January/February 2005
Like other businesses, recyclers face health insurance premiums that increase by double digits almost every year. Here’s what a number of firms are doing to control—or just cope with—such expenses.
By Robert L. Reid
Last November, an annual survey of employer-provided healthcare plans reported some apparently good news: U.S. health benefit costs rose by just 7.5 percent in 2004 compared with 10.1 percent in 2003 and 14.7 percent in 2002, according to Mercer Human Resource Consulting L.L.C. (New York City).
While those findings suggest some leveling off of cost increases, the numbers include the largest employers and thus probably don’t reflect the experience of many small and midsized companies, notes Rick Elliott, president of Willis Employee Benefits North America (Atlanta), which helps clients in the scrap industry and other businesses find and design employee benefit plans.
“Many, many, many individual businesses that we work with or talk with still see significant healthcare cost increases in the high-teens and above, and are struggling to find solutions,” Elliott says.
Consider the example of Forman Metal Co. (Milwaukee). For Marty Forman, president, 2004 was the year he dodged a bullet on healthcare costs—though he’s not sure how long his luck will last. Forman has always paid 100 percent of his employees’ healthcare premiums. Last year, he worried that the seemingly endless rise in the cost of health insurance might force him to start charging his workers for a portion of their coverage.
That didn’t happen—but only because 2004 turned out to be such a great year for metal recyclers that Forman could afford to absorb the most recent increase in premiums. “We did better than expected,” he explains, “and business sort of bailed us all out.”
But Forman also knows that premiums for himself and his seven employees have been rising as much as 15 to 25 percent annually and will likely continue that upward spiral. Today, Forman notes, he pays $8 an hour just for healthcare premiums—more than he used to pay in hourly wages for his first truck drivers 30 years ago. Plus, he knows he can’t always rely on good years to bail out the rising rates.
“Business isn’t going to stay good forever,” he states. And when today’s high metal prices do decline, Forman—who strongly believes that workers should not have to pay any portion of their healthcare premiums—knows “I’m going to get stuck having to go back on a very core belief that I’ve had my entire life, and that makes me really sad to look into the future and imagine that happening.”
Healthcare Headaches
Asking employees to pay—or, more often, pay more—toward their healthcare coverage is a familiar and painful problem for scrap recyclers.
In 2003, for instance, Thalheimer Brothers Inc. (Philadelphia) endured an 18-week strike by its unionized employees when they were asked to start contributing to healthcare premiums that previously had been fully paid by the company. In the end, Thalheimer’s roughly 100 workers did start contributing to premiums that have been increasing by as much as 15 percent a year, says John Thalheimer, president.
United Scrap Metal Inc. (Cicero, Ill.) still pays 100 percent of the premiums for its employee coverage, but only if the employee uses the health maintenance organization (HMO) option that United Scrap added to its health plan in 2002 to stem rising insurance costs, explains CEO Marsha Serlin. If employees choose the preferred provider organization (PPO) system they had prior to 2002, which generally offers more choices on doctors and hospitals, they must pay the difference between the two plans—about an extra $65 a month for an individual. Moreover, as the cost of family coverage “got so out of control,” the company had to stop contributing to the cost of premiums for the spouses and children of many regular employees, regardless of whether they use the HMO or PPO, Serlin notes.
At Texas Recycling/Surplus Inc. (Dallas), employees have always contributed to their individual healthcare premiums and paid all the cost of family coverage, with the company sometimes absorbing premium increases and other times being forced to pass those increases along, says Joel Litman, president. At his company, another struggle is simply keeping enough people in the firm’s health plan to qualify for better rates. “To keep the plan, we need 75 percent participation,” Litman says, “otherwise we’re put in a much smaller pool and the rates just skyrocket.” Last year, for instance, 25 of the firm’s 31 employees were in the plan, which enabled Texas Recycling to “just barely squeeze in for that 75 percent,” Litman says (a loss of just two employees would have dropped participation to 74 percent).
Controlling—or Coping With—Costs
Keeping rising healthcare costs under control can involve significant tradeoffs, recyclers note. For instance, Texas Recycling was able to keep a proposed 13-percent rate increase to just 3 percent for its current policy by increasing the out-of-pocket costs employees must pay, such as deductibles, copays, and emergency room admittance fees. In one case, the deductible went from zero to $1,000, Litman notes.
