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Curing high health care cost headaches.

When he realized last year that the cost of providing health care coverage to his 30 employees had tripled since 1985 and was about to total $12,000 a month, Wes Stoecker knew he had to do something. As owner of Anchorage's Electric Distributors Inc., he simply could not afford to pay $144,000 a year for employee health insurance.

Before making changes to his policy last fall, Stoecker had paid the entire cost of providing health insurance to his employees and their dependents -- including dental care and life insurance. Employees paid a $100 deductible and 20 percent of insured expenses up to $1,000, after which the insurance company paid 100 percent of covered expenses.

As of September, however, Stoecker's employees were offered a $500 deductible, $3,000 total for out-of-pocket contributions, and an insurance company-employee split of 50/50, rather than the previous 80/20. Employees were justified in viewing the changes as a reduction in compensation, says Stoecker.

"I just looked at it as a cut in pay," he says. "It's as simple as that."

By passing some of the costs to employees, Stoecker avoided a $3,000-a-month rate increase and was able to keep his monthly insurance premiums at about $9,000. Even so, providing employee health insurance is his third largest expense after salaries and rent. And although he was able to avoid a significant cost increase when it came to renewing his policy this year, Stoecker foresees a time when he'll have to limit what he spends per month on health insurance and pass additional costs on to his employees.

"I suspect the day will come when we'll have to start charging them for it," he says.

While researching ways to cut health care costs, Stoecker found that he could save an additional $4,000 a month by simply giving employees a raise and allowing them to buy individual coverage. "I found that the individual could go buy insurance cheaper than we could as a group, but they would have had to qualify," he explains.

For some people, like an employee diagnosed with cancer, it would have been difficult, if not impossible, to qualify. Stoecker says he also was concerned that some employees -- most likely younger workers feeling somewhat immortal -- would pocket the additional money and forego coverage.

When discussing recent changes with employees, Stoecker found that very few realized how expensive insurance was. "I don't think any of them really thought about it," he says. "The few I mentioned it to were dumbfounded. They realized it was a benefit we just couldn't afford."

Time for Drastic Change

Health care costs in the United States will continue to skyrocket unless drastic measures are taken to revamp the country's health care system and the method by which Americans pay for such services, say national health care experts.

Although projections vary, it is estimated that in 1992 the United States spent $809 billion on health care, or about 14 percent of the gross national product. Unless current trends change, the Congressional Budget Office expects the total price tag for health care in this country to reach nearly $1.7 trillion by the turn of the century.

In Alaska, health care expenditures have increased more than 300 percent since 1979, according to Sen. Jim Duncan, co-chair of the state's Health Resources and Access Task Force. Alaskans spent an estimated $1.7 billion on health care in 1991. That figure is expected to reach $6 billion to $7 billion by the year 2000.

And yet, it's hard to argue that Americans -- all Americans -- are benefiting from such expenditures. A 1992 report issued by National Small Business United and the National Association of Women Business Owners minced few words when looking at the relationship between cost and accessibility: "The U.S. is spending more on health care -- by any measure -- than any other country in the world, yet it has the highest rate of uninsured individuals in the industrialized world. Something is fundamentally wrong."

According to the Congressional Budget Office, in 1990, 33 million people under age 65 did not have insurance coverage. That number is expected to climb to almost 40 million by the year 2000. Estimates of those in Alaska without some type of health care coverage vary between 60,000 and 75,000.

As the cost of health care escalates, so does the cost to employers who offer employee coverage. A recent survey by a subsidiary of the international health care consulting firm Johnson & Higgins found that for midsize employers with fewer than 1,000 employees, the total cost of providing employee health benefits in 1991 averaged $3,546 per employee, up 15 percent from the year before. Large employers averaged less than a 10 percent increase, or $3,663 per employee. The report says that "in 1989, health benefit expense equaled, on average, 26 percent of profits. In 1990, that figure nearly doubled, reaching 48 percent."

Ed Burgan, director of Johnson & Higgins' Anchorage office, says those numbers likely hold true in Alaska. "The survey is an indicator," says Burgan, "and I don't think we're materially off the norm."

