Eric Groves knows how the game is played. Switch health insurance carriers, and your company will get a better rate – for the first year.

“And then the next year you’ll get a big jump, and then another jump after that,” said Groves, who as a small business owner shops rates for his 20 employees. “So it seems you have to keep looking at new quotes. It’s kind of a frustrating cycle.”

Groves, co-owner of Flying Hippo Web Technologies and Mauck Groves Branding and Design, said he has probably changed health insurers four times since starting his Web design company in 1994. Despite his efforts at containing costs, though, his premiums have more than doubled in the past 12 years.

“It definitely cuts into the bottom line,” said Groves, who each year has consistently paid 75 percent of his employees’ premiums. “But it’s one of a myriad of expenses we have as a company. When you have a rise in expenses in one area, you always look for ways to cut costs or be efficient in other areas. It forces you to be on your toes.”

He’s not the only Iowa business owner who will have to remain vigilant. According to an annual survey of Iowa businesses, health insurance premiums increased an average of 10.8 percent in 2006 over 2005.

By comparison, a national survey conducted by the Henry J. Kaiser Family Foundation reported a 7.7 percent increase in employer-sponsored health premiums in 2006, the slowest rate of premium growth since 2000.

Like their counterparts in the rest of the nation, Iowa employers have seen a steady slowdown in premium increases since 2002, when premiums increased a whopping 18.7 percent over 2001. Though this year’s increase was down nearly two percentage points from 2005, employers are still faced with daunting cost increases. In many cases, it has meant both employers and workers sharing in higher premium costs, and often switching to plans that offer fewer benefits or require higher co-payments. It has also resulted in nearly one out of five employers now offering some form of consumer-driven health plan, such as a health savings account option.

Though the annual rate of increase in premiums is slowing, “we’re still in the double-digit range” said David Lind, president of David P. Lind & Associates L.C. The Clive consulting firm has conducted the Iowa Employer Benefits Study for the past eight years. “And that outpaces what employees are receiving in salary adjustments as well as outpacing the Consumer Price Index.”



Small businesses hurt the most

According to the 2006 survey completed by more than 900 randomly selected Iowa companies, the smallest employers were once again hit with the largest increases in premiums. Businesses with between 10 and 19 employees, the smallest category surveyed, averaged premium increases of 15.4 percent in 2006, compared with 8.4 percent for companies with 250 to 999 employees.

Lind said the Iowa survey’s average increases are higher than those reported by the national Kaiser survey because the Iowa survey included more small companies, which pay more for health coverage.

On average, employees in Iowa’s smallest companies also had plan deductibles that were more than twice what employees in mid-sized companies paid. An employee in a company with fewer than 20 workers averaged a deductible of nearly $3,000 for family coverage, compared with a $1,200 deductible for someone working for a 250- to 1,000-employee company.

Many companies are now entering their open enrollment periods, during which they receive quotes from their current insurer and often get bids from competing insurers.

Wellmark Blue Cross and Blue Shield, which provides health coverage for about one out of every two Iowans, said its average group policy premium increase for the 2007 plan year will be just under 5 percent, compared with increases last year that ranged from 12 percent for small groups to 8 percent for large groups.

“Depending on the benefits a group chooses to offer its employees, its demographics and its use of health-care services, some groups’ rates will be more and some will be less,” said Cliff Gold, a Wellmark group vice president.

Gold said ongoing cost-reduction efforts by Wellmark, among them its Decision Counts program to educate employees about how to make smart health-care decisions, appear to be contributing toward the slowdown in rate increases.

“From 2003 to 2005, the use of [prescription drug] generics by our members increased by 6 percent, with each percent worth about $5 million [in savings] over the use of brand-name drugs,” he said. “These cost [savings] are all passed directly on to consumers.”

Similarly, disease management programs instituted by Wellmark for conditions such as asthma and diabetes have also resulted in “millions of dollars in savings,” Gold said, though he declined to disclose precise figures for competitive reasons.

Starting in 2007, Wellmark will also reduce its targeted operating profit margin, which has been averaging 2 to 5 percent for the past 30 years, to between zero and 1 percent, Gold said.

“This was a direct result of our strong financial position,” he said. “And since we are a mutual insurance company owned by our policyholders, their rates directly reflect these lower targets. This distinguishes us from our competitors who are publicly traded, who must meet the high profit expectations of their shareholders.”

Consumer-driven plans see uptick

In addition to consumer education efforts, health insurance experts also point to the cost-saving potential of consumer-driven health plans. A small but growing number of businesses across the country – currently about 5 percent — have begun to offer high-deductible health plans coupled with health savings accounts.

Employees in companies that offer these plans, under rules authorized by Congress three years ago, can set aside pre-tax dollars that can be withdrawn on a tax-free basis to pay health-care expenses until their high-deductible health plan’s deductible is met. Another available option is health reimbursement arrangements, which are employer-funded plans that reimburse employees for medical expenses and allow unused amounts to be carried forward.

