Ask A MHEDA-NET Group: Rising Healthcare Costs

January 1, 2017

“What are you and your organization doing to combat the rising healthcare costs?”

Michael Vaughan, Chief Financial Officer, Liftech Equipment Companies, Inc. East Syracuse, New York

Over the course of the last 15 years Liftech Equipment Companies has tried several different programs to curb rising health care costs ranging from traditional indemnity programs to being self-insured to high deductible plans. Each had its early moments of savings but did not deliver on stemming the tide of increases. Liftech ultimately was too small to be individually self-insured and the other programs offered some benefit but ultimately the insurance companies were in control of year over year increases. In recent years we were left suspicious as our single digit increases led us to believe that we had some good years and were highly profitable for the insurance companies. And ultimately under most plans you will always end up paying based on your worst year as few of us have experienced a reduction in rates at renewal when a good claims year follows a bad claims year.

Liftech Equipment Companies is taking a different approach to healthcare that involves joining a health insurance captive. The captive organization is comprised of many different organizations, each with their own plan design. Captive members pay their share of stop loss premiums and pay their own medical claims (subject to the plan design). The difference from traditional approaches relates to the cost containment efforts of captive members that are focused on using claims data to actively manage and encourage and incentivize employees to engage in preventative care versus reactive care. Our captive is heavily focused on “cost containment” management which is focused on delivering programs designed to treat illnesses before they become large claims and also focused on incentivizing healthy initiatives.

The benefits are many, namely that a healthier workforce will generate less healthcare cost and be more productive. Captive members who have a bad year of claims will not be penalized in perpetuity unless their claim experience continues. Due to the large number of lives that are included in the captive, stop loss rates tend to be lower than a smaller self-insured organization. And lastly, captive groups are exempt from certain Obamacare fees so accordingly the cost is less.

I am also aware of small organizations that have implemented a “Defined Contribution Plan” where small employers work thru a broker and have available to them a “private exchange” with many different benefit options and products. The employer gives the employee a fixed contribution and the employee goes to the exchange and purchases the plan that fits their needs. The employees can choose a limited benefit plan or a rich plan and pay the difference between the exchange rate and the amount received from the employer. There are many benefits to employees that includes giving them flexibility year to year to select the plan that works for their needs (rather than being forced into one or two plan choices) and empowers them to be more engaged in health care decisions. There are benefits to employers that include greater cost control and predictability by choosing how much to spend, streamlining administrative tasks by outsourcing much of the administrative work while gaining access to up to minute data and relief of the burden of trying to optimize a traditional health plan that meets every employee needs. Particularly with a growing diversity in the generational base of employees this option may be truly beneficial.

Greg Vander Lende, CFO, Morrison Industrial Equipment Co., Grand Rapids, Michigan

Health care is one of the largest expenses a dealership has. We are strong believers in being self-insured, allowing us to be more in control than accepting what an insurance carrier wants to charge the Company. We made that change about 20 years ago. To control costs we hold annual meetings explaining the plan benefits of being in network, and using generics. In the past few years technology also allows our employee to search for a low cost provider on many procedures they may need done. We have added a wellness program to encourage our employees to get annual physicals and engage with their PCP on their health. Along with this, we have a smoking cessation program.

In recent years cost sharing with our employees has seen the company carrying a larger increase than what the employee is asked to pay. We have spent a lot of time designing a plan that benefits the employee and what the company can afford. Part of the costs that employees do not think about is the cost of compliance and reporting that has been added in recent years.

Steven Kletzien, Chief Financial Officer, Wisconsin Lift Truck Corp. Brookfield, Wisconsin

Understanding there are a limited number of benefits dollars available in any given fiscal year, it’s important we continually review and “fine tune” our healthcare programs. Healthcare cost is the number one benefits expense for material handling companies.

A number of years ago Wisconsin Lift Truck Corp. converted to a partially self-funded program that included specific and aggregate stop loss limits. Under a partially self-funded program, the employer assumes a portion of the risk associated with health care claims. The transfer of risk results in a significant reduction in insurance premiums paid. Over a longer period, one can expect the net cost of partially self-funded healthcare coverage program to be appreciably lower than fully insured programs.