Likewise, Marty Forman says rising premiums have “continued to erode the value of the health insurance,” forcing his employees to accept limited coverage or limited availability of doctors “so we can still afford it—and it’s still unaffordable!”
Other tradeoffs include switching from a well-known insurance company you’ve worked with for years—but which now wants to raise your rates too high—to a new insurer you don’t know well, says one recycler who preferred not to be identified. A major factor when switching insurers, this recycler notes, is determining which doctors your employees use to make sure as many of them as possible participate in the new plan.
But switching insurers isn’t always an easy or viable alternative. The number of health insurance providers available or the kinds of networks of physicians offered can differ greatly from state to state, even city to city, explains Rick Elliott of Willis Employee Benefits. A single insurer dominates some regions while others enjoy a half-dozen or more options, he says. Likewise, HMOs can proliferate in one city or county, PPOs in another.
That’s something ReMA Chair Joel Denbo of Tennessee Valley Recycling L.L.C. (Decatur, Ala.) knows all too well. “Alabama is a particularly difficult state because 95 percent of all the health insurance benefits are provided through Blue Cross/Blue Shield—they have an absolute lock on the market down here,” he notes. Though Tennessee Valley Recycling does change carriers when a more attractive policy is available, the choice is often just between different Blue Cross plans, Denbo says.
DIY Insurance?
For some recyclers—especially, but not exclusively, larger companies—one solution to controlling health insurance costs is the do-it-yourself approach known as self-funding. In self-funded plans, the employer is essentially the insurer, charging employees premiums for their coverage or requiring them to pay a portion of the costs for routine employee medical visits and prescriptions. Typically, self-funded companies also purchase special insurance to cover catastrophic medical bills.
Ben Eisbart, executive vice president of administration for OmniSource Corp. (Fort Wayne, Ind.), compares his company’s self-funded plan to automobile insurance. “We take a certain amount of risk before the stop loss and umbrella coverage kicks in and protects us ... we absorb the first X dollars of medical treatment, and then have an insurance carrier handle the catastrophic individual and aggregate insurance costs.”
Roughly 1,200 employees at OmniSource’s roughly 30 locations participate in this plan, which is similar to a PPO, using networks of physicians and a third-party administrator to “re-price” medical bills based on negotiated discounts, Eisbart explains. Other factors—ranging from wellness clinics and discounted mail-order services for bulk purchases of medications to a measure of “good luck,” Eisbart concedes—help OmniSource keep its health insurance costs lower than the average insurance costs throughout the nation. But “nowhere in our attempt to monitor costs do we ever—underscore ever—sacrifice the health and well-being of our employees,” he stresses. For instance, referrals by in-network physicians to out-of-network doctors or hospitals can still be treated as in-network so the patient does not suffer a financial penalty, Eisbart explains.
At Louis Padnos Iron & Metal Co. Inc. (Holland, Mich.), employees can choose between the company’s self-funded plan, which works like a traditional indemnity insurance program, and an HMO plan, explains Shelley Padnos, executive vice president of administration. Out of some 380 employees covered by either plan, roughly two-thirds choose the HMO option and one-third choose the self-funded version, she says.
Premiums are much lower under the self-funded plan—with certain younger, single workers able to pay no premiums at all—because the potential for out-of-pocket expenses is much greater, Padnos says. Typically, employees in the self-funded plan pay their health bills directly to the physician or hospital at the point of service and then submit claims to have a portion reimbursed, while employees in HMOs typically pay higher monthly premiums and then a small copay per visit, she explains.
As Padnos adds, “We’ve been able to do a good job of managing costs within the self-funded plan and have been able to negotiate good deals with providers, joined a sort of purchasing organization that negotiates prices for prescriptions, and that sort of thing.” Compared with simply buying an indemnity health insurance plan, she says, the self-funding option has been “slightly less expensive.”
About two-thirds of the roughly 1,560 employees at Metal Management Inc.’s (Chicago) various sites participate in the company’s self-funded plan, notes Robert Larry, executive vice president and CFO. The other third, mostly in the Northeast, use a traditional PPO because it offers a better provider network, he says. Metal Management’s size helps it control healthcare costs by negotiating the best possible deals, sometimes nationwide, sometimes regionally, adds Daniel Dienst, chairman and CEO. Still, costs do go up. But for several years now, Metal Management has simply absorbed those increases rather than raise employee healthcare premiums or reduce the benefits package.
