Cost-Saving Tips For Health Plans

Nation's Business, May, 1999 by Dale D. Buss

These suggestions can help small firms deal with the squeeze of health-premium increases at a time when workers demand coverage.

In Evanston, Ill., William Romano is trying to come to terms with a 29 percent rise in health-insurance premiums--the first increase in three years--for his family-owned investment firm, Romano Brothers & Co. "Maybe it's because suddenly our employees have been having kids, so they have more dependents to cover," Romano speculates.

In Belleville, Mich., meanwhile, Linda Hall, owner of Carriage House Promotions, a marketing company, says its health-maintenance organization wanted to raise her per-family premium about 20 percent next year, to $500 a month. So she came up with another carrier that could provide virtually the same coverage for the same money she'd been paying.

But as Romano, Hall, and many others like them across the country have discovered in recent months, the health-insurance squeeze for small businesses is back. After several years in which rates rose only modestly if at all, this year premium increases of 15 to 25 percent are not uncommon.

And the higher rates have come at a time when many companies, in the face of a painfully tight labor market, are finding that good health-insurance benefits are essential for attracting the employees they need.

That's the case, for example, in technology companies, says Bernadette Burke president and co-owner of Brella Productions Inc., an Evanston-based video-production company She adds that employees of small businesses expect coverage "similar to what they'd find at a large company."

But while the demand for adequate health insurance remains strong, small-business owners can take steps to reduce the impact of rising rates. Based on suggestions from business people and experts in employee benefits, here are 10 strategies to consider:

1 Be a tough negotiator.

Do your homework, know what's coming, and challenge proposed premium increases if you think they're too hefty, suggests Randall Abbott, senior consultant for Watson Wyatt Worldwide, a benefits-planning concern in Little Falls, N.J.

"The willingness to switch is important," says Paul Ginsburg, president of the Center for Studying Health System Change, a Washington, D.C.-based project of the Robert Wood Johnson Foundation in Princeton, N.J. Unless your company is very small, "you can get concessions."

2 Consider managed care.

Health-maintenance organizations (HMOs) and groups that offer slightly less restrictive types of managed care--so-called preferred-provider organizations and point-of-service plans-have made increasing inroads against indemnity plans, which offer reimbursements and unrestricted selection of health-care providers.

Jan Williams, until recently an executive assistant at Mazda Motor Corp., left that job to help her husband, David, expand his company D. Williams Building & Remodeling, in Flat Rock, Mich. But the couple, with four children, had to drop out of Mazda's excellent health-insurance plan. Their new choice: a Blue Cross HMO.

Besides paying their own premiums, about $400 a month, they have had to accept one of managed care's key requirements--that they get a medical referral before seeing a specialist. In addition, David Williams had to find a new internist for himself, although his wife says the family's pediatrician and her personal doctor were already part of the Blue Care Network and did not have to be replaced. "I just had to do my homework to make sure we ended up with a plan that included them," she says.

3 Examine usage patterns.

Learn where your employees go for their medical care, suggests James Mueller, president of the employee-benefits group for Frank Haack & Associates, a health-insurance broker in Milwaukee. Then you may be able to narrow your network to doctors and hospitals that most of your employees already use but that also offer discounts or accept a flat rate for each covered person. Firms such as Mueller's study usage patterns to help employers determine how changes in provider networks would affect employees.

4 Tweak plan particulars.

High-deductible policies can slash premiums. So can increasing the co-payments--say, to $20 from $5--that employees must contribute for each service. "That will eliminate those visits to the drive-through clinic for a prescription for a cold," says Mueller.

Savings also may be realized from changes in plan details, For example, coverage for highly expensive prescriptions or medical specialists can be limited. Employees might not even challenge such restrictions, says consultant Abbott, because many people "tend to look only at their co-pays, their deductibles, and [the premium] they pay each month."

Anne Walsh, a professor of health-care management at LaSalle University in Philadelphia, adds that companies can save money by using incentives to promote employees' health, such as bonuses for participation in weight-control programs.

5 Join an insurance pool.

By combining their small "risk" bases with those of larger groups, companies can often obtain lower insurance rates because of more-favorable actuarial data. This approach is gaining ground among many organizations, from state governments to trade associations to local chambers of commerce.