The conventional health insurance plan, if not dead, is in serious need of resuscitation.
Soaring health care costs, continued HMO inflexibility in meeting patient needs, and a historic contract settlement involving the "big three" supermarket chains in Southern California have driven that point home to the food retailing industry.
New strategies, said human resource experts, are required to keep employer premiums at a manageable level, while safeguarding the health care benefits many employees consider entitlements.
Food Marketing Institute, Washington, anticipates a 12% increase in prescription costs for the year ahead, a 15% increase in medical costs, and a 14% increase in vision-related medical costs. "We're talking big dollars here," said Michael Sansolo, senior vice president, FMI. "When you contrast that with the industry sales that are growing by single digits, you see why it's become such an issue."
With many health insurance plans renewed or up for renewal, it's doubtful employers can do much about this year's rising medical, prescription and vision costs. What they can do, said David P. Lind, a health care consultant based in Clive, Iowa, is drive those costs down next year and the year after by making employees aware of the true cost of health care, and getting them to assume greater responsibility for containing those costs. "[Everyone] needs to be better stewards of our health care dollar," emphasized Lind. "It's been so easy in the past for us to assume that the medical plan, the insurance company, or the employer's plan would go ahead and pay for everything," he said. "So we've become somewhat desensitized on what the cost of health care would be because we're only paying a small portion of it."
One way of sensitizing employees, stated Lind, is through a relatively new concept for the grocery business -- the health savings account, or HSA. Highlighted in a Wall Street Journal article in June, the HSA concept as rolled out by Whole Foods Market, Austin, Texas, last year was fairly straightforward: After specified periods on the job, many single employees are no longer required to contribute to their health insurance plan, but do pay a significantly higher deductible of $1,500. To partially defray that higher deductible, Whole Foods deposits money into an account -- ranging from $300 to $1,800, depending on the length of service -- from which employees can draw to meet the deductible.
Employees, mindful of the costs, now resist the temptation to consult the doctor for every minor ache or pain. The number of claims in a year drops, the plan saves money and, by extension, so does the company. Moreover, the plan is portable. Money not spent one year rolls forward to be used the next year or the year after. The "tricky part" in any of this, admitted Lind, is the worker response.
"The employee must start asking more questions about the associated costs like the office call [and] prescription drugs, rather than just going ahead and paying their $20 co-pay and forgetting the rest," he said.
Supermarket HR executives like Joe O'Connor, director of human resources at Heinen's Supermarkets, Cleveland, are encouraged by the practical impact HSAs had on Whole Foods. According to the Wall Street Journal, Whole Foods had a reduction in hospital admissions of 22% and a 13% drop in medical claims. "Employers are kind of excited about [HSAs] because they make the associate do the math," said O'Connor. "They control their own destinies and have to watch what they're spending."
Employees won't do that, said Mike Silveira, vice president of human resources and law for Save Mart in Modesto, Calif., as long as they continue to view benefits as limitless largess -- an attitude he blames on a "paternalistic" supermarket industry. "That's why the Whole Foods approach has an appeal to me," he said. "It's saying, 'We want to make you responsible, and we're going to give you the ability to be responsible. Now it's up to you."'
Even Mike Gantt, vice president, human resources, Bashas' Supermarkets, Chandler, Ariz., which is sticking to a more conventional health insurance plan, hasn't rejected out of hand either the consumer-driven approach to employee health insurance or the notion of HSA. "Of course," he acknowledged, "it all makes sense."
Yet HSAs may not be without drawbacks. Some fear seriously ill employees, wary of drawing from their account, may not seek medical attention. Another problem could occur when an employee resigns. Under new Treasury Board regulations, money deposited into an HSA, whether by the employer or employee, is vested, meaning the cash departs with the employee the moment he or she leaves the company. Former employees can then use that tax-free money to pay for future medical needs -- or even for non-medical purchases, such as a boat or car. Though the employee must pay tax on that money, the employer remains out of pocket.
Lind said there's a more employer-friendly alternative that still retains the beneficial psychological impact of the HSA. It's called the health reimbursement account, or HRA. Funded 100% by the employer, the amount of money in an HRA account that can roll over into the next year is set by the employer, not by the government. Under an HRA, the employer can also say to the employee that the money in the account is for qualified medical expenses only and that if the employee leaves, the cash stays with the company.
"The employer has more control with the HRA than the HSA," observed Lind.
If supermarket human resources managers are becoming increasingly convinced that HSAs and HRAs can break through the seemingly impenetrable wall thrown up by conventional heath care insurance, it's because that bulwark has already been breached. The elimination of the maintenance of benefits clause in the contract settlements between the United Food and Commercial Workers and Safeway, Albertsons and Kroger earlier this year "dramatically altered" the way supermarket executives think about health insurance coverage, said Gantt of Bashas'. It provides, he said, "an opportunity for an employer to create a different kind of health plan that may not be as lucrative or as favorable to the employees."
"We now have that contract in hand and are paying close attention to it and strategizing. We haven't come to any conclusions yet, but we're talking about how we're going to respond."
O'Connor of Heinen's already knows how he'll respond. Tom and Jeff Heinen, owners of 75-year-old, family-run Heinen's Supermarkets, "have a strong conviction about everyone being treated fairly," whether union or non-union, said O'Connor. At the same time, they've "always raised the caution flag" that if the equity the non-union staff currently enjoys with union staff in health insurance becomes too costly, then changes would be made. How? Through health savings or health reimbursement accounts. How soon? As early as this fall.
"I think these HSAs and HRAs are going to give them the latitude they need to keep costs down because it'll put the onus on the employee to keep watching what they're spending," O'Connor opined.
O'Connor insisted he doesn't want an HSA or HRA to become a "take-away" for non-union employees, but he does believe these employees can be won over if savings accounts prove their worth. A harder sell to unionized employees? Maybe not. O'Connor deals with five different unions, including the UFCW, and he believes union executives have already begun to "take the lead getting the message to their union members" that soaring health insurance costs are "a serious deal."
"I remember when they would cover laser surgery instead of encouraging union members to wear glasses or contacts," he said. "They're finally looking at their plan and asking, 'Where can we cut costs?"'
However, unions do have concerns about the two assumptions underlying HSAs. Supermarket employees, notably those in Southern California, are keenly aware of the true value of health care dollars, said Jill Cashen, UFCW International spokeswoman. "That's why they stood on a picket line for five months, because they clearly understood what health care means financially and otherwise." Cashen also questioned how easily or willing employees themselves will be to contribute to health savings accounts. Many are hard-pressed to pay their bills, let alone pay the HSA's higher deductible, she noted. "I appreciate that," said Save Mart's Silveira. With a top pay rate of $19 an hour for a full-time clerk, Save Mart employees who can't afford to buy a house in California's Central Valley would find it hard to contribute a penny to an HSA. Yet that doesn't stop employers from offering to pick up the cost, said Silveira -- or offer other health insurance options.
"I like the idea of making people more responsible for their own future," he said. "I like the idea of giving them the tools and information so they can be responsible. And if they choose not to be, then I can't do anything about it. That is more or less my attitude toward it."