The Coming Health-Care Crunch

With health-care inflation rising at a double-digit pace for the fourth consecutive year, employers are in a bind. How can they continue to offer their employees medical benefits without digging too deep into their cash-strapped pockets?

The answer, increasingly, is to shift more costs onto employees' shoulders. And that's not all. Many employers are also negotiating with insurers to change the very nature of their plans — and in some cases to trim benefits. Bottom line: Americans will soon be paying a lot more for their health care and getting fewer benefits in return, warns Ron Pollack, executive director of consumer-advocacy group Families USA.

And don't expect a memo detailing how your employer is sticking it to you. While you may receive some literature from your human-resources department about higher premiums and perhaps some other costs, companies naturally hope that the most aggressive cost-cutting measures go unnoticed.

Here are the biggest health-care secrets companies hope you never find out about.

You're Paying More Than You Realize
When a company negotiates a benefits package with an insurer, it can "buy down" the premiums by raising the amount employees have to pay through the deductible and coinsurance (for a preferred provider organization, or PPO) and the copayment (for a health-maintenance organization, or HMO), as well as the prescription copayment.

"Anything that increases the patient's financial responsibility will likely lead to lower premiums upfront," says Larry Akey, a spokesman for the Health Insurance Association of America.

How much more will you pay out of pocket next year? Many companies are still negotiating their contracts for 2004, but industry experts already warn of large increases. On average, copayments for HMO members are expected to jump from $15 to $20 or more for an appointment with a primary-care physician, says Richard Ostuw, a health-care consultant with benefit-management firm Towers Perrin. If you want to see a specialist, add $5.

The folks at Cigna, a major insurer, say the biggest change they're seeing is a switch from plans that charge a flat copayment to plans asking employees to cough up a 20% coinsurance for each office visit or procedure. And many PPO plans that currently charge a 20% coinsurance — the industry standard — are starting to ask their members to hand over 30% or more of their doctor's total bill.

Employers also hope to save on prescription medications. Many are moving to a three-tiered drug-formulary system. Under this system, employees will pay roughly $10 for a generic drug, $19 for a preferred medication and $35 or as much as much as 20% of retail cost for other drugs, if those medications are covered at all. Not long ago, most consumers with a drug-benefit plan paid less than $10 for all of their medications.

We Control the UCR
Another way your health plan can shift additional costs onto your shoulders is through something called the usual, customary and reasonable charge, or UCR. This is the amount the insurance carrier has determined is appropriate for a physician in your geographical area to charge for an office visit or procedure. If your out-of-network physician charges more, you must pay the difference.

What a lot of people don't realize is that it's employers, not insurers, that decide at which percentile to set the UCR. Most companies agree to set the bar at 90% of what the insurer deems reasonable. But if your employer wants to save some money on the premium, it can choose to set the scale at 80% or lower, warns Larry Gelb, president and chief executive of San Rafael, Calif.-based Care Counsel, a patient-advocacy firm. "It's a way for the employer to save money without employees knowing," Gelb says.

Freedom at a Price
Employers know their employees want the freedom to see any doctor they choose. The good news is that most companies have no intention of taking that freedom away. But that doesn't mean employers intend to pay for it. In coming years, should you choose to see an out-of-network physician, you'll have to bear a far greater burden of the cost, says Towers Perrin's Ostuw.

Many more employers will stop subsidizing expensive care in coming years, say experts. Instead, they'll pay the equivalent price for an in-network carrier, and leave the rest up to their employees. Considering that many out-of-network physicians charge 50% more for their services, you might find that selecting a new in-plan internist isn't such a big deal after all.

Spouses Not Welcome
Employers are having a hard enough time providing health benefits for their own employees. The last thing they want to do is also provide coverage for their workers' spouses — especially when so many of them work and can get health insurance from their own employers.

Since your employer can't come out and tell you it doesn't want to provide your family with coverage, it might instead let a higher premium dissuade your spouse from signing up. According to Tower Perrin's 2003 Annual Health Care Cost Survey, companies charged employees $51 a month for health insurance, or 19% of the total premium. But family coverage costs an average of $169 a month, or 22% of the total premium. Figures aren't out for 2004 yet, but Towers Perrin expects premiums for spouses and other dependents to rise further.

The best way to prepare for the upcoming crunch is to try and figure out how much more you'll be spending next year. Ask your human-resources department for as much information as possible, as early as possible. Then set aside pretax dollars in a medical-spending account. For more on MSAs, read our story.