Many employers are keeping their fingers crossed that an estimate of a 6 to 9 percent increase in health care costs for 2010 will hold true (see Forecast: Employee Plus One Health Coverage Over $10K and Employers Hold the Line on Health Benefit Cost Increases). However, that is not what our trade association, the Manufacturers' Association of South Central Pennsylvania (MASCPA), is seeing here in South Central, Pa.
At a recent roundtable discussion with MASCPA members, we heard of health care cost increases ranging up to 64 percent, with no company reporting projected increases below 15 percent. The association is currently projecting an average increase of more than 15 percent in 2010 for area companies in South Central, Pa.
An Incentive Not to 'Play'?
One of the biggest issues for businesses under health care proposals is an employer mandate, also known as "pay or play." This mandate would require businesses to offer "meaningful" health care benefits to their employees or pay a penalty that would contribute to a public fund to cover the uninsured.
The health care reform bill passed by the House would require employers with annual payrolls above $500,000 to provide health benefits to their employees or pay a penalty of up to 8 percent of payroll. Under the Senate bill being debated in December 2009, businesses with more than 50 workers, where at least one employee qualifies for government subsidies, would face a penalty of $750 for every full-time employee if it does not offer health care coverage.
In 2004 the U.S. Chamber of Commerce's Annual Survey of Employee Benefit Costs showed medically related employee benefit costs at 11.9 percent of payroll across the U.S. MASCPA did a survey in October 2009 (although very limited) on the percent of payroll that health care premiums represent. Premiums in the South Central, Pa., region were reported averaging 14 percent of payroll.
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Premiums in South Central, Pa., were averaging
14 percent of payroll.
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If the government mandates health care coverage and penalizes employers at even an 8 percent rate there will be a rush by employers to stop offering health insurance and to pay an 8 percent tax—rather than incur a 14 percent-of-payroll expense or more.
Between 1999 and 2008, the cumulative growth in health insurance premiums was 119 percent, compared with cumulative inflation of 29 percent and cumulative wage growth of 34 percent, according to Kaiser's Trends in Health Care Cost and Spending (March 2009). If Medicare continues to reimburse lower than the market rates, as seems likely, private insurers could continue to be stuck with making up the difference by paying, in effect, higher-than-market rates—another upward pressure on employer costs.
There are few employers that can withstand these kinds of inflationary increases.
Regulatory Roadblocks
Based on feedback from MASCPA member companies, workforce health and wellness management will gain considerable momentum in 2010. But the recent implementation of the Genetic Information Nondiscrimination Act (GINA) and the restrictions placed on employers by an interim final rule that is effective Dec. 7, 2009 (see Do Your Health and Wellness Plans Violate GINA?) will have a chilling effect and slow wellness initiatives considerably until employers can figure out what is allowable under these rules. That is likely to curtail the long-term cost-mitigating effects of health and wellness programs.
Finally, COBRA participants will continue to drive the insurance rates even higher in 2010 and beyond. Individuals who elect COBRA typically expect a need for their health benefits, and the 2009 Spencer’s Benefits Reports shows that COBRA participants cost their employers as much as 154 percent more than the average plan participant because of adverse selection.
We need to help the unemployed in these difficult times, but we must limit the financial impact of COBRA participants on extremely hard-pressed employers and employer-sponsored health plans. COBRA has been an expensive process for employers. The 2009 Spencer’s Benefits Reports shows that, on average, 10 percent of qualified beneficiaries elected COBRA in 2008; and their average COBRA claims costs were 54 percent higher than active employees because of adverse selection. Further, average COBRA administrative costs, including notices and billing and remitting premiums—but excluding administrative services organization (ASO) fees for claims administration—were approximately $338 per COBRA participant per year.
The bottom line for employers is that coverage costs continue to rise at double-digit rates.
Jim Baker, SPHR, is senior consultant for talent management at the Manufacturer’s Association of South Central Pennsylvania (MASCPA), past president of the MASCPA-affiliated Employee Relations Council, past president of the Hanover Area Management Association, past president of the Hanover Area Human Resource Association, past president of the York Personnel Association, and past chair of the Baltimore Industry OFCCP Liaison Group.
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