Upsize Magazine - May 2004
Path to conquer health costs starts with research.
Susan Bjork came into Eagan-based Lancet Software with one task: Figure out a way to lower health insurance costs for the firm's 19 employees while still providing the kind of coverage they could get by working for a larger firm.
"We had what I like to call the Cadillac of all plans," says Bjork, human resources director for the software design firm. "It was great coverage, but we were paying a lot of money for it. What we had to do, and what every single small-business owner needs to do, is examine the employees' needs, what they can afford and then take a look at all of the options, including the ones that aren't the most obvious. It's important, especially with how expensive health insurance costs can be."
Few small-business owners will argue with her. Caused in part by consumer demand for expensive procedures, tests and medicine as well as more options in their plans, the rising cost of health insurance has affected just about everybody in the country, including small-business owners.
According to a recent survey by the Kaiser Family Foundation, insurance premiums have jumped about 16 percent this year for firms with fewer than 200 employees, while about 13 percent for firms with more than 200. Companies with under 10 employees have seen rates jump almost 17 percent.
These results spell bad news for employees looking to build a niche at a small business. The Kaiser survey reports that 65 percent of firms with fewer than 200 employees offer health insurance, down from more than 70 percent a few years ago. And many small-business owners surveyed said they blamed rising health costs at least partially for a drop in earnings.
Ask any health care or small-business expert and they'll say the cost of health insurance isn't going to come down anytime soon. So now small-business owners around the country are stuck trying to offer decent benefits at a reasonable cost to employees, lest they lose them to larger firms.
While this can be a major challenge, there are ways to at least help. Just ask Bjork.
"Small-business owners are limited in what they can do," she says. "But there are ways to get good coverage at a reasonable price. It's how to work them that gets tricky. And that's why my first piece of advice is to hire an HR specialist. This is too complicated and you have too many other things to worry about as a small-business owner. Hire somebody to do it."
Because Lancet did just that, Bjork was able to save the firm about $50,000 by finding a new plan and switching to it. That money has been invested into 401k plans among other things. Lancet's employees also get fully paid medical and dental premiums. And Bjork is always on the lookout for new health insurance strategies.
"Research is fundamental when it comes to something like this," says Alfred Marcus, a professor of strategic management and small-business expert at the University of Minnesota's Carlson School of Management in Minneapolis. "Do your homework and you might find something you didn't think of."
The most important thing to do is to talk with providers to find out what's available and what might be a good fit for the company. In Lancet's case, Bjork started by canceling the firm's open plan, which allowed employees to choose their own physicians from anywhere in the area. Health experts say these types of open plans are generally more expensive as they cover a wider field of medical professionals.
Bjork switched to an elect plan, which offered the same coverage but forced employees to choose physicians within a specific network. That change alone saved the firm $13,000. Network plans are becoming more popular as health care costs continue to rise. Partnerships between providers and physicians are allowing for cheaper plans if employees stay within the network of doctors.
"This could affect some employees who are loyal to doctors that might not fall in the network," Bjork says. "That's a possibility. Unfortunately, sometimes there has to be some compromise. The real trick is tweaking the plan without really affecting employees."
Finding help isn't that difficult. There are a number of different types of groups that offer help in reducing costs - trade associations, small-business groups, online companies, insurance brokers and providers, third-party consultants, and so on.
The big trend in health care plans for small businesses now is opting for consumer driven health plans, which have a reimbursement element to them. Most, if not all, providers will help small-business owners run these types of plans, which not only encourage employees to stay healthy, but also put them more in charge of their health care.
In these plans, an employer will put a certain amount of money in an account for each employee, which can be used toward paying deductibles. Once that money is up, the employee is responsible for some of the further costs. The benefit is that if that money isn't used over the course of a year, it is rolled over to the following year to be used for health care costs. Some companies allow their employees to invest that money into retirement funds.
The plan rewards employees for taking care of themselves and forces them to be more careful with their doctor visits.
Experts say less than 1 percent of small businesses currently have these consumer driven plans. They expect that number to be up around 10 percent in the next few years.
Minneapolis law firm Moss & Barnett is entering its second year using this type of health plan from Eagan-based BlueCross BlueShield and has thus far seen positive results.
"We were the first law firm in town to have this type of plan and it only happened because we were up-front and honest with our employees and they were up for trying it," says Jim Kasten, director of administration for the firm.
Moss & Barnett's plan puts $1,000 in a deductible fund for individuals and $2,000 for families. Once that money is used, the employees spend their portion and then the rest is covered 90 percent by the firm. Perks include free annual physicals as well as hearing and sight testing.
"It's not always a bed of roses. This plan can hit people hard if they have a medical condition that requires a lot of work," Kasten says. "There is definitely a need for planning. But, in general, it's helped us a lot."
One of the problems is that with most companies, 20 percent of the employees account for 80 percent of the health care costs. These consumer driven health plans still help to take care of those employees without really affecting overall costs and thus, other employees. This also bails out small-business owners in the sense that under these plans they no longer have to cover all of the costs of an employee who has great medical needs.
"With all of the premium increases, the employers simply can't afford to cover everybody's costs," says Jim Fries, an account developer with Schwarz Williams Cos., Golden Valley. "With employers still facing years of double-digit cost increases, they have no choice but to pass some of the burden onto employees or cut coverage. This eases it a little bit for employers and employees."
There are a host of other types of plans that providers offer that could work for firms as well, including coinsurance plans, deductibles, first-dollar coverage. Each plan could work for one firm and not the next as each company (and its employee needs) is different. The real trick is determining employee needs, weighing the different options and finding the one that's best.
One area where small businesses tend to get hit is the pharmaceutical branch of health care, which experts say takes up more than 30 percent of a health care dollar. That threatens to cost even more as more advanced medication is released into the market and as it continues to take the place of therapy and even some medical procedures.
"Your provider has to be action-oriented in helping you understand what is out there and what options your employees have, because this is an area that has been traditionally confusing for small businesses," says Rich Wipperfurth, vice president of sales for the Edina office of Innoviant, a pharmacy benefits administrator.
"The best piece of advice I can give in this area is look for providers that are willing to work with generic drugs over name brands," he says. "Generics are a good deal for employers and employees and they essentially do the same thing."
But finding the right plan and lowering pharmaceutical costs is only half of it. All experts said employees and employers must also take responsibility in helping to lower costs.
"Employees need to realize that they ultimately will be the driver of their own health care costs," says Andrea Walsh, chief marketing officer for HealthPartners of Bloomington. "Regardless of what type a plan a company has, the more an employee works to stay healthy, the lower overall costs are going to be. It's that simple."
For that reason, most providers have health and fitness programs in place for small-business owners and employees that are under their coverage. At HealthPartners, the company is focused on educating employees on the values of working out and eating right. Some programs that providers will offer include weight loss programs, health club memberships, on-site screenings, mental health personal days and programs to help smokers quit.
"Also, a large part of the responsibility does fall on the employer," says Mark Waltman, a sales executive for the Eagan office of Wausau Benefits. "They have to get the information and provide it to employees. They also have to help with medical management, finding potentially large claims and working with those employees. That is especially true in the area of disease management. Know your employees and their needs and work with them."
Education is helpful not only in selecting health plans, but also in making employees comfortable with the choice, Lancet's Bjork says.
"Since health insurance costs is such a touchy subject, be upfront with your employees as far as what you're doing to find better plans and what costs will be," Bjork says. "Having an open book policy just makes everybody in the company feel better about a sometimes frustrating topic."