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Despite moderation in medical price increases, managing the still-rising cost of health care benefits has been the biggest challenge for benefit managers in 2006.
While shifting costs via plan design changes has become standard practice for many employers, increased employee contributions alone can not stem the rising cost of providing health care benefits, benefit managers say. In response, employers have considered or incorporated other initiatives, including the implementation of consumer-driven health plans and an enhanced focus on disease management and wellness programs.
Meanwhile, examining the impact of pension legislation passed this year was another important task for benefit managers.
In 2006, benefit managers spent much time and effort exploring ways to cope with a constant problem: the continued escalation of medical costs.
"We continued in 2006, as we will in 2007, to cope with the rising cost of employees' health insurance," said Jim Crockett, manager of risk and benefits at Denver Water, a municipal utility company.
Plan design changes such as increases in deductibles, coinsurance and copayment levels have become the norm for benefit managers trying to control health care cost increases. Denver Water spent a substantial amount of time this year educating its employees on several benefit changes taking effect in 2007, including increases in employee premiums of about 20% for one health plan and 100% for the other. The increased employee contributions were aimed at addressing medical cost increases in the range of 13% to 17% that the organization has faced during the past few years, he said.
"They were large changes," Mr. Crockett said. "Our workforce was not accustomed to paying much-higher premiums, having higher out-of-pocket costs in the form of coinsurance and deductibles."
Search for root causes
Standard plan design changes alone, though, have not slowed medical cost trends for some organizations and they are exploring or planning to implement other options that include CDHPs.
JohnsonDiversey Inc., for example, plans to replace its traditional plans with CDHPs beginning Jan. 1, 2008. That is because it continues to see annual health care cost increases of 10% to 15% and raising employee contribution levels has not helped slow trends, said Todd Blazei, vp, total rewards group, for the Sturtevant, Wis.-based marketer and manufacturer of cleaning product and building maintenance supplies. Shifting costs to employees is "just not something we think we can continue indefinitely," he said.
Companies also are more closely examining the root causes of medical claims. Reed Elsevier, a global publishing company, formed a mental health task force to discover the key causes of behavioral health issues and develop solutions, said Anne Silverman, vp-compensation and benefits for Reed Elsevier P.L.C., The Americas in New York. "We're starting to focus on productivity, keeping people healthy, trying to work with our disability vendors to get people back to work," she said.
Health care companies continued their focus on saving money by managing claims through disease management programs, said Scott Clark, risk and benefits officer for Miami-Dade County Public Schools in Miami.
Investments in disease management and wellness programs, particularly those that aim to improve medication compliance, have become increasingly popular, he said. The school system, for example, worked with its health care insurer, UnitedHealthcare of Florida, to offer a 50% reduction in copayments for medications treating chronic conditions such as asthma and diabetes, Mr. Clark said. "Our hope was that if we lower the cost of our copays, people will be more able to afford refills and keep on medications so they wouldn't have serious health effects down the road," he said.
Benefit managers also spent a great deal of time this year monitoring political developments with respect to pension issues and were encouraged by the passage of legislation that protects cash balance plans from age discrimination, even though the law was not retroactive.
The Pension Protection Act of 2006 clearly laid out the rules for cash balance plans, said Mr. Blazei, whose company has a cash balance plan. "We feel our plan fits those rules," he said.
Employers also favorably viewed a ruling this year by the 7th U.S. Circuit Court of Appeals in Chicago that said IBM Corp.'s cash balance plans do not violate age discrimination law.
Ms. Silverman said she and her colleagues carefully monitored the developments of the IBM pension dispute because Reed Elsevier also has a cash balance plan. "I see our pension plan as a good retention tool and a competitive advantage, she said. "But (the IBM case) was certainly on our minds."
Pension law revised
Employers also praised passage of a provision in the Pension Protection Act that makes it easier to implement automatic enrollment, in which an employer enrolls an employee and contributes part of an employee's salary into the company's 401(k) plan unless the employee specifically objects.
Congressional approval of automatic enrollment, something Reed Elsevier has had for five years, "makes me feel like we were making the right decisions all along," Ms. Silverman said.
Despite the new law clearing the way for automatic enrollment, Denver Water will continue to offer its 401(k) plan on a voluntary basis alongside its defined benefit plan because it has successfully encouraged employees to sign up due to a generous match, Mr. Crockett said. The organization offers a 100% match up to 3% of salary, and 90% of eligible employees have taken advantage of the retirement savings opportunity, he said. "As long as enrollment remains high, we probably wouldn't make any changes," Mr. Crockett said.
JohnsonDiversey, meanwhile, is examining its new contribution levels under the new law and will review its pension plans next year, but Mr. Blazei said he does not expect major pension plan changes. "I think every year you look at it to see if it's the right vehicle," he said.
On another front, several benefit managers said educating employees about the need to properly plan for retirement was a key focus this year.
Reed Elsevier launched a Financial Fitness campaign this year aimed at helping employees better understand their finances and encouraging them to increase their participation in voluntary retirement plans. The campaign underscored one of Ms. Silverman's key concernsemployees' tendency to remain at the default 2% savings rate in their 401(k) plans despite a maximum contribution level of 6% of salary. "It's very difficult to get people over the inertia and increasing their contribution," she said.
While several major companies this year announced that they are phasing out their defined benefit plans, Ms. Silverman said the plans still offer certain advantages for both employers and employees and should be offered alongside defined contribution plans rather than being replaced by them.
"Defined contribution-only is not going to give people enough money for retirement," she said.