A Small Firm’s Response to Higher Health Care Costs

female doctor consulting with patient

There are many reasons I love May – the flowers and leaves emerge, including those on the tree right outside my office window in downtown Boston; it’s light enough to play golf until 8PM;  and we banish our heavy wools to make room for light-weight clothes.  However, here’s what I hate about May – my company’s health insurance plan comes up for renewal.

I cower when I see the email from our health insurance broker, cheerfully writing to schedule our annual plan review and a discussion of the increase for the coming year.  I say increase because we have never seen a decrease in the 10 years of such meetings. Having heard in the media recently that health insurance plans were seeing dramatic price jumps, I didn’t even ask our agent, Bob, what the increase was in advance, because I didn’t want to extend my inevitable agony.

Since our financial services firm’s inception in 2005, we have had a PPO (Preferred Provider Organization) plan fully funded by the partnership.  Some of us had prior nightmarish experiences with HMOs and we wanted to avoid the gatekeeper process for referrals.  Despite switching a couple of times among the few insurers in Massachusetts, we have stayed at the high end of the spectrum; this past year, across our 29 covered lives, that plan cost us $1546 a month per family and $581 per individual.

When Bob came to the office to meet with three of us who serve as the unofficial “health insurance committee,” the first words out of his mouth were, “This isn’t good.” He then proceeded to tell us the news: a 34.9% price increase!  Bob can be a master of understatement.  I was expecting bad, but this was insane.  All I could say was, “You’re kidding, right?”

He wasn’t.  He explained that for decades, the financial services industry has enjoyed a relatively low cost of insurance compared with other Massachusetts industries (could have fooled me), since their members and families use far less medical care than some other industries, such as construction and manufacturing, whose premiums were historically greater, reflecting their higher per-capita use.  Unbelievably, it turns out that our $18,552 per family per year was really a bargain compared to a moving company!  And  also under the Affordable Care Act, insurers can no longer discriminate by sector, and companies with less than 50 employees, such as ours, cannot band together to negotiate lower rates.

We asked Bob what we could do. He mentioned a very similar plan offered by another carrier that would “only” cost 11% more than our current plan.  (What’s the inflation rate again?)

While this option seemed the clear winner if we wanted to continue to fully underwrite the best package, I wondered if perhaps it was time to rethink our strategy of fully funding employees’ PPO plans.  Do employees really value this benefit, and if not, should we consider alternative approaches? Maybe we should start only covering a portion of the plan (as many other employers do) or offering a stipend that could be applied to a few different insurance plans.

To explore where employees rate their health insurance benefits among other job benefits, I surveyed over 50 people and asked them to simply list the top five aspects of their job in order of preference, without offering any choices so I would not “lead the witness.” Because I assumed higher-level executives would be less likely to describe health benefits as a top-five attribute, I surveyed a wide ranging group of workers within different organizational structures, but all were white-collar office workers.

Not one person listed health insurance within their top five. Intellectual challenge was the most cited first choice, with colleagues and salary tied for second place.  Several people mentioned the length of their commute or their offices.

I then asked if people liked their health insurance and what percent their employer paid.  Everyone said they were pleased with their plan, even though several did not know what percent their company paid. Those who did reported that their companies contributed 75-80% of the premium.  Despite the relatively small sample size, it seemed clear that a fully funded health plan was not top-of-mind for people considering their favorite elements of their jobs.

What, then, were the options I could offer my colleagues?  We could keep the existing plan but not cover the price hike.  We could keep it and pay a portion of the increase, requiring employees to contribute the remainder. Or we could switch to another, similar plan and either absorb or share the increase.  Discussions with my partners on the subject contained a certain friction, as people are always anxious and suspicious about issues that involve change, money, and trust. I also worried about seeming uncaring and motivated by other concerns than the welfare of our staff.

We recalled that two years ago, facing an increase in the 20% range, we moved to a plan just below the most expensive offering. The plan we chose then had a $500 deductible for the first surgical procedure.  Since the switch would save us many thousands in premiums, we told our staff that the company would cover the deductible for the first surgery within any family.  Since then, we have saved close to $30,000 in premiums, while only spending $2,000 in reimbursing deductibles for four surgeries.

So last month, we decided to pursue a similar approach.  We switched to the alternate plan – the one with the 11% increase per capita — and we will provide $500 per person toward the $1,000 cumulative family deductible for surgeries, diagnostic tests, or in-patient stays.  Next year, depending on the level of price increase, we may look into offering a few options with some employee responsibility, but this market is changing so fast, it’s hard to even imagine the landscape 12 months from now.

By then, there may be some valuable data from the experience of the Affordable Care Act to help enterprises struggling with these decisions.  In the meantime, I will be curious to see if anyone at our company notices that they have an incremental increase of $500 per family deductible.