Health care Rx: new programs, education, and an understanding of risk all play a role in the brave new world of health benefits.

Club CFO Bobbe Wunderlich was $125,000 over budget on health insurance last year. But she feels like she's right on target. Wunderlich and her boss, General Manager Scott Jaccard, CCM at Forest Hills Country Club in Clarkson Valley, MO have taken an innovative approach that promises to save the club a tremendous amount of money over the long hall. They are at the vanguard of a necessary revolution that's taking place in the way private clubs view health care benefits.

While rising costs of environmental, directors' E&O, liability, and other insurance coverage related to operational areas have impacted the bottom lines of private clubs over the past few years, perhaps no area has wielded quite the blow that has been felt from increases in health insurance.

Today clubs are battling back on the membership front, trying to hold the bottom line, and competing with high-end restaurants, fee golf courses, hotels, and other venues. Dedicated, service-oriented staff members who know the members are critical to those efforts.

Clubs may or may or not pay wages and salaries above the market rate (some pay below it). But the successful clubs are known for the family-like culture they have created for their staffs in order to differentiate themselves from most of their for-profit competitors. That picture more often than not includes health benefits.

And clubs, like all employers--small employers in particular--are facing mind-boggling increases in the cost of health coverage. American business as a whole last year saw a 14 percent average increase in the cost of health care coverage according to the Kaiser Family Foundation.

"We're at a loss--we've looked at a self-insuring and every other option," Joe Basso, MCM, general manager of Meadowbrook Country Club in Ballwin, MO said. "We increased the deductible from $500 to $1,500 and self-funded the difference. We saved quite a bit there. Beyond that, we're scared to see what the renewal is going to be. We did a cafeteria one year and went out of it. Nobody used it."

It's easy to lay the blame at the feet of the insurance companies, hospitals, or other benefit providers for the current problems. But there's plenty of blame to go around, and a good portion of it rests with the way employers and employees use (and abuse) of healthcare and health insurance.

Mary Digman has seen all sides of the issue--consumer, provider, and insurer. An RN with experience in obstetrics and maternity, she has been a utilization manager for both major health and prescription benefit providers. Digman offered a few insights for managers wanting to hold down their experience rating with their insurer and the out-of-pocket paid by employees.

"I would say the first thing that really comes to mind is to educate employees on how the plan works. The word to the employee should be 'read the instruction manual.' Follow the rules, because when you don't read it the insurance companies are invoking penalties after the fact: That's for their protection and the protection of the employer.

If the employee contacts the insurance company, Digman said, the utilization specialist will suggest "more benign treatment before the expensive stuff." Employees need to be familiar with their insurance company's network providers and make sure that doctors have current insurance information because the failure to do so delays claims and increases costs and out-of-pocket, she said.

A no-brainer for clubs attempting to contain health insurance costs is to engage a knowledgeable health insurance broker and put your contract out for bids. Tom Grote, president of Anderson Marsh Hall Benefits, said that market share battles among carriers will often result in surprises in a competitive bidding free-for-all. "The carriers are generally smart. When they're looking at fattening their book of business you may be surprised by the quotes you get."

Mary Digman suggested that it's important to work with your broker/consultant upfront to define your goals: "Get a feel for where the needs are. If you have a population with a lot of young kids or older folks take that into consideration. Find out what's most important to your employees."

Making Your Employees Consumers

One way that is becoming increasingly popular to control health costs is to turn employees into "consumers" of health services. The term "consumer-driven plans" is being used to described situations in which the employer purchases insurance with a higher deductible (typically at least $1,000 for individuals and $2,000 for families), coupled with tax-advantaged employer/employee funding accounts that address the deductibles, co-pays and other uncovered costs. Currently the number of persons covered under such plans is a very small portion of the total insured population. But changes in the Medicare regulations enacted in January promise to change that situation.

Critics argue that consumer-driven plans simply drive costs over onto the employee--not a good scenario in any case, and certainly not the "family" situation that a good club manager tries to create with loyal service staff. But with proper upfront homework by the manager and education of employees, consumer-driven healthcare can create a better situation all around.

Mark Schmersahl, vice president of BeneFlex HR Resources, helps design and implement plans that allow employers to that take advantage of current tax laws in order to encourage their employees to manage their health care costs better. Schmersahl said that the benefit accounts work best when the first dollars paid out are employer contributions. If the employer puts up the first part of a part deductible, the employee the next portion, and the employer the remainder, employees will be motivated to avoid burning through the employer contribution. "You don't have an employee going to the ER on Sunday for a strep test. They wait 'til Monday and go to the doctor's office," he said

There are a variety of such plans. The earliest versions, Medical Savings Accounts, introduced under the Medical Savings Account Law in the mid '90's, are being phased out. "The regs were so ridiculous that it didn't work," said Jeremy Claeys director of communications for the National Small Business Association.

Probably the type of plan with which most employers and employees are most familiar is a Flexible Spending Account (FSA), also known as a Section 125 or "cafeteria plan." Both employers and employees can contribute to the plan on an optional basis. The accounts can be used for everything from satisfying deductibles and co-pays to child care. Employee contributions are tax free, meaning that the employee is paying for medical and child care services with pre-tax dollars. The downside is that employee contributions to an FSA are on a "use it or lose it" basis, so employees must be careful to budget only what they're absolutely going to use. In addition, some small business owners are precluded from participation.

Under a Health Reimbursement Arrangement (HRA), the employer funds the account and the money may be rolled over into the next year. The employer may elect to allow the employee to keep a portion of the rolled-over money for medical and other care expenses in retirement. There is no portability if the employee leaves the employer.