Wisconsin Lift Truck Corp. has incorporated high deductible health plans linked to HSA’s as tools to maintain competitive coverages at affordable pricing. Employees are required to participate in costing sharing of our health programs.

We encourage employees to participate in the cost reduction activities whenever possible. Healthcare services can and do vary significantly by provider. For example, independent imaging centers provide MRI’s at appreciably lower costs for comparable service.

Wisconsin Lift Truck Corp. offers its employees incentives to become healthier. Examples include employer contributions to an employee’s HSA account for successful completion of a smoking cessation program, weight reduction programs, and for numerous preventive care procedures.

Other initiatives include encouraging employees to participate in company sponsored runs/walks and a recent change to a new vending machine service that provides our employees with heart healthy options.

David Iliff, Chief Financial Officer, DuraServ, Farmers Branch, Texas

We started to look very seriously at our healthcare costs four to five years ago after multiple years of double digit percentage cost increases. After long discussions with our benefits advisor and consultation with our employees we implemented the following changes to our healthcare insurance plans. With the following changes below (and some luck!) we have kept our healthcare costs to low single digit percentage increases over the past three years on average.

1. Entering into a “level funding” plan with our insurance carrier. A level funded plan is a midway point between a classic premium only insurance plan and a self-funded plan. It provides some upside to the company if claims come in below a set target, but caps the total out of pocket expense.

2. Transitioning all employees to a high deductible / health savings account (“HSA”) plan. We believed the high deductible / health savings account would increase consumerism amongst our employees on day-to-day healthcare choices. Transitioning to these plans does require a lot of education (our HR department has done an excellent job explaining how an “HSA” works). We transitioned to 100% HSA adoption over a three year period, while contributing a large dollar amount to our employees HSA bank account, to help them offset the higher out of pocket expenses.

3. Starting a companywide wellness program, while offering discounted premiums to non-smokers and employees that participate in an annual check-up. We held a six week wellness competition for all of our employees. We purchased all participants a “Fit-Bit” and then logged how active our employees were on a daily basis and awarded prizes. It really got our employees thinking about how active they are on daily basis. In addition, we have also discounted premiums to non-smokers, while offering a smoking cessation program to those impacted by the higher premiums. We have had well over ten employees stop smoking through the smoking cessation program. Finally, we recently implemented reduced premiums to employees that do an annual biometric screening or meet with their doctor for an annual “wellness check.”

Overall, the changes have been well received by our employees, but the key was good communication from the beginning. We found that if you are transparent about the challenges the business was facing on healthcare costs, employees understood why dramatic changes were necessary.

Bill Lowry, Corporate Controller, Tynan Equipment Company, Indianapolis, Indiana

Our plan comes up for renewal in the first quarter of 2017 so this is something we will be looking at heavily after the start of the New Year. So far we’ve been pretty lucky with no major illness claims and the majority of claims that we do have are mostly single occurrence. Our premiums went down in 2015 but then bounced right back with an increase in 2016 to the same level of premium.

Unfortunately I believe the days of the $500 deductible are gone for many companies and over the past few years we’ve adjusted employee deductibles to keep our rate increases reasonable. We have participated in purchasing pools in years past to increase participants and lower the premiums but several years ago we moved to a broker to assist with our decisions. By utilizing a broker we are able to apply some pressure to the insurance provider from competitive quotes so it’s paid off to evaluate more than one proposal.

In 2017, I do expect that we will see a larger increase than we’ve seen in years past and we will be evaluating options. Some of the options we may consider would be self-insured plans, high deductible plans with a health savings account, and plans with wellness programs.

Ted Springer, President Springer Equipment Company, Birmingham, Alabama

With less than (60) employees the rise of healthcare costs is a major challenge for smaller organizations like ours. This one is especially tough in a state with no competition, the largest and only provider has carte blanch to set premiums at extremely high rates! We don’t participate in Health Savings Accounts (HSA’s) which is something we think should be considered given the current state of health insurance money management.

