What the doctor ordered

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It’s probably one of those things that you put on the back burner because you have more pressing issues. But even if it isn’t one of your priorities, you can bet that adequate, affordable coverage is very important to your employees.

“Hospitalization is the main recruiting tool,” says Rex Johnsonbaugh, vice president of J-Line Inc., a 30-truck carrier based in Altoona, Pa. “That is one of the key hiring points.”
Harry Owen Trucking, a 150-truck carrier based in Elizabethtown, Ky., pays 50 percent of a company driver’s coverage after the first year of employment, 100 percent upon reaching the fifth year, and 75 percent of family coverage upon the seventh year. “We realized some time ago that if we as an organization are going to move forward, then we must be number one in customer and driver satisfaction,” says President Michael Hall.

Health insurance is a headache on all fronts – policy decisions, administrative costs, insurer and government mandates. But in an era when business is booming and drivers are hard to find, take some aspirin and weigh your options.

Premiums still rising
Unfortunately, the hassles of selecting and implementing a health insurance package aren’t the only barriers. Especially for smaller carriers, the costs seem prohibitive.

Businesses with fewer than 50 employees – three-fourths of all U.S. private establishments, employing nearly one-third of the private sector work force – are much less likely than large firms to provide health coverage for their employees, according to America’s Health Insurance Plans, a national trade association.

“A lot smarter people than me have gone broke trying to figure out health insurance,” says David Owen, president of the National Association of Small Trucking Companies, based in Hendersonville, Tenn.

About 40 percent of small business owners have no insurance at all because they claim they are too cash-constrained to take on rising insurance prices, according to the Insurance Information Institute.

“In the last four years, we’ve been hit with a 150 percent increase,” Johnsonbaugh says. “This year alone, we were hit with a 60 percent increase. I’ve looked at 30 or 40 health plans. We’re trying to hold costs down.”

NASTC, which represents more than 1,500 trucking companies, brings together small fleets operating five to 100 trucks so that they can negotiate prices as a group. Vendors gain customers they often cannot afford to pursue on their own; and trucking companies buy products and services for less than what they would pay by themselves.

But health insurance has proven to be a thorn in NASTC’s side.

“We’ve been working on trying to be part of a solution for eight or nine years,” Owen says. “We’ve tried a lot of different things, and when we get through with all of it, we find out the trucking industry is a bad health risk. The better drivers tend to be older, the work itself is not conducive to staying lean, and more than half our drivers are overweight. We’re trying to create awareness programs to teach drivers how to take care of themselves on the road.”

Unfortunately and unlike automobile insurance, whether you use your health insurance or not, your rates still may increase. “The last three years, we’ve seen a 35 or 45 percent price increase,” says Dr. Paul Fronstin of the Employee Benefit Research Institute, a Washington, D.C. organization committed to public policy research and education on employee benefits.

The surge is hardly surprising when one considers various trends, such as increasing costs of pharmaceuticals and medical technology, greater health care fraud and higher provider fees.

“The politicians are not addressing the cost drivers in the system,” says David Denny, president of Jeffersonville, Ind.-based Denny Transport. “They just shift costs from one place to another.”

Repackaging benefits
Escalating costs mean that few employers can offer the comprehensive, premium-paid health insurance packages that once were fairly common.

“Many employers are rethinking what they’re doing,” Fronstin says. “They’ve tried to shift costs onto employees.” EBRI has seen some companies raise premiums, but more often businesses are managing costs by raising deductibles and co-pays. But businesses are also serving up some carrots as well as sticks.

“We’ve seen them adding incentives for employees to save money in select areas, such as asking them to pay the full price for brand-name drugs, adding incentives to use lower-cost hospitals, and going with more high-deductible health plans,” says Fronstin, director of the EBRI’s health research and education program.

The rising cost of health insurance has forced many small businesses to cut back on benefits.
“Unfortunately, the drivers don’t have a lot of money to pay for it, and the companies don’t have a lot left over, either,” NATSC’s Owen says.

Insurers often require lengthy medical histories about each employee. A pre-existing condition by just one employee could lead the insurer to deny a policy to the company. And if an employee suffers a serious illness, the insurer may terminate the policy when it comes up for renewal.

“It’s killing us,” Johnsonbaugh says. “That’s becoming a real issue. I don’t know how long we can keep this up, if something doesn’t give soon.”

Going it alone
One way to address this problem is to discard commercial insurance altogether and self-insure. That means you bear health care costs – other than those you transfer to employees through deductibles and co-pays – directly. But this can be an administrative nightmare.

A carrier that decides to go with self-insurance would be wise to spend extra money on a good third-party administrator, advises Donavan Reither, vice president of administration for Carthage, Mo.-based D&D Sexton. “TPAs work as your personal insurance company,” he explains. “They have better ways to track and handle claims. Because of that, they can get better rates.”

An even bigger issue is financial risk. Although companies that self-insure health care often retain policies to protect them against catastrophic claims – long-term cancer, for example – a number of serious health problems can hurt financially. D&D Sexton, which operates 100 trucks, went with a self-funded plan five years ago but has since selected a more conventional, fully funded plan. Self-insurance gave D&D Sexton more say in its plan, but it also left the carrier liable for any major health expense incurred by any of its employees.

