As most employers conclude their January 2012 employee benefit open enrollments they might want to start laying the foundation for the next year, especially if collective bargaining contracts are up for discussion. Typically three year commitments, these contracts will take groups right into the middle of the impacts of the Health Care Reform provisions of 2014 and closer to the looming penalties of the Cadillac excise tax in 2018. To help develop strategy you might consider viewing several recent studies focused specifically on the needs and challenges of public entities. They include studies by the Government Finance Officers Association (GFOA), The Manhattan Institute and Cobalt Community Research.
The following historical practices cited in the Manhattan Institute study make the challenge difficult:
- Public employees contribute less to their premiums - an average of about 15 percent of the overall premium compared with about 25 percent in the private sector
- Public employee plans offer more generous benefits, including lower deductibles and lower co-pays
- Governments require shorter enrollment waiting periods for new employees than in the private sector
- Public employees have higher opt-in rates for employer provided coverage; 26 percent of private-sector workers choose not to participate in available employer health plans while just 16 percent of government workers choose not to participate
The most frequently used strategies cited by the Cobalt Study and the GFOA for controlling benefit costs:
- Increase employee share of the premium costs
- Consider shifting secondary plans from core to voluntary offerings
- Increase deductibles and copays
- Reduce the need for health care through wellness programs
- Expand the use of generic drugs
- Reduce excess usage - offer Consumer Drive Health Plans, HSAs and HRAs
- Educate employees/retirees to make better health care decisions
- Plans offering retiree health care should consider a Medicare wraparound
"How does this compare to changes being made in the private sector and will this change the paradigm for attracting and retaining public entity employees?" It's a good question, but the private sector is usually a few steps ahead in implementing change due to a lack of union involvement.
The private sector has gone deep into changing plan designs to include higher deductibles: $500 is standard with many groups offering $1,000 and $1,500 or $2,500 Consumer Driven options. Doctor and Rx copays are up and cost sharing is increasing. Worksite wellness is nearing 100% participation due to incentives (or penalties) and includes spouses. Eligibility audits are becoming common as are spousal surcharges or waivers if spouses are eligible for coverage through their employers. Most ancillary plans have shifted to voluntary purchasing through payroll deduction. There is still a large difference in benefit design and cost sharing between private and public sector business.
How will Health Care Reform help? Although some early advantages have been seen, there are still many unanswered questions. Will costs eventually slow? Can employers count on it?
Accordingly to the Cobalt Study over 1,690 local governments across the country, about 42% of the nation's cities, counties and townships expect their revenue to fall again in 2012. They are looking at controlling benefit costs to play a major role in balancing their budgets. We hope this data provides a starting point in helping develop your intermediate and long term employee benefit strategy.
The Horton Group offers Insurance, Risk Management and Employee Benefits. They are a proud Corporate Sponsor of the ILCMA. For additional information, contact Mike at 708-845-3126 or Email: mike.wojcik@thehortongroup.com.