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The Rising Cost of Health Care: Open Season on Benefits

Posted on: Monday, 7 November 2005, 21:00 CST

By Kim Norris, Detroit Free Press

Nov. 7--Many people in the nation's workforce are entering the dreaded open-enrollment period -- the time when they will first see what next year's company health benefits will look like. It will be a time to swallow hard and make tough choices between cost and coverage.

Steve Kruk remembers the good old days when health care wasn't such a concern.

The 33-year-old graphics designer at Trillium Teamologies Inc. in Royal Oak would go to the doctor and fill a prescription with little or no money changing hands. His employer paid the tab, and all was right with the world.

"It used to be you didn't even think of it. Of course, the job had the benefits and you didn't pay for them," Kruk said.

Now he and his wife, Jennifer, struggle to pay for health care for themselves and their two young boys, even though Trillium pays part of it.

"What I pay out of pocket is definitely a factor in my income," said Kruk, who took a pay cut and picked up more of the cost of health care when he came to work at Trillium after his previous employer went out of business a year and a half ago.

His experience echoes that of millions of other workers nationwide.

As health-care costs have risen an average of nearly 12% in each of the past six years, employers are struggling to absorb the increases and have been passing costs on to workers, who are beginning to feel the pain. And with health-care costs expected to rise another 9.9% in 2006, that trend is expected to continue. Increasingly, it appears, both businesses and their workers are reaching saturation.

Evidence suggests some employers have thrown in the towel and dropped health coverage altogether.

The percentage of companies offering employer-sponsored health benefits to workers fell from 69% in 2000 to 60% in 2005, according to the annual employer-benefits survey by the Kaiser Family Foundation and the Health Research Education Trust.

Giant companies like General Motors Corp., the largest private purchaser of health care, and Wal-Mart, the nation's largest employer, are becoming increasingly vocal about the burden providing health coverage puts on their financial health and the need to address the core issues of underlying costs and who should pay.

Wal-Mart, which has been roundly criticized for providing puny coverage to a small portion of its workers, says health-care costs have risen 19% each year since 2002. GM, considered the gold standard of health benefits, expects its health-care tab to be $6 billion this year. The world's largest automaker is asking UAW workers for concessions that GM says would save $1 billion in cash a year.

Absent a wholesale restructuring of the health-care system, companies are left to deal with the situation as best they can. Since costs started spiking in 2000, companies have put patches on the problem, each year tweaking the benefits package and adjusting the cost-sharing with employees in an attempt to keep things under control -- with little success.

"It dwarfs everything else in terms of cost increases," said Greg Boll, CEO of Cummins Power Products, which designs and assembles electric-power generators at a facility in New Hudson. "It's a big problem for employees and businesses."

Some of the company's 620 workers are represented by the International Association of Machinists union and both Boll and his employees know that when contract negotiations begin at the end of the year, health care is going to be a key issue.

Line manager Dave Kroesing is one of the most senior workers at Cummins Power with 5 1/2 years at the company. He said that health-care benefits are very much on the minds of prospective and current employees.

"I've had lots of higher-paying jobs, but this is a great company to work for, partly because of the benefits," he said.

Kroesing currently pays $11 a month in payroll deduction for family coverage, in addition to some co-payments on doctor visits and medications.

He knows that he probably will have to pay more for coverage under the new contract.

"I'm not looking forward to sharing more of the costs," he said. "But I expect I will."

He likely still will be better off than many other workers.

At Trillium, Kruk pays $350 a month for his family coverage. Office visits cost $30, and the co-payment for the brand-name cholesterol medication he should be taking is $40 a month.

"If my kids both go to the doctor on the same day and need a prescription for amoxicillin -- that's a $100 day right there. And if I go to the doctor on the same day ... well, that's just not possible."

Trillium employees can choose from three plans that are priced according to the level of benefits they offer.

The cheapest, and most restrictive, is the HMO. There are two PPOs, which allow more flexibility in choosing doctors and which both cost significantly more then the HMO.

The majority of workers are in the HMO and pay a little less than 20% of their premium costs, said Kathy Rye, part owner and head of human resources at the decade-old company, which employs 60 people.

"Most take the HMO because it's the cheapest," she said. "They'd rather have the freedom of a PPO, but it's a lot."

Trillium provides technical services, such as programming, software and support to companies. Clients include the New Detroit Science Center, the Palace of Auburn Hills and the Detroit Pistons, for which the company does graphics and animation both inside the Palace and for Pistons television broadcasts.

A good year for Trillium is about $10 million to $12 million in revenue.

The company's outlay for health care was about $156,000 in 2005 and is expected to be $12,000 to $15,000 higher next year, not including dental coverage, said Rye, who noted that overall premiums have risen 20% in the past two years.

Because the company is relatively young, it started out with a cautious approach to benefits, preferring to add enhancements rather than having to scale back, as many older companies have had to do.

"The first couple of years, it didn't cost our workers anything," Rye said. "We've managed to keep a pretty high level of benefits, but it's because our employees have agreed to share some of the costs."

In addition, she said, "the management team has taken pay cuts to maintain top-quality workers and offer the best benefits we can," Rye said. "Health-care costs have been responsible for knocking out a lot of our competitors."

Trillium just finished open enrollment, and although premiums for 2006 rose between 7% and 10%, the company did not pass that on to employees.

Co-payments for office visits and prescription drugs remained unchanged, although the company now requires insurer approval for brand-name medications in lieu of generic versions. The hospital deductible on the lower-priced PPO was raised to $1,000.

Kruk's family has the cheaper PPO. It's a compromise, he says. The HMO would be cheaper, but it would require more involvement by him and his wife, who works part time as well as taking care of the children.

"Before, you didn't have to think about health care," Kruk said. "Now a lot more of the responsibility is put into our lap. It's hard to find time to deal with this stuff."

Even as he longs for a return to the old days, he values what he has.

"I know there are people out there whose employers are not paying anything for them," Kruk said. "I'm bummed I have to pay, but glad my employer is helping me keep benefits for my family."

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Source: Detroit Free Press

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