Commentary: Health care law adds a new twist to insurance costs

Here's a line that American workers have heard every year for more than a decade: Health insurance costs are going up again -- a lot more than inflation and pay raises.

But there's a twist this time: Coverage is also expanding, and many people will be less vulnerable.

The new federal healthcare law is starting to trickle into corporate benefit plans, and workers are learning about changes during the annual open enrollment period. By January, medical coverage can be extended to adult children to the age of 26; annual and lifetime caps will largely end; and many plans will pay for all preventive care.

Employers estimate that the additional coverage will add about 2 percent to costs, on top of the general rise in healthcare spending. Depending on the company (and the survey), premiums are rising around 8 percent next year.

How do employers plan to pay for it? The vast majority are passing along most of the costs, while some are cutting benefits and enforcing the rules more intently. It's natural to wonder whether insurers and employers are using the law as an excuse to jack up prices, a charge frequently made in the individual insurance market.

That's not likely on the corporate side, because big companies are obsessed with beating back this major expense, said Mark Chronister of Mercer, a human resources consulting firm.

"But I have seen employers use the law as a justification for making certain changes," said Chronister, a health and benefits consultant in Dallas.

Some have become more demanding with their wellness incentives, requiring workers to do more than complete a health assessment to get a financial reward. Others are cracking down on dependents who should not be on the plan in the first place.

Mercer estimates that up to 12 percent of dependents are ineligible for a corporate plan, because they're ex-spouses, adult children past the coverage age or even grandchildren. According to a Mercer survey, 31 percent of employers say they'll use dependent audits next year to offset price increases.

Subsidies for dependents are also being scaled back, with employers using tiered pricing, so that larger families pay a more proportional share of the expense. McClatchy, which owns the Star-Telegram, is dropping dental and vision insurance for dependents older than 19 to help offset the expense of the extended medical coverage.

Without such cost-cutting, average prices for large employers would rise 10 percent next year, Mercer says. But the employer efforts are expected to shave off 4 percentage points on the average, keeping the increase more manageable.

Under healthcare reform, insurance plans can be "grandfathered" if premiums, co-pays and deductibles aren't increased significantly. Most companies were expected to choose that path, because they wouldn't have to comply immediately with new mandates, such as paying all the costs of preventive care.

But Mercer found that nearly half the employers in the survey were willing to give up that status so they could alter the plan design. In effect, the potential savings from higher deductibles, more cost-sharing and changing vendors outweighed the benefit of avoiding the mandates.

"It's just more cost-effective to make the changes," said Chronister, adding that many employers already have preventive care.

Healthcare spending rose again last year for many companies, even though they often had smaller work forces after layoffs. That's because many laid-off workers extended their insurance coverage through Cobra, a federal plan that allows them to pay the premiums at the corporate rate.

During the recession, federal stimulus funds also covered almost two-thirds of Cobra's monthly premium. With the insurance in place, many unemployed workers chose to have expensive procedures, such as hip replacements.

"The people who sign up for Cobra are the people who need the coverage," Chronister said.

Employers continue to push fitness and other health initiatives, even with the weak economy. That's one way to slow the rise in health costs, especially with smoking and diabetes, but it takes time.

According to a survey by consulting firm Towers Watson, 86 percent of companies plan to boost their wellness programs next year, with strong support for weight-loss initiatives and biometric screenings.

This trend has been under way for many years, and the bar is being raised.

"The focus is on the return," said Adam Eichstadt, health and benefits group leader for Towers Watson in Dallas. "You have to participate in a program and get real results."

American Airlines introduced a program that lets employees save $250 on next year's costs (plus $250 if their spouse participates, too). In addition to taking a health assessment and talking with a coach, they must choose two of four other options, such as tracking their body mass over four months or completing 10 online courses.

Some employers, Eichstadt says, are going further. And some require that employees enroll in certain programs or pay higher premiums.

"Everybody is trying to increase employee engagement to get them more connected with healthcare," Eichstadt said.

In the past five years, merit pay raises have gone up 16 percent, according to Towers Watson. In the same time, employees have contributed 49 percent more for healthcare.

Spend less on health insurance, and there may be more for everything else.

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