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Workplace feels health-coverage ills

By Shirleen Holt
Seattle Times business reporter

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Nicole Franklin expected her organization's employee health insurance would cost more this year. But nothing prepared the Bellevue finance director for the numbers that screamed from the page.

A 56 percent increase in two years. Worse, the premiums for workers on the family plan had doubled, from $437 a month to $860.

"We thought, 'Holy cow, what are we going to do here?' "

Franklin works for the Washington Society of CPAs, a nonprofit accountants' group that relies on its culture and perks such as generous medical and dental coverage to keep employees happy.

The association faced a tough choice during the summer: Absorb the added expense (impossible), pass the cost on to its 23 employees or stop subsidizing some coverage entirely.

Franklin's problem is being played out across the country, in the back rooms of small grocery stores to the glass offices of the giant auto- and airplane makers. The cost of employee-sponsored health coverage has risen an average 14 percent a year since 2000, the result of spiraling health-care costs.

In Washington, employers pay an average $3,444 a year to cover a single employee, up from $2,651 in 2001, industry experts say. Family plans have risen even more in the past two years, from about $7,286 to $9,467. By 2004, they're expected to top $10,500.

The insurance increases are eating into profits, shrinking workers' paychecks, eroding pay raises, slowing new hires and sparking labor disputes.

Low-cost health insurance was a sticking point in each of the walkouts or threatened strikes of the past 15 months — by workers at Boeing, Qwest, Bon-Macy's, plus janitors, teachers, carpenters unions and currently grocery-store clerks in California.

More than half of U.S. employers this year shifted a portion of their higher insurance costs to workers and retirees by raising premiums, deductibles and co-pays, according to a study by Watson Wyatt Worldwide, a human-resources consulting firm.

Safeco recently announced it would cut retiree health benefits for newer and younger workers while lowering the subsidy for some current retirees.

Boeing now requires non-union employees to pay up to $105 a month toward their premiums, depending on the plan. The company used to cover the entire premiums.

"Our insurance benefits have risen 15 percent a year," says Boeing spokesman Ken Mercer. "That cost is projected to be $2.5 billion — that's billion with a 'b' — by 2005."

An executive with Ford put the situation in perspective: The automaker spent more on health insurance in 2002 than it did on steel.

The high cost of health care

As the person hired to shop around for the best deals, it often falls to Everett benefits broker John Rettenmier to explain to his clients why health insurance is skyrocketing.

At company meetings, he uses as a teaching tool a hospital invoice from 1961.

"Do you know how many lines of charges there are? Seven," he says. "Four days in the hospital at $30 a day; the delivery was $40; the anesthesia, $6; the lab work, $5; drugs, $4.50; dressings, $10; nursery, $8.50 a day. Total, $211. I'd like to see a birth bill now. It's probably 30 pages."

Today, a hospital birth costs an average $8,000, one of a multitude of procedures made more expensive by medical advancements, costly new drugs and state-of-the-art equipment.

When surveyed, employees tend to blame malpractice suits for the rising costs. Indeed, medical malpractice insurance has risen from about $10,000 five years ago to as much as $80,000 a year today, an expense that raises health-care costs and thus insurance rates.

But experts, including Rettenmier, say the biggest factor is that more Americans are simply getting more health care.

"My dad is a 78-year-old who's in excellent health, but he needed a knee replacement," Rettenmier said. "Well, $10,000 later, his knee's done. We have MRIs when people have knee problems. We have all these technologies that certainly do improve health care but they come at a great cost."

For small businesses, the double-digit increases are reversing some of the employee gains made in the boom years.

TERRA Resource Group, a job-placement agency, had piled on the perks in the 1990s: more paid leave, time off for volunteering, short- and long-term disability insurance. This on top of an already generous health plan that included dental and vision coverage paid entirely by the company.

Yet year-after-year insurance increases, including a 40 percent jump this year, are forcing the Everett company to take back some of the rewards it has granted.

"We have bit the bullet several years and finally just said we can't do it any more," says Steve Neighbors, who runs the company with his wife and founder, Betty Neighbors.

"This is the first time in 20 years that we went to our employees and said, 'We've got two choices here. One is that we can reduce the package, or you can contribute to the plan.' "

TERRA's 21 employees decided they'd rather pay $50 a month toward their premiums than shrink their coverage, which rose from $203 to $285 a month. Premiums for the family plan rose to nearly $495 a month, for which employees now pay about half.

Just after the company delivered that bad news, it discovered its supplemental disability insurance is going up 50 percent. The insurance rates, combined with a 30 percent rise in workers' compensation insurance, weigh on Neighbors.

"We're doing more business than we were before, but the margins are slimmer. There's tremendous pressure."

The costs are also affecting workers' incomes. For the third year in a row, raises will stay below 4 percent next year, according to Hewitt Associates, a human-resources consulting firm. The annual increases are at their lowest in 30 years.

Housing Hope, an Everett nonprofit that provides housing for low-income families, wonders if it will be able to give any raises this year, let alone hire new staff.

The organization budgeted an extra $25,000 to cover an expected rise in health premiums for its 50 employees. The actual increase, however, came to $50,000.

"That's a whole position we could have funded," says Ed Petersen, executive director.

The nonprofit already eliminated its disability insurance, but this latest increase has sparked another round of discussions among staff. One option was to scale back coverage, another to raise the employee contribution, which is now at 10 percent.

In the end, they decided to leave things as they are for now.

"We've agreed to pay the higher cost," Petersen says, "but I don't think it's something we can sustain."

Retirees and employees with families are carrying the bulk of the increased cost burden.

Safeco retiree

When he retired from Safeco in 2001, Lou Arnoldi figured his $70 monthly health-insurance premium would go up, but not by 1,100 percent.

"I got the bulletin that says Safeco's in hard times, blah, blah, blah," says the 64-year-old, who lives in Bellevue. "And then they said we've got to make further adjustments, and by the way, this year the (monthly) premium will be $836."

That's more than Arnoldi and his wife pay for their monthly property taxes, car insurance, utility bills and food combined.

"I'm going to have to look at some other plans," he says, "or my wife and I will go back to work."

Safeco, which saw its costs for retiree benefits jump 40 percent this year, is among a growing number of companies either cutting back or dropping those benefits altogether.

In 1993, nearly half of large companies offered retiree health insurance. By 2001, that figure had dropped to less than a third, Mercer Human Resources Consulting found.

Other employers are boosting an employee's contribution for family coverage if a spouse declines coverage from his or her own employer's insurance.

Boeing charges some workers an extra $100 a month for that; at Verizon Communication, it's $40.

The Washington Society of CPAs hasn't had to take that step yet, but it did raise employee contributions after staff members said they'd rather pay more out of pocket than have their coverage reduced.

Those on the family plan now pay $360 a month out of pocket, $100 more than last year.

They still pay only about 12 percent of their benefits costs, a smaller chunk than the 20 percent typical for small businesses.

But that share may increase, too.

"We have fought tooth and nail to hang on to that," Franklin says. "But I can see this next year we're going to have to go back to the staff and ask them to pay a higher percentage."

Shirleen Holt: 206-464-8316 or sholt@seattletimes.com

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