We have discussed Defined Contribution Plans, Dependent Management Strategies, Company Health and Wellness Programs, Increased Employee Cost Sharing along with the possibility of joining a co-op or a Captive but the size of our group along with the potential financial pitfalls of catastrophic illnesses within our group is extremely concerning.

Our proposed annual increase promises to be huge and as we pay 50% of the annual family premiums we are concerned that some in our group simply can’t afford to pay the increase. We are also looking at the prospects of the company portion of the increased premium to be very difficult to manage as well.

Mark M. Milovich, President, Lift Atlanta Inc. Decatur, Georgia

This is the one business issue that keeps me awake at night more than any other. Over the past few years, I have learned that there is absolutely nothing “affordable” about the Affordable Care Act, as I have seen my company’s health premiums nearly double in less than 5 years. The only recourse we have is to try and reduce our amount of claims, which is not easy.

For some reason, most Americans are very poor buyers when it comes to healthcare and medical goods and services. When we buy cars, or TVs, or washing machines, or any other type of product or service, we ask all sorts of questions- how does it work? Why is this better than that? What is the ROI? Can I get it less expensive? We ask all sorts of questions- except when it comes to medical products or services.

We generally take or do whatever our doctor tells us to take or do. We don’t price shop for cheaper services or medicines and seem to take the attitude of “it is what it is” when it comes to medical expenses.

What we have tried to do over the past several years is educate our employees to be better, more educated buyers of medical goods and services. We have held meetings and seminars of what questions to ask our doctors and pharmacists; to get them to shop around for less expensive procedures, or alternative medicines, especially generic. We try to get our people to shop around- if their doctor says go to X clinic for an x-ray or MRI, do some research- perhaps Y Clinic will do the same service for less.
We’ve also tried to educate our people on how the insurance game is played- how premiums are priced, what the broker’s cut is, and the expense involved in going to the doctor.

There has to be a change in our healthcare costs. Whether that means a complete or partial repeal of the ACA is yet to be seen. In the meantime, the only defense we have is to better educate our people and make us better consumers of medical goods and services.

John C. Williams, President, ConveyorMan, Inc., Memphis, Tennessee

1. All new hires must pay 1/2 0f cost.
2. Letting deductibles rise.
3. Voted for Trump.

Dave Kenealy, President, DAK Equipment & Engineering Co, Elmhurst, Illinois

At DAK E&E, we review our health care program every year. This year we switched programs but stayed with the same carrier. This enabled us to avoid an 11% premium increase, and the program’s participants were affected only minimally through increased co-pays at the emergency room and for prescriptions. We have started warning employees to expect changes in the co-insurance costs if rates keep rising. We currently pay 80% of the employees medical – in the future we may go to a lower percentage that the company pays.

Larry Abernathy, CEO, Advanced Equipment Company, Charlotte, North Carolina

For the most part we are just sucking up the costs and it has gotten very expensive. We pay for the entire family with 100% after deductible. We have increased the deductible to $7,000, per family. We also fund their HSA account $4,000. Annually they only have $3,000, exposure per family. A GREAT BENEFIT.

Mark Nelson, President, Nelson Equipment, Shreveport, Louisiana

Right now we are doing nothing. We are absorbing the cost increases and have not made any changes. We are evaluating all options and if the increases continue to rise at this accelerated pace, there will be no choice for us but to pass those costs on to the employee.

Scott Lee, President, Conveyor Solutions, Inc., Schaumburg, Illinois

Like most other organizations, we want to provide the best possible health care to our team.

However, the aggressively rising costs has made this effort more challenging. Each year, our broker compares multiple carriers and different plan options. We’ve tried to minimize the impact to the employee and absorb as much of the impact as possible. However, it’s at a breaking point and we’re going have to look at HSA plans (assuming they stick around) or other options to subsidize the increasing deductible amounts. I’m hoping the recent administration change will address this serious issue (quickly) and provide a solution to what appears to be a worsening problem with no end site.