Tuesday, October 2, 2012

Health Insurance Costs ... Sears and Darden Retaurants are Adopting the "401(k)" Defined Contribution Approach to Cost Containment and Behavioral Change

Health insurance costs per family are approximately $15,000 annually. Who can afford to pay them is another matter.

More and more, we're realizing as a society that health care costs are too high. ObamaCare, Medicare, Medicaid and now private sector companies are all trying new initiatives to come to grips with the unsustainable spiral. It somewhat reminds me of the game of hot potato we once played as children. The potato in this case is the excessive costs of health care as it exists today.

Regardless of how we may feel about ObamaCare, going back to the way things were before its passage is not a viable solution either. The trend was bad then, and it's not likely to improve anytime soon. The ObamaCare system will be a very costly one, but so was the prior one.

In an effort to change the impact of health care costs on their operations and the pocketbooks and behaviors of their employees as well, some companies are beginning to implement defined contribution type voucher plans in an effort to bring their health care costs under control.

Big Firms Overhaul Health Coverage tells us what Sears and Darden Restaurants are doing in an effort to control their health care expenses:

"Two big employers are planning a radical change in the way they provide health benefits to their workers, giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace.

Sears Holdings Corp. and Darden Restaurants Inc. say the change isn't designed to make workers pay a higher share of health-coverage costs. Instead they say it is supposed to put more control over health benefits in the hands of employees.

The approach will be closely watched by firms around the U.S. If it eventually takes hold widely, it might parallel the transition from company-provided pensions to 401(k) retirement-savings plans controlled by workers and funded partly by employer contributions. For employees, the concern will be that they could end up more directly exposed to the upward march of health costs.

"It's a fundamental change…the employer is saying, 'Here's a pot of money, go shop,' " said Paul Fronstin, director of health research at the Employee Benefit Research Institute, a nonprofit. The worry for employees is that "the money may not be sufficient and it may not keep up with premium inflation." . . .

Darden did say that employees will pay the same contribution out of their own pockets that they currently do for approximately the same level of coverage. Employees who pick more expensive coverage will pay more from their paychecks to make up the gap. Those who opt for cheaper insurance, which may involve bigger deductibles or more limited networks of doctors and hospitals, will pay less.

"It puts the choice in the employee's hands to buy up or buy down," said Danielle Kirgan, a senior vice president at Darden. The owner of chains including Olive Garden and Red Lobster will let its approximately 45,000 full-time employees choose the new coverage in November, to kick in Jan. 1.

Darden says that employees with families to cover will be given more money to buy insurance than employees covering just themselves.


The hope is that insurers will compete more vigorously to get workers to sign up, which will lower overall health-care costs. Darden and Sears are both currently self-insured, meaning that the cost of claims each year comes out of company coffers.

On average, U.S. employers and workers are estimated to spend $15,475 in annual premiums for health insurance this year for a worker with family coverage, according to a survey by the Kaiser Family Foundation and Health Research and Educational Trust. The average employee pays about 28% of that amount and the employer picks up the balance. . . .

Several big benefits consultants and health insurers are betting on the employee-choice model. . . .

"Within the next two or three years, it's going to be mainstream," said Ken Goulet, executive vice president at WellPoint Inc.  The insurer will roll out a product next year called Anthem Health Marketplace that lets employers offer a variety of its plans to workers, paired with a fixed contribution. Mr. Goulet said it is close to signing up more than 30 midsize and large employers for early next year, including one with more than 50,000 workers.

Other insurers say big companies will hold back until they see early successes. "There will be a lot of interest in taking a look at those results," said Yasmine Winkler, chief product and marketing officer at UnitedHealth Group Inc.'s insurance arm, the nation's largest. But, she said, "The jury's out" on whether the approach will become widespread. . . .

A spokesman for Sears, which will have around 90,000 full-time employees eligible for the new health-benefits program, said the approach "is about increasing associate choice and options for their health care," and should benefit both the company and its employees.

But some consultants question whether the exchange setups will achieve overall savings for big employers, particularly those who already self-insure to shave costs.

Exchange operators today say they offer employers more predictable costs, as well as potential savings gleaned from workers' voluntary choice of skinnier coverage and competition among insurers offering plans on the exchanges.

"It drives competition and drives efficiency," said Ken Sperling, Aon's national health exchange strategy leader."

Summing Up

All this says that health care costs, as is the case with pension costs, must be brought under control.

If employers continue to pay more as a result of ongoing health care cost increases, employees will inevitably receive less in wage and salary increases.

If government spends more on health care costs, both employees and employers will be taxed at a higher rate.

If employees pay more for health care, in their roles as consumers they'll have less money to spend on other purchases.

Simply stated, the current unaffordable costs of our third party payer health care system, both in the public and private sectors, must be addressed and solved.

Otherwise our economy and We the People will continue to suffer as a result of the disproportionate health care expenditures relative to other purchases.

Adopting a "we're all in this together" but MOM based approach instead of the current OPM mindset is the key.

The fact is that health care costs can't possibly be inexpensive if uncontrolled usage is encouraged due to the third party payer fee for service system which has long been in place.

Thanks. Bob.

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