defined contribution health coverage. Employers provide funds earmarked for health insurance, and employees use the monies to purchase insurance on their own or through an exchange.

Accountable-care organizations. By coordinating care within a network of physician groups and hospitals, these organizations often offer reduced fees.

Freelance journalist Ann Meyer is editor of and chief executive of L3C Chicago, L3C. Meyer formerly was a freelance small business columnist for the Chicago Tribune and has written for a variety of business publications, including BusinessWeekSmallBiz, Crain's Chicago Business, Specialty Coffee Retailer, Multichannel Merchant and Prepared Foods.