“Around this time of year, many human resources executives and brokers are putting the finishing touches on health insurance plans they’ll offer to employees in the fall. They face tough questions: Will rising costs be swallowed by the company? Or will the bitter pill be passed down to employees?
First, the good news. For Chicago-area employers, health care costs are expected to climb on average about 5 percent—on par or slightly below some national projections for 2018. Employers still might push those added expenses to their workers through higher monthly premiums or larger deductibles, but it’s not as bad as a decade ago, when increases in health care costs soared by double-digit rates across the U.S.
Businesses nationwide are bracing for a rise in medical costs of 5 to 6.5 percent next year, according to experts at health care benefits consultancies and employer groups. Willis Towers Watson projects the average national cost per employee in 2018 to reach $12,850, compared to $12,200 this year. As for why Chicago’s average is projected to be lower, employers here have done a good job managing costs, says Sarah Oliver, a Chicago-based senior consultant at Willis.
There’s a twist: the lingering anxiety about the Affordable Care Act and President Donald Trump and Republican lawmakers’ efforts to dismantle it. Mixed signals from Washington are triggering double-digit hikes on individual policies, researchers have found.
Still, the political upheaval is unfolding outside many corporate boardrooms, and how deeply companies feel it depends on their size. The pain is likely most acute at small businesses. For them, the uptick in medical costs is even greater than average.
Bigger companies, however, may be more willing to offset the rising costs, motivated by the need to be more generous in a labor market where the unemployment rate is 4.3 percent, the lowest in at least a decade. In metro Chicago, the rate is slightly higher at 4.9 percent.
Regarding the fight in Washington, “It’s not even something we consider,” says Brett Beetham, who manages human resources at Cleverbridge, a Cologne, Germany-based tech firm with about 100 employees in Chicago. Offering health care as part of a rich benefits package is key to recruiting and retaining its young workforce, Beetham says, adding that Cleverbridge passes on a minimal amount of premium increases to employees.
But rampant confusion, complex federal rules and rate hikes have hit close to home for some small-business owners. Richard Pietranek runs Servpro, a property restoration company in Glendale Heights with about 20 full-time employees. He’s been socked by rate hikes of 9 to 46 percent since 2014, causing him to significantly reduce how much Servpro contributes to workers’ premiums. One employee recently quit over it, Pietranek says.
“Even if business was robust last year, at that type of increase, I can’t set the precedent to keep doing it. I had to start peeling back,” Pietranek says. He used to cover 70 percent of the premiums for employees and family members, but he now covers 50 percent of employees’ premiums and only 30 percent of those for family members.
Big companies might fare better in controlling health care spending because they are typically self-insured and pay for workers’ medical claims. Small businesses tend to outsource claims management to insurers, then take a rate hike later if costs are more than projected.
For small businesses, “when you’re talking about health care, it’s somewhat of a black box,” says Larry Boress, CEO of Chicago-based Midwest Business Group on Health, a nonprofit. “It’s a challenge, and yet you can’t afford not to offer benefits if you’re going to recruit and retain people.”
A spate of new surveys show that the uncertainty around the ACA isn’t spooking companies enough for them to pull back on their offerings. A Willis survey analyzed responses from 555 employers with at least 1,000 workers each, revealing that 92 percent were “very confident” that they would provide health insurance in five years.
The self-assuredness comes from a few factors. It’s not clear whether a tax on employers’ rich health care benefits mandated under the ACA is going to happen. And the idea of exchanges never caught on, Oliver says. That’s where businesses thought they would send workers with a stipend to buy insurance on their own. So for companies, “being able to provide that competitive edge still makes a lot of sense,” Oliver says.
Adds Barbara Gniewek, a New York-based principal at PricewaterhouseCoopers, which surveyed employers as well as interviewed insurers: “If costs are not going up at a really high clip, and unemployment remains at a low rate, then why rock the boat? (Employers) are going to keep doing what they’re doing and wait to see if something changes.”
To help keep medical spending in check, many employers next year will experiment with new or improved strategies—steering workers toward certain hospitals and doctors based on quality and cost, offering more virtual doctor visits and cracking down on pricey pharmaceuticals by requiring employees to try a cheaper drug first.
One previously popular cost-saving approach now on the wane is the high-deductible health plan, which requires users to pay all medical expenses upfront until they meet a sizable deductible. These plans have sparked pushback, and not just among employees, Gniewek says. Doctors and hospitals say high-deductible plans have caused debt to pile up as patients skip out on their bills.
At Elkay, an Oak Brook-based maker of sinks and faucets with about 3,000 workers nationwide, the benefits manager is considering incentivizing employees by lowering some costs while raising others. The manufacturer, which is self-insured, might decrease the co-payment of a virtual office visit to $20 (from between $30 and $40), while upping the out-of-pocket fee for a trip to the ER from $100 to $250 even after an employee meets their deductible.
“You’re getting medical care, but you’re in the driver’s seat. How do you want to seek care?” asks Carol Partington, corporate senior manager of total benefits at Elkay.
The real question, for employers and employees alike: How much do you want to pay for it?