According to Lind’s survey, more than 19 percent of Iowa employers surveyed are now offering either a health reimbursement arrangement or a health savings account as an option to conventional health plans, compared with just 4 percent in 2005.

“The larger the employer, the more likely they are to offer an HRA or an HSA,” Lind said. “Between the two, we’re more often seeing HSAs.” Thirty-five percent of companies with more than 1,000 employees indicated they are offering an HRA or HSA, compared with less than 6 percent of companies with fewer than 20 employees.

Principal Financial Group Inc., which has seen relatively low enrollment so far in its health savings accounts, is anticipating employees will increasingly choose to enroll in HSA plans. Since it began offering the plans in 2004, Principal has opened approximately 9,300 individual accounts in its 35-state market area. It has established HSA plans for more than 1,100 companies so far.

“I would characterize the last two years as a lot of kicking the tires and looking under the hood,” said Jerry Ripperberger, Principal’s HSA product director. “I think there will be a lot more purchasing in 2007. The take-up rate has been roughly 5 percent across the country – which doesn’t seem like a lot, but it took [health maintenance organizations] a long time to get to 5 percent.”

Principal, which already offers a health savings account option to its own employees, plans to roll out a second HSA in 2007, but eliminate the health reimbursement account as an option.

“One of the things we like to do is offer people choice,” Ripperberger said. “So that’s why we’ll have two HSA plans, with a choice of deductibles, and also two traditional plans.”

Tracy Lewis, worldwide human resources director for Kemin Industries Inc., said of 2007 health premiums, “we’re looking at a significant increase, unfortunately. So we are trying to get creative in what we do and offer.”

About 240 of the Des Moines-based company’s 300 U.S. employees participate in the company’s health plans. Kemin is composed of 11 food nutrition companies operating in 60 countries.

“We know that to attract people to an organization, you have to have a competitive product at a good price,” Lewis said. “We’re also trying to educate our employees better so they use their dollars more wisely as well. For example, some employees may just go to the emergency room rather than a clinic, even if a clinic is open, because that’s the first thing they think of. Our philosophy is to try to keep the costs down both by subsidizing as well as educating.”

Last year Kemin rolled out an HSA option for its employees, which Lewis said has had low participation so far.

“A lot of people are afraid of that high deductible,” he said. “But if they looked at it, the majority of people would benefit by going into an HSA. There are very few people who have as high an amount of [health-care] spending as they may think.”

To encourage more usage of the HSA, Lewis said the company’s benefits committee will consider whether the company will increase the amount it contributes to that plan, to provide a cushion for employees until their accounts begin to build up.

Ripperger said Principal encourages employers to contribute to their employees’ HSA accounts.

“The only consistency that we have seen in employer contribution patterns has been inconsistency,” he said, “from 100 percent funding to no funding.

“You can put it really into two camps. The strategic camp says: ‘I’ve got to find ways to get my employees more involved in health care.’ They’re the ones who I would anticipate long term would reap the benefits of consumer-driven health care. The other camp sees the high rates and rushes out with a high-deductible plan. I think the results that employers will see will depend on their approach. It all comes down to education, education, education. What are we doing to help [employees] be engaged?”

Hugh Iverson, president of the Des Moines Area Association of Health Underwriters, said he believes HSAs have already been a factor in helping premium increases to decelerate.

“More people are thinking about what their health-care costs are, and they’re starting to ask questions [about the costs],” Iverson said His group, a local chapter of the National Association of Health Underwriters, represents about 250 health insurance professionals in Greater Des Moines.

The top item on the NAHU’s seven-point plan for reducing health-care costs is to “expand and improve access to HSAs through tax incentives,” such as a tax deduction for high-deductible plan premiums, or tax credits for employers that contribute to employees’ HSA accounts. The organization backs a bill in Congress that would increase the maximum annual contributions allowed to HSA accounts and allow HRA funds to be coordinated with HSA accounts.

Besides introducing HSAs, how else are employers responding to higher health-care premiums?

According to Lind’s employer survey, the most frequent response by Iowa employers to higher rates was to increase employees’ contributions through payroll deductions, a move that nearly 58 percent of respondents said they made this year.

At the same time, employers are “really holding their own” in terms of covering the same percentage of costs for the past five years, Lind said. The average portion of the monthly premium Iowa employers paid has remained steady, he said, with employers paying about 83 percent of the family policy cost and 69 percent of the single employee premium.

Other responses by employers have been to raise deductibles (35 percent); increase prescription co-pays (24 percent); and raise out-of-pocket maximums (23 percent).

“We still don’t see any employers dropping health-care coverage, despite the fact that the it’s been increasing year after year in the double digits,” Lind said.

Groves said he and his business partner have not formally considered introducing a health savings account option to their employees.

“Before we did something of that nature, we would have to be careful how we introduced that and make sure there’s a comfort level,” he said. “But once we do the research and if we think it’s a viable option, we would certainly look at it.

“We frankly would look at any viable option that would create cost savings as a business, without depriving our employees of benefits they’ve come to expect,” Groves said. “That’s a challenge.”