Employers Feeling Premium Pinch

Guy Hatch has seen firsthand how the rising cost of health insurance is hurting Connecticut businesses.

His company, On Site Gas Systems in Newington, has been hit with annual 15 percent to 18 percent rate hikes for the past three years. The company, which designs and builds nitrogen and oxygen generators, offers its 45 employees mainly high-deductible health plans. It has decided to absorb most of the increasing costs rather than pass it on to workers.

As a result, 10 percent of On Site’s non-material expenses are healthcare costs, up from single digits a few years ago. That’s taken a bite of the company’s profits and stunted further growth. Hatch said On Site would have been able to hire at least four more workers if the cost of health benefits wasn’t so high.

“There’s not much we can do about it,” said Hatch, who is On Site’s chief executive officer. “We are getting squeezed on prices.”

As open enrollment season gets underway, many Connecticut employers are being hit with similar double-digit rate increases, averaging about 12 percent to 15 percent, local insurance brokers say.

Nationally, costs for the most popular kinds of health insurance plans are expected to increase 10 percent to 12 percent, according to Buck Consultants, a unit of Norwalk-based Xerox.

The rising rates, which are being spurred by increased medical care costs and new healthcare reform mandates, are putting greater pressure on employers, who are increasingly shifting more of the cost burden to their workers, said Bill Husic, the executive vice president and actuary at the Lockton Benefit Group in Farmington.

As a result, employers are raising premium contributions from employees, reducing the amount of the deductible they cover or raising copayments or coinsurance.

Workers on average are paying nearly $4,000 this year toward the cost of family health coverage — an increase of 14 percent, or $482, above what they paid last year, according to a recent survey by the Kaiser Family Foundation and Health Research & Educational Trust.

Since 2000, workers’ contributions to premiums have gone up 147 percent, while overall premiums rose 114 percent.

Additionally, employers are also increasingly moving toward a defined contribution model for health benefits, Husic said. That means they are setting aside a certain dollar amount per employee to pay for health care costs, but ultimately letting their workers choose which plan to participate in. If the employee wants richer benefits, they have to pay for it themselves.

Hatch said On Site Gas Systems moved to a high deductible health plan about three years ago, which has provided cost savings. Still, rates continue to climb and the company’s employees now pay for about 28 percent of their health care benefits, up from 20 percent a few years ago.

Overall, however, the company has absorbed most of the increased insurance costs by spending more on premiums, deductibles and copayments.

Hatch said the company has been willing to shoulder most of the burden to stay competitive. Health benefits are a major part of the compensation package and he wants to make sure his employees still feel like they have a rich benefits plan.

“The way we run our organization is that our employees are very important to us,” Hatch said. “We put in a lot of time and effort training them and we don’t want to lose them. We figure we can probably handle [increased costs] better as a company, than they can as individuals.”

Brokers say insurers are making changes to small group health plans, especially high deductible options, which have become increasingly popular among employers as a more affordable alternative to HMO or point-of-service plans.

Husic said insurers got burned on those products in recent years by giving huge discounts to employers that adopted them. Insurance industry officials saw them as lucrative products that would drive down medical utilization costs, since employees would be responsible for paying for a higher percentage of their care.

But that didn’t fully materialize because many employers agreed to cover a large portion of the deductible, which reduced out-of-pocket expenses made by their workers.

As a result, utilization costs did not decrease as much as insurers anticipated.

“The carriers got burned because they didn’t see utilization savings,” Husic said. “After the deductibles were paid for, it was almost 100 percent coverage after that. It was like an open check book. There was no incentive for you to be judicious.”

Insurers are responding by developing products with higher rates and deductibles and/or new or increased copayments or coinsurance. The goal is to have employees pay more to drive down utilization, Husic said.

The Connecticut Business & Industry Association Health Connections, for example, has added a coinsurance option to its $2,500 high deductible plan. Under the plan, employees cover 20 percent of certain services — like radiology and outpatient surgeries — after the deductible is paid for, said Jason Gutcheon of the Professional Business Insurers in West Hartford.

Without the coinsurance, costs for the regular $2,500 high deductible plan are up about 20 percent, Gutcheon said. The coinsurance option shaves up to 9 percent off that increase.

Meanwhile Aetna, which has roughly 29,700 small group customers in Connecticut, is seeking regulatory approval for an average 16.1 percent increase on its small group high deductible health plans for new and renewal business starting in the first quarter of next year.

Other Connecticut insurance companies like ConnectiCare and Oxford Health are also adding plans that aim to cut into utilization, Gutcheon said.

Insurers, for example, are adding new high deductible plans with coinsurance that are not health reimbursement account eligible, Gutcheon said.

“That means they don’t want employers sharing part of the deductible cost,” said Gutcheon. “If the employer shares the deducible cost, there will be more utilization and, if there is more utilization, costs will go up.”

Margi Jakubowski, the employee benefits manager at Robert Hensley & Associates in Avon, is seeing a similar trend. She said the most popular high deductible plan without coinsurance used to start at $1,500. But now such plans typically start at a minimum $2,500 deductible.

Another trend impacting small business rates, Jakubowski said, is healthcare reform.

Many small employers in Connecticut are being moved into healthcare reform compliant plans, rather than gaining “grandfathered” status, which would allow them to maintain their current benefit packages. As a result, companies are being forced to offer plans with new, more expensive coverage mandates.

That is increasing rates further.

“Small employers have less ability to choose,” Jakubowski said.