I’d always been a skeptic about any kind of insurance – “you have to lose in order to win” – until 1993. Our oldest son, Dave, having just gotten out of the Army and about to go back to school, was on a cross-country motorcycle trip. As he was heading west on highway 285 out of Carlsbad, NM, a sedan pulled out of the parking lot of the Carlsbad Medical Clinic right in front of him. The driver later admitted that he missed seeing Dave, but Dave couldn’t miss the sedan, hitting it broadside at 40 m.p.h.

Fortunately, Medical Clinic personnel were able to perform an emergency tracheotomy on the sidewalk within a few minutes of impact to save Dave’s life, but the reconstruction of his face and body took months. For all intents and purposes, he was doing well within a couple of years thereafter; however, the financial implications lasted much longer. Dave, it turned out, was between insurers, having let his Army insurance lapse and not yet having been picked up on the University policy.

We all learned an expensive lesson on that one, so when Annie and I describe our five grown kids as “all being in career jobs and all having full health insurance coverage,” it’s with significant meaning for us. In fact, neither of us can imagine having any of our family with lapsed health care insurance at any time. Fortunately, with good jobs and excellent employer-provided plans, we’re all covered, which is more than a lot of people in Massachusetts and elsewhere can say.

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 un willingness 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.”

Alligator Bites

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.”

As a way of encouraging and rewarding members who successfully manage their PMF, Vitality offers the following inducements for each subscriber and/or spouse per year:

• Following all preventive care guidelines – 12,000 points

• Being tobacco free for at least 12 months – 5,000 points

• Being within goal weight guidelines – 5,000 points

• Donating blood – 500 points per donation

• Obtaining CPR certification – 2,000 points

• Participating in self-reported workouts – 25 points per workout

• Calculating target heart rate online – 500 points

• Completing online health assessment – 2,000 points

• Calculating daily caloric needs online – 500 points

An annual total of 55,000 points for an individual or 87,500 for two-adult family qualifies for the Gold standard, which includes significant price reductions at resort hotels, fitness center membership discounts, five magazine subscriptions, 10,000 frequent flyer miles, a higher interest rate on the PMF account, and multiple purchase discounts. All for staying healthy, which, of course, is its own best reward.

Draining the Swamp

Boston-based Chadwick Martin Bailey, a growing market research firm and a Financial Managers client, recently responded to its health premium increase by calling on Ford Spalding of Felton & Berlin Insurance Services and Mike McKenna of Partners Benefit Group for advice.

As reported in the Boston Business Journal (March 3, 2006) “When the renewal was up in December, [CMB President] Anne Bailey Berman – looking to leverage her relatively young, healthy staff of 46 – adopted a [modified] high-deductible plan that doubled an individual’s deductible to $2,000 and a family deductible to $4,000.

“The higher deductible meant the monthly premium, of which employees continue to pay 26 percent, dropped to $264 from $322 in 2005 for individuals, and the family plan premium shrank to $705 from $871.

“Under the new plan, if the employee runs up out-of- pocket costs of over $1,000, [CMB] will pay up to $500.

”We’ll do well unless everyone in the company gets sick,’ said Bailey Berman. ‘There’s more responsibility on small-business managers. We have to understand what’s happening and spend time learning the options.'”