Burden for Small Businesses

"It's becoming unaffordable for everyone," adds Kelleen Jackson, health care policy analyst for the National Federation of Independent Businesses. The Washington, D.C., advocacy group represents 600,000 small business owners for whom health care and the cost of providing benefits to employees is a top concern.

"Basically, what they're telling us is it's not affordable, and that's not news to anybody," says Jackson. "They're looking for affordability and stability in the market."

National experts say small businesses -- usually defined as those with fewer than 500 employees -- can expect annual premium increases of between 25 percent and 30 percent. However, it is not uncommon, says Jackson, for small businesses to see their premiums jump by as much as 300 percent just 6 to 12 months after they purchase insurance at a rate they considered reasonable.

Not surprisingly, many small businesses simply cannot shoulder such increases and so reduce or eliminate coverage altogether. Many also find their policies canceled because of claims filed by a single employee. Insurance premiums are based on the risk associated with individual employee groups, explains Bill Custer, director of research for the Employee Benefit Research Institute. For a small business owner, just one heart attack, major illness or premature birth can change the group's coverage.

Eric Tollefsen, director of human resources for Anchorage-based Carr Gottstein Foods Co., oversees health care benefits for the company's estimated 2,200 employees and their dependents. He says the company has been able to keep annual health insurance increases to less than 10 percent.

"Either we're lucky, or we're doing something right. We've done all the easy things to do," he says.

Experts say business owners who want to lower their health care costs should consider taking similar steps. In most cases, however, small business owners don't have the number of employees, the resources or the clout necessary to implement many of the measures. Add to that Alaska's size and geographic location, high transportation costs, surplus hospital beds and small insurance pool, and the costs continue to rise.

Jackson says that there are not a lot of solutions out there for small businesses. Many owners also don't have the time to both run a small business and manage benefits.

Who Foots the Bill?

And it's not just small businesses that are finding themselves without the necessary cost-cutting tools. Kathleen Farnsworth, assistant chief counsel for health policy with the U.S. Small Business Administration, says large companies testifying before Congress contend that they, too, are running out of options.

For administrators at the University of Alaska, the time has come to assemble a tool box of their own. University executives, who originally budgeted $15.2 million to cover health care costs in fiscal 1993, now say they'll need another $1 million to meet expected expenses.

As a result, committees will spend the next few months looking at ways to contain costs, says Patty Kastelic, UA's executive director for human resources. The university currently has what Kastelic considers a "very comprehensive benefit package" on which it pays all employee and dependent premiums. Deductibles are low: $100 per individual, $300 per family. That may change. "We haven't decided what to do," says Kastelic, adding, however, that revisions are necessary. "We're just trying to limit our increases."

As with other large employers, Kastelic says a comprehensive benefits package goes a long way in recruiting and keeping employees. And like Stoecker, Kastelic says employees are justified in viewing potential benefit changes as a cut in compensation.

A national survey by the National Federation of Independent Businesses Foundation found that just 25 percent of small-business owners surveyed felt it was their responsibility to provide health insurance.

Sue Linford, owner of Anchorage-based Linford of Alaska, a wholesale grocery firm, is one of them, and she says she's committed to paying the entire cost of employee health care coverage. She also pays half of dependent coverage. To manage costs, Linford has been forced to make some changes, including increasing the deductible paid by employees. Still, she says, it costs her about $5,000 a month to insure her 14 employees.

"If all else were to fail, I'd find some way to self-insure," says Linford. "I just feel it's a very necessary thing."

Alaska Reforms

In an attempt to gain at least some control over high-flying health care costs, at least three different groups in Alaska are working on reform measures they believe can make a difference.

The first proposal, known as the Comprehensive Health Insurance and Payment Reform Act, or CHIPRA, is the work of a coalition of doctors and health care administrators. The plan, initially developed more than a year ago, seeks to drastically change the way Alaska's health care system works.

"It offends everyone," says Ray Schalow, director of the Alaska State Medical Association and a member of the coalition. "Everyone has to give up something."

Although he differs with the drafters of the CHIPRA proposal on several points, Anchorage insurance broker Bruce Moore applauds their efforts. "We agree with a lot of things in CHIPRA. Health care access is something that needs to be addressed," he says.

Schalow admits revisions to the plan may be necessary. "It may not be the plan," he says, "but it's a starting point."