“We didn’t need any more variable costs,” Reither says. “If a guy had open heart surgery, your monthly premium may not cover it. Claims have to be paid within 30 days, so that can be significant.”

D&D Sexton’s month-to-month insurance expenses now are the same for the duration of the contract. “Our renewal comes up in November, and I’ll have plenty of advance notice,” Reither says. “Once you get your numbers, they’re fixed for the next 12 months.”

Cut carefully
Passing more of the costs on to employees can result in insecurity and lower morale, says EBRI’s Fronstin. In addition, your plan’s rules can have fundamental implications for your work force. Many companies, for example, wait a certain period of time before offering new employees health insurance.

But given that drivers and other employees often decide within the first couple of months whether they will stay with a carrier, lack of health benefits may contribute to turnover. Offering health insurance before the typical 90-day wait may cost a few hundred dollars, but it might be worth it.

Employees at Denny Transport, for example, are eligible the first of the month after the end of a 30-day waiting period. The 50-truck carrier pays 100 percent for workers, but employees have to pay 100 percent for their families, Denny says.

Other companies no longer have waiting periods. “Many employers have done away with waiting periods because of the existing health condition of their employees,” Fronstin says. “Delaying medical coverage goes against the whole notion of managed care.”

Saving for employee health
Recognizing that companies increasingly are making employees responsible for health care, Congress has taken steps in recent years to make individual contributions easier to swallow. The oldest of these are Section 125 or “cafeteria” plans, which let employees use tax-free dollars to pay expenses not covered by insurance.

In the late 1990s, Congress authorized medical savings accounts (MSAs), which accomplished similar results but also allowed for payment of interest. And unused funds weren’t forfeited.

One critical provision included in the Medicare overhaul of 2003 was the creation of health savings accounts (HSAs), which provided yet another avenue for funding health care coverage. HSAs are designed to help employees at companies of all sizes save for future qualified medical and retiree health expenses on a tax-free basis. HSAs replaced MSAs, which were limited to firms with 50 or fewer employees.

Any individual covered by a high-deductible health plan may establish an HSA. Amounts contributed to an HSA belong to individuals and are completely portable. Every year the money not spent would stay in the account and gain interest tax-free, just like an IRA. Unused amounts remain available for later years, unlike “use-it-or-lose-it” cafeteria plans.
Tax-advantaged contributions can be made in three ways:

  • The individual and family members can make tax-deductible contributions to the HSA even if the individual does not itemize deductions.
  • The individual’s employer can make contributions that are not taxed to either the employer or the employee.
  • Employers with cafeteria plans can allow employees to contribute untaxed salary through a salary reduction plan.

To encourage saving for health expenses after retirement, HSA owners between age 55 and 65 are allowed to make additional catch-up contributions ($500 in 2004) to their HSAs. Individuals eligible for Medicare may not open an HSA.

HSAs can help employers lower health insurance premiums. Higher deductibles increase cost-sharing with workers, cutting costs covered by the company’s plan. And the contributions are spent at the worker’s discretion, which means the worker has an incentive to be a more thoughtful user of health care. Funds remaining in the HSA each year roll over and continue to earn tax-free interest. Employees now have motivation to spend less, possibly cutting back on health care usage.

But HSAs are new, so little evidence has been accumulated to determine just how much health care usage will be reduced. In MSA plans, utilization decreases of 25 percent have been reported, according to the American Academy of Actuaries. The biggest impact may come from the worker’s mindset. They might view HSAs as a method to pay for every health care expense or one that needs to be tapped for only the biggest claims while holding on to the rest for their golden years.

“You’re still paying the same price,” says NASTC’s Owen. “I think that’s real interesting. It rewards the guys who aren’t sick.”

Distributions from the HSAs are not taxable as long as they are used for qualified medical expenses, even if the employee no longer is eligible to make additional contributions. If a payment is not used for a qualified medical expense, the employee must include that amount in his or her gross income and be levied an additional 10 percent excise tax.

Qualified medical expenses include amounts paid for the diagnosis and treatment of disease, or for premiums used for long-term care insurance, COBRA health care continuation coverage, health care coverage while receiving unemployment pay, and certain health care coverage for those over age 65.

Strength in numbers
A growing number of small businesses are joining forces to enjoy the same economies of scale as large companies, thereby gaining more influence with insurance companies. These alliances are able to negotiate lower rates and better coverage because insurers don’t want to lose a major volume of business. The carrier issues a single policy to the alliance; coverage cannot be terminated unless the carrier cancels the entire alliance.

CaliforniaChoice is that state’s top purchasing alliance for small businesses seeking health insurance. Employees can choose different plans – even different insurers – under one account. Business owners set contribution levels, and employees decide which carriers they will use and how much more to spend for added benefits. To find purchasing alliances in your area, your local chamber of commerce is a good place to start.