“We’ve made a conscious decision as a company to shoulder the burden,” Dienst says, “not only as a reward to our employees but also to continue to attract talent to our company.”
Don’t think, though, that self-funding is only for the largest scrap corporations. Hummelstein Iron & Metal Inc. (Jonesboro, Ark.) has a self-insured healthcare plan that doesn’t charge its roughly 30 participating employees any premiums for their own coverage, says Lester Davidson, controller, though additional coverage ranges from $30 a month for an employee’s child to $75 a month for the employee’s whole family. Working with a local hospital’s PPO, Hummelstein Iron & Metal obtains discounts on medical bills and then reimburses employees for 80 percent of their in-network costs (with a $500 deductible) or 40 percent of out-of-network bills ($1,500 deductible), Davidson says.
As with OmniSource, Hummelstein Iron & Metal believes it has controlled healthcare costs through a combination of luck—no big claims on the company’s supplemental catastrophic healthcare coverage—and hard work. This work includes realizing that a number of employees were using expensive emergency room visits for nonemergency situations, Davidson says. So the company’s plan added a special $150 deductible for emergency room visits—a deductible that gets waived for genuine emergencies or when the patient gets admitted.
“Even if they continue going to the emergency room when they shouldn’t, at least we’re not paying as much of the bill as we were before,” Davidson notes. “So we’ve got that savings.”
Seeking Healthier, Smarter ‘Consumers’
A major trend in healthcare insurance is the idea of “consumer-driven health plans,” says Rick Elliott. This means “pushing some of the responsibility onto the employees to understand their benefits, understand what healthcare costs.”
For example, Shelley Padnos points to the out-of-pocket difference for prescription drugs under her firm’s two plans, one self-funded and the other an HMO. Employees in an HMO have only a small copay of, say, $10 for prescription medicines. But if the actual cost of the drug is $71.24, then that’s what the employee in the self-funded plan has to pay upfront, before partial reimbursement, Padnos notes.
In addition, some companies are working to change employee behavior to encourage healthier lifestyles, which could reduce overall healthcare spending, Elliott notes. These efforts range from company newsletters that simply discuss healthy eating or the problems associated with obesity to company-sponsored health fairs that offer immunizations, blood pressure screenings, and cholesterol measurements.
Going a step further, Texas Recycling usually offers employees free flu shots each year, though that wasn’t an option in 2004 because of the vaccine shortage, says Joel Litman. And Hummelstein Iron & Metal offers up to $300 per employee to pay for annual physicals, notes Lester Davidson.
Overall, more than 81 percent of American businesses with 50 or more employees offer some sort of health promotion, with definite bottom-line results, notes the Wellness Councils of America (Omaha, Neb.). For instance, after determining that 29 percent of its healthcare costs were lifestyle-related, Union Pacific Railroad launched a “self-care initiative” in the 1990s that cost $50 per employee, notes the Wellness Councils. In the first five years of the program, Union Pacific reduced lifestyle-related health costs by 5 percentage points, achieved net savings of $1.26 for each $1 spent, and tripled its direct savings in medical costs through indirect savings in productivity, the Wellness Councils say.
At OmniSource, being self-insured makes the company take “a very proactive posture in working with our employees to show them the value of a healthy lifestyle,” Ben Eisbart notes. This ranges from positive to negative reinforcement—though the negative side is pretty much restricted to discouraging smoking by charging self-identified smokers and their family members nominally higher healthcare premiums, Eisbart says. Conversely, smokers who try to quit can be reimbursed for smoking cessation products such as nicotine patches and nicotine gum.
Other positive reinforcements include offering voluntary weight-loss clinics on-site, with nutritionists who can discuss healthy diets or experts who can prepare a lifestyle profile that is shared only with the employee, not with OmniSource, Eisbart says. Employees who participate in Weight Watchers programs or exercise programs can be entered in contests for prizes such as gift certificates and even weekend trips to, say, Chicago, he adds.
OmniSource will also pay for a third-party diagnostic tool in which healthcare professionals analyze the medications employees take and the risk factors they face, then inform individual employees about their potential health problems—again, without informing OmniSource of any results. “Our employees can choose to listen or they can say, ‘Hey, don’t bother me,’ but at least they have a choice,” Eisbart notes.
