With health care costs climbing even higher during this enrollment season, more employers are adopting a tiered system to pass on the bulk of those costs to their employees by assigning bigger contributions to workers in top salary brackets and offering some relief to workers who make less money.
For years, employees have seen what they pay toward health care go up as companies ask them to contribute more to premiums and deductibles. But now, as people enroll in health plans for the coming year, the sticker shock is more jolting than ever because so many companies are passing on to their workers most, if not all, of the higher costs.
A worker’s share of a family policy is approaching $4,000 a year on average, and is most certainly going to keep rising through the next few years. For lower-salaried workers, those costs have only compounded their struggle in a brutal economy.
More and more companies in the last year or so have begun signaling their recognition of the added burden shouldered by workers in low- and middle-income jobs by varying the premiums they pay based on salary. Consultants say the trend is likely to continue, as employers devise various ways of spreading increased health care costs among their staff and balancing that side of the ledger against fewer raises and other compensation.
Vanderbilt University, for instance, has adopted a wage-based benefit program for 2011 under which premiums will remain the same for employees who make $50,000 or less, while everyone else will pay up to $75 more a month. “We’re trying to help those lower-paid employees cope with hard economic times,” said Jerry Fife, a vice chancellor. Even as companies warily eye the uncertain landscape of the new health care law, especially with the Republican midterm election gains at the federal and state levels, they also are seeking novel ways to deal with year-after-year increases in health care, because the share-the-pain era is coming to an end.
Corporations had absorbed some higher costs in recent years, along with their workers, but have recently passed all, on average, onto employees. In 2010 alone, a worker’s share of the cost of a family policy jumped an average of 14 percent from the previous year, according to a recent survey by the Kaiser Family Foundation. In real money, that is an additional $500 a year deducted from a paycheck.
“It feels so much worse this year than it has in prior years,” said Helen Darling, president of the National Business Group on Health, which represents employers providing health benefits.
Across the country, the percentage of workers with coverage in large companies whose premiums vary with their wages climbed to 17 percent in 2010, up from 14 percent two years ago. About 20 percent of employees who are covered by large companies in the Northeast, which has suffered from a combination of high unemployment and steep medical costs, have the premiums they pay tied to their wages, according to Kaiser.
“If health care reform hadn’t happened, there would be more companies going in this direction,” said Ms. Darling, alluding to the period between the law’s passage this year and 2014, when it is expected to take full effect.
Some corporations have gone further than others in trying to spare their lowest-paid workers, even as they increased the cost of premiums for everyone else. This year, for example, employees at Bank of America who make $100,000 or more a year will pay at least 14 percent more for coverage for 2011.
But workers who make less will actually see their contributions decrease, although their deductibles and co-payments will stay the same. Employees earning less than $50,000 could see as much as a 50 percent drop in the amount deducted from their paychecks, as compared to 2010. The bank says it is making up the difference.
”We’re obviously committed to helping our associates and their families manage rising health care costs,” said Kelly Sapp, a spokeswoman for the bank. At Vanderbilt, the university was mindful that employees had gone with no or small raises for the last two years. The university typically pays about 80 percent of the cost of coverage, with employees paying anywhere from $41 to $370 a month in premiums. The concept of tiered plans is not new, with employers that typically offer generous benefits, like universities, being quicker to try it. General Electric , for example, has long divided its work force into separate tiers to determine how much an employee has to contribute toward insurance coverage. (General Electric is the parent company of CNBC.)
Often, companies will keep premiums steady or lower for low-income workers by asking them to pay less of the overall increase, while high-income workers will pay more to make up for the difference, according to Joshua Miley, a principal at HighRoads, a Woburn, Mass., health benefits management consultant. Faced with an overall increase of 9 percent, the company might ask the lower-paid workers to pay 4 percent more, while the higher-paid group would pay 14 percent more. “They’re doing it on the backs of the higher-paid,” he said.
Some companies may be reluctant to ask certain of their employees to pay more, especially if workers belong to unions that have negotiated a certain level of benefits for all their members.
Other companies could be wary of a system that could be viewed as unfair since salary may not be the best indication of household income. Some low-paid employees whose spouse is a high earner may not need the help, while a single person with a higher salary could. The other concern is not being able to move away from a wage-based benefit structure once it is in place.
For most workers, however, the trend has been very clear: the increase in health care costs has easily outstripped any rise in their incomes. Since 2005, while wages have increased 18 percent, workers’ contributions to premiums have jumped 47 percent, almost twice as fast as the rise in the policy’s overall cost, according to Kaiser.
Companies have also become increasingly creative in the ways they shift costs. Instead of simply raising premiums or increasing the size of the deductible workers must pay before their coverage kicks in, employers are increasingly asking their workers to pay more of the cost of coverage for their dependents, or to pay more of their share of a hospital stay or an emergency room visit. “Employers do a bit here and do a bit there,” said Gary Claxton, a policy expert at Kaiser.
The result is that employees may be paying more, but they may not know how much. Mark Rukavina, the director of the Access Project, an advocacy group, said, “You need multiple spread sheets to figure this out.”
During her company’s open enrollment period, Marilee Fisher, for example, tried to scrutinize the three plans being made available by her employer. She is liable for any medical bills she accumulates when her 5-year-old son, who has Down syndrome, has therapy more times than allowed under the specific plan.
More companies are adopting plan designs that require employees to pay more of their own medical bills under specific circumstances so workers are increasingly feeling the pinch. Companies “are taking the usual cost-trend reduction measures, but more of them are doing it,” said Beth Umland, director of health and benefits research at Mercer, the consulting firm.
This has clouded exactly how much more workers are paying. “Employers have shifted costs for the past 10 years,” Mr. Miley said. “The confusion allows them to push it further.”