Such alliances, however, are shackled with laws that limit their scope and power across state lines. Association Health Plans – which remain in legislative limbo – would allow more small businesses to band together nationwide, through their membership in an association, to purchase more affordable health insurance than they could by themselves. Unions and large corporations already have this ability.

“Unless we have some kind of tort reform and a handle on health costs, we won’t have good health care people can afford,” Owen says.

Last year, AHP legislation was sponsored by more than 150 organizations representing more than 12 million employers and 80 million American workers. President Bush supported AHPs and in his State of the Union address urged Congress to enact this legislation; the House of Representatives passed its AHP bill, but the Senate’s version is mired in committee.

“That’s a very political issue,” Fronstin says of AHPs. “It’s doubtful it’ll happen this year, but never say never.”

Associations may not be the only answer. Business owners or groups have set up health-insurance networks among individuals and companies that have little in common except for their size and location. Again, your local chamber of commerce can help you find out about any such plan in your region.

Managing your costs
As many carriers are finding out, saving money on health insurance often involves quite a bit of homework. With all of the variables and unknowns, it may seem like performing surgery in the dark. It helps if you don’t view setting up your health plan as a one-time event. Changes in your fleet size and number of employees will affect your coverage, but don’t forget about modifications in the insurance industry and in state or federal laws. Those likely will make a greater impact on your insurance decisions – and your premiums.

Which way to go?
There are several basic options for setting up a health insurance plan and supplementing insurance:

Traditional indemnity plan, or fee for service
Workers choose a provider for medical care, and the insurer either pays the provider or reimburses workers.

Managed care
Health maintenance organizations (HMO) and preferred provider organizations (PPO) are the most common forms of managed care. An HMO is a prepaid health-care format in which employees use physicians and hospitals under contract to the HMO. Under a PPO, the insurance company negotiates discounts with doctors and health care facilities. Employees choose physicians from an approved list and pay a set amount for an office visit – usually $10 to $25. The insurer pays the rest.

Point of service
POS plans, a combination of PPO and HMO, were established to provide lower-cost medical care for those in the provider network. POS plans are structured in the same way as PPOs, but with a primary care physician. If you seek medical care outside of the network, you will be responsible for full payment. However, if your primary care physician gives a referral for you to see a specialist outside of the network, the insurer will pick up most of the cost.

Cafeteria plans
Also called Section 125 plans, cafeteria plans redirect a portion of an employee’s wages to pay for qualified medical expenses not covered by insurance. Employees contribute funds to the plan before taxes are deducted from paychecks, thereby reducing their income tax liability. However, any amount left in the plan is forfeited if not used by the end of the year.

Self-insurance means covering all or a huge portion of employee medical expenses through funds you control, such as company monies and payroll deductions. Typically, an outside company handles paperwork, while you pay the claims and employees help pay premiums. Benefits include more control of the plan design and cash flow. But it’s risky because your company is directly liable for claims. But you can limit your liability with “stop loss” insurance. The insurer pays for claims that exceed a set dollar amount. Bigger companies with 100 or more employees have an advantage because they can tolerate more risk, set higher stop-loss coverage and get cheaper rates.

Health savings accounts (HSAs)
Unlike medical savings accounts that were limited to companies with 50 or fewer employees, HSAs are designed to help employees at companies of all sizes save for future qualified medical and retiree health expenses on a tax-free basis. Any individual covered by a high-deductible health plan may establish an HSA. Amounts contributed to an HSA belong to individuals and are completely portable. Every year the money not spent would stay in the account and gain interest tax-free, just like an IRA. Unused amounts remain available for later years, unlike “use-it-or-lose-it” cafeteria plans.

Small companies, big costs
Employers who can’t afford health insurance may consider cutting back on their packages or going without it altogether. The U.S. Census Bureau reports that:

  • More than 62 percent of owners and workers in firms with 100 or fewer employees are uninsured. Institutions and the private sector have carried the burden of paying for this.
  • Small business employees with health insurance pay about 18 percent more for a given benefit than their counterparts in large firms.
  • Small business owners have endured double-digit premium increases over the last 3 to 4 years.
  • For every 1 percent increase in premiums, 300,000 individuals lose health insurance.

Don’t be scammed
Some companies have been swindled by corrupt operations allegedly selling group insurance packages at rates 20 to 40 percent below the standard price. Such plans aren’t backed by enough cash reserves to fund all policyholders’ claims. How can a carrier protect itself from a scam? Here are some tips from Entrepreneur.com:

  • Compare rates. If it sounds too good to be true, it usually is. Ask for references from other companies that are using the plan. Ask them how quickly the insurer pays claims.
  • Check the plan’s underwriter. Call the underwriter (the actual insurer) and the insurance department of the state in which it’s registered to see if it really is affiliated with the suspect plan. Ask your state’s insurance department for the underwriter’s ability to pay claims, monitored by A.M. Best, Standard & Poor’s and other credit-rating providers.
  • Make sure the plan adheres to state regulations. Contact your state’s insurance department if the organization claims to be exempt.
  • Find help. The Better Business Bureau will be aware of any existing complaints. If you still suspect fraud, check with your state insurance department.