A second group -- a legislative task force co-chaired by Sen. Jim Duncan -- also plans to introduce its recommendations during the current legislative session. The group's recommendations include: capping the amount spent on health care throughout the state; establishing a statewide, high-risk pool; providing incentives to ensure that low income women and children have access to preventive care; and adopting insurance regulation reforms.

Duncan says the major difference between the task force's recommendations and the CHIPRA plan involves tort reform.

On the local level, the Kenai Peninsula Borough is exploring the possibility of setting up a borough-wide, self-insurance plan that would be available to all borough residents. Drafters of the plan believe much of the cure for the current health care crisis lies at the local level.

"The health care crisis is not a national crisis," says Soldotna insurance broker Jerry Near. "It's seeded in the communities, so it's a community problem."

The plan being developed on the peninsula emphasizes prevention and early intervention and the use of local services when possible, says Stan Steadman, chair of the local Health Care Advisory Council. Participation in the plan would be voluntary, but would allow participants the benefit of being part of a larger insurance pool. The council hopes to present its plan to borough officials this spring and to borough voters next fall.

"There is no one head on this dragon," says Near of the problems concerning health care. "The problem is becoming more and more evident to everyone."

Key Elements of CHIPRA

The Comprehensive Health Insurance and Payment Reform Act (CHIPRA) proposed by a coalition of Alaska doctors and health care administrators, stipulates:

* All employers contribute to the cost of insuring employees.

* All Alaskans be insured before collecting their permanent dividend fund check.

* The state create an insurance pool to offer basic, low-cost insurance to all Alaskans.

* Participating physicians agree to discount fees.

* A $250,000 cap be placed on "non-economic damages" awarded in legal cases, with a cap on attorney contingency fees.

* Use of standardized claim forms and formation of a single clearinghouse for claims filed throughout the state.

* Uniform fee schedules.

* Taxing every non-CHIPRA policy written by private insurers.

Containing Health Care Costs

* If you offer health care coverage, review your plan to make sure it does what you want -- and what you can realistically afford.

* Split the cost of providing health care benefits with your employees by requiring them to pay part of the premium. "It's difficult to present to your employees," says Kelleen Jackson, health care advisor for the National Federation of Independent Businesses, "but it's better than canceling them."

* If you can, enter a preferred provider organization. Under such an arrangement you agree to refer employees to selected providers who in turn agree to treat employees at a set, reduced fee.

* Educate yourself and your employees to be wiser health care consumers. Don't be afraid to ask questions. Encourage employees to compare costs for certain treatments or procedures. Shoppers prepared to buy an automobile ask plenty of questions, says Eric Tollefsen, director of human resources for the Anchorage-based Carr-Gottstein Food Company. Those shopping for health care should too.

* Promote healthier lifestyles. Provide information on diet and nutrition or participate in health fairs and other activities. Mapco, for example, pays for treatment to help employees quit smoking. Arrange for discounts at local health clubs, offer bonuses to employees who stop smoking or reduce the amount employees pay for health insurance if they have healthy lifestyles.

* Consider adopting a self-insurance program tailored to fit your budget. Taking care of relatively small expenses inhouse can save on premium costs.

* If possible, team up with other businesses when buying health insurance. Known as "pooling" or "collective purchasing," such an arrangement spreads the risk among a larger group of people, and should thereby reduce premiums. Assigning a benefits manager to service the entire group also will help reduce costly administrative expenses.

* If you have the staff, continually monitor health care expenses. Require pre-authorization for hospital admissions and require employees to get a second opinion when warranted. Monitor treatment while they're in the hospital and carefully review bills once they've been released. Carr-Gottstein encourages employees to review their health care bills by splitting any savings with them should they find an error.

* Consider alternative treatments. Is there a less expensive, equally effective way to handle a case? Is a lengthy hospital stay necessary or can arrangements be made for adequate and less costly care at home?

* Be up front with employees. Employers are slow in communicating to their employees just how much they're spending on health care and so any changes come as a surprise, says Bill Custer, director of research for the Employee Benefit Research Institute in Washington, D.C.
COPYRIGHT 1993 Alaska Business Publishing Company, Inc.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:includes related articles
Author:Hill, Robin Mackey
Publication:Alaska Business Monthly
Date:Feb 1, 1993
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