Diagnosing the Future
OmniSource’s use of a third-party resource, not just its own HR department, is in line with another trend noted by Rick Elliott of Willis Employee Benefits. He sees more and more companies turning to outside services or technology to manage and administer employee benefits, including healthcare. Recent restrictions on medical privacy make such third-party efforts essential, especially in attempting to change employee lifestyles and keeping data about those lifestyles confidential from the employer, he says.
Today, some companies use external call centers to handle employee questions about their health plan or use Internet-based systems to let employees learn about and select health plan options, Elliott notes.
Others point to a concept called “defined contribution” in which an employer sets a fixed amount to spend on healthcare and then gives that amount as a subsidy to each employee. The employee then uses the money for his or her healthcare needs, purchasing an employee-sponsored plan, an outside plan that the employer does not administer, or perhaps just buying catastrophic coverage and investing the rest in a tax-exempt health savings account (HSA) to cover future medical expenses.
Though no recycler interviewed for this article mentioned the defined-contribution concept—which critics argue would do little to hold down healthcare costs for individual workers—several scrap firms are interested in the new HSAs, which became available in 2004. But all took a wait-and-see attitude until it becomes clear exactly how these accounts work and how effective they might be.
According to the Internal Revenue Service, contributions to HSAs are tax deductible for qualified participants, and any contributions by the employer can be excluded from the employee’s gross income. Unlike other pretax health options, the money deposited in HSAs does not have to be spent in a single year but can accumulate until needed, earning interest tax-free. Moreover, HSAs are portable—following the employee from job to job or even if he or she leaves the workforce.
Not everyone qualifies for HSAs, though. Among other restrictions, the employee needs to be covered by a “high-deductible health plan,” which the IRS defines as one with a minimum annual deductible of $1,000 for individuals or $2,000 for families. The high-deductible plan is designed for major medical expenses such as surgery or hospital stays, while the HSA is meant to cover routine medical expenses such as regular doctor visits or over-the-counter drugs, notes the U.S. Small Business Administration (SBA).
For more information see IRS publication 969, “Health Savings Accounts and Other Tax-Favored Health Plans” (available online at www.irs.gov/pub/irs-pdf/p969.pdf), and the SBA’s “New Tools for Lowering Small Business Health Care Costs” (www.sba.gov/region2/oped.pdf).
What Will Washington Do?
Along with HSAs, another acronym gaining attention is AHP, which stands for association health plan. AHPs are designed to help small businesses “band together through trade and professional associations to purchase affordable health benefits,” explains a U.S. Department of Labor guide. “By joining together, small employers will enjoy greater bargaining power, economies of scale, and administrative efficiencies” currently enjoyed by larger employers but often denied to smaller firms because of complicated state insurance laws and regulations, the Labor Department notes.
Though strongly supported by the Bush administration and passed by the U.S. House, AHP legislation eventually stalled in the Senate. However, AHP supporters see Bush’s reelection and the defeat of Senate Minority Leader Tom Daschle (D-S.D.), an AHP opponent, as increasing chances for the idea to move ahead in the next Congress.
For information, see the Labor Department’s publication, “Association Health Plans: Improving Access to Affordable Quality Health Care for Small Businesses” (available online at www.dol.gov/pwba/pdf/ahp-report.pdf).
Just as the government gives something to healthcare-strapped businesses, it might also take something away.
In November, the Washington Post reported that the Bush administration was willing to eliminate the business tax deduction for companies that provide healthcare insurance to their employees in order to fund other changes in the tax code.
Such deductibility is “phenomenally important” to employers, says Rick Elliott, but has long been eyed as a potential source of raising tax revenue. Though it’s too soon to say what tax changes are in store for 2005 and beyond, Elliott doubts the healthcare deduction will be dropped. Not only do businesses favor this deduction but workers also seem to like it, at least indirectly. A recent survey found 67 percent of people satisfied with their current employment-based health insurance.
“As earlier surveys have found,” says the Washington, D.C.-based Employee Benefit Research Institute, “health insurance remains by far the most popular employee benefit.”
Given those numbers, dropping the deduction could be politically unhealthy.
Robert L. Reid is managing editor of Scrap.
Like other businesses, recyclers face health insurance premiums that increase by double digits almost every year. Here’s what a number of firms are doing to control—or just cope with—such expenses.