Good morning!

Spring may be on the way, but for a lot of smaller companies, April is a bad-news month. It's the month of health insurance renewals for a lot of Massachusetts firms which purchase their coverage through pooled groups.

So lately my clients have been getting the news of their rate increases. And it's been almost all bad: 8 to 15% more for repeat coverage. With the average family plan, that increase can be almost $150 a month, or 5% of the pay of a $36,000/yr. employee.

It almost makes me wish I were 65, at which time Medicare promises to solve my high-premium problems. Until then, like everyone else, I'm singing the health care blues.

That may not be the case for long. The Kiplinger Letter last week (March 3) reported "States are determined to do something about the growing ranks of uninsured… They'll look to employers for help… More carrots than sticks will be used to coax employers to expand health coverage." Irrespective of the source of the mandate, it's inevitable that all but the smallest employers (10 or less people) will have to offer a health plan soon, and most likely pay for at least part of it.

While no one yet has all of the answers to cost containment in health care, there are some guidelines for small employers in seeking cost-effectiveness:

1. Generally, the larger the group, the lower the premium. Organizations of less than ten should ally themselves with a central service portal such as the Smaller Business Association of New England, the Massachusetts Business Association, the Small Business Service Bureau, or any of the major Chambers of Commerce. As your broker can describe, their pooled rates are now subject to the manual small group reform mandate, but still better than do-it-yourself. Routinely these groups have April 1 renewal dates.
2. In Massachusetts, the four main insurance providers are Blue Cross/Blue Shield, Fallon, Harvard Pilgrim, and Tufts. According to the Boston Globe (3/2/06), each of these four non-profits recorded a profit of at least 3.2% in 2005, and each is raising its rates by 5-15% in 2006. Large national insurance carriers such as United Healthcare and Cigna have a much smaller presence in Massachusetts than elsewhere.
3. The size of the "book of business" that an insurance broker has with any insurer is a critical lever in his or her ability to negotiate a premium rate discount on your behalf. Ask: How many lives does your agency represent with BCBS, Fallon, etc.? If it's less than 1,000, the agent lacks bargaining power. (But if your firm has less than 50 employees, you'll get a flat rate irrespective of your broker.)
4. Based on 2005 survey data of 1,500 Massachusetts companies by insurance broker Brewer and Lord:
   • 68% (2–50 employees) and 97% (51+ employees) of employers offered health insurance plans
   • The median monthly premium was $365 (individual) and $950 (family)
   • The median employer contribution was 79% (2–50) and 75% (51+) for individual plans, and 75% (2–50) and 73% (51+) for family plans
   • Across all groups offering health insurance, of employees eligible for insurance, 78% enroll
5. Increasing the deductible will slow the rate of premium increase, though this varies widely (5–35%) by insurer, deduction level ($500–5,000), and employee demographics. Sharing the expense of the deductible as a form of self-insurance can reduce the sting to employees while encouraging their efforts to control their own health care costs (see side-bar).
6. Consumer-directed health care (CDHC) is an idea whose time has not yet arrived. But the concept of a tax-advantaged savings vehicle to fund some of the insurance premium gives employees the incentive to become more informed, educated health care purchasers.
7. Forward-looking employers will begin now to educate their work forces to become more savvy consumers in anticipation of future cost-reduction opportunities outlined in current Health Care Financing Vehicles (click for chart, courtesy of BlueCross/BlueShield of Massachusetts).

8. In implementing any of these consumer-directed plans, there's a real danger that the savings will be offset by the cost of administration and of advising employees. Irrespective of the expressed willingness of the broker to provide responsive Q-&-A services, the initial inquiry by most employees inevitably will be directed to the in-house H.R. person — most often the accounting manager or the controller in a small firm.

State and federal mandates in the direction of universal health coverage are laudable, but ultimately unaffordable—by employers, by employees, and by the government—given an aging population and an understandable unwillingness by consumers to settle for "cut- rate" health care. In considering alternatives, our Alligator takes a Bite this month (below) to acknowledge one insurer's efforts to use market dynamics to blow away the "blues."

Tufts Health Plan to date has been the most innovative of the local insurance providers in providing its members with good-health incentives as part of its Vitality program. According to the brochure, "Members who take action and follow guidelines for things like preventive care, smoking cessation, regular exercise, and health education are awarded Vitality Points™. As more Vitality points accumulate, members are eligible to earn a higher Vitality Status™. And the higher the status level, the more valuable the rewards, including airline travel and shopping miles, discounted health club privileges, higher interest rates for PMFs [Personal Medical Fund], and incredible values on hotel packages."