The newest wrinkle and greatest promise for consumer-driven health care is the Health Savings Account, passed in January as part of Medicare reform. The rules are still being formulated, which has slowed the entry of insurers into high-deductible coverage and third-party-administrators (TPAs) into administering the plans. (The National Small Business Association has a program in place). But HSAs appear to be a tool that offers some potential for managing health care costs.

The HSA--to which both employer and employee make contributions--allows the employee not only to roll over unspent money in the account into the following year, but to take the money in their account with them when they retire or leave the employer.

"We're going to have patients questioning the doctor," NSBA's Claeys said. "They'll be asking 'Is this test really necessary, or is there something else you can do?', because the money is not only coming out of their pocket--it could be funding their retirement."

The Self-Insurance Option

Bobbe Wunderlich has been the CFO of Forest Hills for 17 years. She has watched the cost of insurance for the club's 48 employees and their 50 dependents escalate out of control. Two years ago she and General Manager Scott Jaccard, CCM were looking at a 34 percent increase from Blue Cross/Blue Shield. "We'd had 17 percent the year before. Our dues increase this year was attributable to just two things: health care and liability insurance.

"We had board members say that we had a Cadillac plan. We had to explain to them how hard it is to keep good people in the service sector. That's why we tried so hard to keep the type of plan we had."

But double-digit annual increases on the level the club was seeing were simply not feasible long term. Wunderlich and Jaccard attended a seminar presented by broker Howard Danzig, a proponent of self-insurance. What Danzig told them made a lot of sense. He suggested that they would be money ahead by acting as the de facto insurance company for their group and purchasing stop-loss insurance, which capped the loss on any employee.

Forest Hills decided to make the move. They purchased stop-loss insurance and held an employee meeting where they explained the reason for the change. "We showed them what we had actually spent on health insurance," Wunderlich said. "They couldn't imagine that it was that much money. They understood that they have to share more of the cost."

A Third Party Administrator--EBS of Ohio--was hired to administer claims. To all intents and purposes the employees deal with the TPA the same way they deal with the insurance company before.

Setting up the plan went smoothly. Then disaster struck--four times. Two employees were diagnosed with catastrophic illnesses and two needed major surgeries. Instead of the $200,000 that had been budgeted for employee health, the club spent $325,000.

"Not for the Faint of Heart"

It looked like the club had made a big mistake. Stop-loss insurers who will take small groups are in the minority. The management team decided to hedge their bets. They went so far as having the employees fill out applications for insurance and went out for bids. Based on the group's recent history, the best bid came in at $500,000. Then they took bids from stop-loss carriers. The carriers raised the stop-loss on the individuals who had experienced large claims the year before from $20,000 to $60,000. But the new premium (with a different carrier) only in creased the stop-loss by about $25,000 annually. Self-insurance was suddenly beginning to look like a wise move.

Wunderlich is certain that over the long run self-insurance is the best course for Forest Hills. "But it's definitely not for the faint of heart," she cautions. "My club controllers group that meets every month is waiting to see if we fall on our butts. You do have to keep control. You do have to monitor your plan You do have to review how the TPA is handling claims."

The upside, Wunderlich pointed out, is that club is completely in the driver's seat. Under new medical privacy rules employers don't know what illnesses employees have or how those illnesses are being treated. The insurance company pays the claims, then presents the employer at renewal with a double-digit increase--take it or leave it. Working with the TPA, a self-insured club sets the rules for how its program works.

For example, after three office visits the co-pay jumps from $20 to $40. For emergency room visits that don't result in hospitalization employees are penalized $75, plus their deductible, plus their normal 10 percent under the 90:10 plan. The first year the club had an employee who was prescribed an injectable medication costing thousands of dollars per month. The club simply paid the cost. This year they've hired a pharmacy benefit management company to evaluate medications.

The club's employees understand the plan and the reason for its rules, and are responding. "I've been amazed by how few people have reacted negatively," Wunderlich said. She credits good communication and the simplicity of what the club is doing. "We're talking service workers--dishwashers and groundskeepers--even a cafeteria plan, they can't deal with that.

"The one thing you can't change is the health conditions in our group. But if we have a good year we can keep the money in reserve. Blue Cross isn't going to give you any money back. In a four or five years we'll end up saving on insurance."

Benefit Comparison

                  HSA              FSA             HRA

Small             Yes              Yes             Yes
Employers

Special Health    Yes              No              No
Insurance
Policy Required

Employer          Optional         Optional        Required
Contributions

Employee          Optional         Optional        No
Contributions

Employee Tax      Contributions    Contributions   Claim
Savings           are tax-free     are tax-free    reimbursements
                                                   are tax-free

Account           No               Yes             No
Prefunded by
Employer

Roll Unused       Yes              No              Yes
Dollars to Next
Year

Reimburse IRC     Yes              Yes             Yes
Section 213(d)
medical
expenses not
covered by any
other plan

Claims            Yes, upon        Yes             Yes
Substantiation    audit

Debit Card        Yes              Yes             Yes

Insurance         Yes *            No              Yes
Premiums paid
from account

Long-Term         Yes              No              Yes
Care Premiums
paid from
account

Convert           Yes *            No              No
Account to
Taxable
Income

COBRA applies     No               Yes *           Yes

HIPAA             No               Generally,      Yes
certification                      No *
rules apply

HIPAA privacy     Yes, if claims   Yes             Yes
and security      adjudicated
rules apply

Account           Yes              No              No, but
Retained by                                        terminated
Employee upon                                      employees may
termination of                                     be covered by
employment                                         plan

* Special rules apply.

** Generally, if over 100 participants, Welfare Benefit rules apply.