The Health Care Crisis: Is There A Prescription for MI Dealers?

When faced with a 15% increase in premiums, Mick Faulhaber of Ward-Brodt Music counted it as a 15% raise for his employees. “We have been absorbing these increases but, really, they can be equated to a pay raise,” the Wisconsin dealer reasons.

“We can’t as a business continue to have these increases,” declares Tony Falcetti of Falcetti Music, Springfield, Mass., noting that the dealership’s premiums endured still another double-digit increase. “It’s killing us, and killing our employees.”

Chris White of Wisconsin’s White House of Music probably sums it up best, and with brevity:

“I feel very much like a victim!” White laughs.

The issue of health care insurance can be daunting and overwhelming, yet it’s not all hopeless for the typical music products retailer. There are different options and strategies to cope with it, but one aspect seems to be universally agreed upon: getting the employee more involved is tantamount to survival.

“We’re going through a transition from where the insurance used to pay for everything and there was low employee involvement, to a situation where the employee has much greater involvement and responsibility,” says Steve Simon, an account executive for CBIZ, an organization that consults on insurance plans for businesses.

And is there perhaps a silver lining in current crisis? Some think so.

“Health care in the U.S. is predicted to consume upwards of 16% of our Gross Domestic Product (GDP) by 2014,” says Susan Benigas of Amp-It-Up for Life, a company that promotes health in the workplace. “The increases are unsustainable. Employee health benefits cost U.S. employers an average of $580 per employee per year in 1980, a rate that had increased to an average of over $7,500 per employee per year by 2005. That’s an increase of close to 1,200%. Again that’s unsustainable.

“The only solution is for Americans to begin to take personal responsibility for their health, and that means adopting more healthful lifestyle choices.”

MI Tries to Cope
Faulhaber, owner of Ward-Brodt Music in Madison, Wis., has been on the front lines of this issue, tirelessly advocating for small businesses in the state capital. The majority of his 90 employees are part-time, but those who are full-time are offered a choice of two HMO plans. “We have a big one, and then a smaller one,” he says. “But we have had to increase deductibles, and increased the amount of money the employees contribute.” They have gone to a Health Reimbursement Arrangement (HRA). An employer funds this program, and the contribution cannot be paid through a voluntary salary reduction agreement on the part of an employee. Employees are reimbursed tax-free for qualified medical expenses. Any unused amounts in the HRA can be carried forward for reimbursements in later years.

Faulhaber, though, is most frustrated with his state government. “Wisconsin does not allow deductions for Health Savings Accounts (HSA), and we have more mandates than any other state in the union,” he says. (A mandate is a requirement that the health care plan covers, or at least offers coverage of, of legislative directed procedures. These typically include traditional benefits such as mammograms, but can also include services that some find questionable such as acupuncture and message therapy.)

Also, the state does not allow business to “pool” or join together with other businesses to qualify for a better, less expensive plan. “Every year there is legislation aimed at reforming these situations, but every year they are shot down because they ‘don’t go far enough,’” he sighs. “But you have to start somewhere.”

Faulhaber also expresses distaste for Wisconsin’s “BadgerCare,” Medicaid program. Efforts to expand it amount to “socialized medicine,” he says. “There have been proposals for a payroll tax to support it, and it’s going to put me out of the health care business. You can’t keep passing on all these expenses [to businesses] – not when you’re competing globally.”

White House of Music has about 180 total employees and about 50 full- timers. Of the full-timers, around 20 are on the dealer’s health insurance policy.

“Our costs are consistently going up,” relates Chris White. “Unfortunately, we’re trying to manage that cost with our employees, and the plans are getting watered down. They are not as rich as they used to be. There are higher deductibles, and sometimes fewer options.”

One option not on the table for White is a wholesale government takeover of the health care system. “I’d say no to a single-payer system,” White says. “There are other options being discussed, but they all appear to be stuck in the ever-present committee in offices around the world.”

“Our strategy was to shift to a very high deductible plan that also provides a high level of benefits,” says Jerome Murphy of Massachusetts-based M. Steinert & Sons. “We chose Blue Cross and Blue Shield PPO. That reduced the premiums dramatically. We then hired a third-party administrator to manage a self-insured scheme to pay 100% of the deductibles. We calculate each year a COBRA rate which is what our employees’ contribution is based upon. The COBRA rate considers the cost of the self-insured portion from prior years along with the straight BCBS premium.

“It was a really good bet the first year, not so good the second, but still substantially under what we would have been paying. All we need is to have not too many folks use the entire deductible.”

NAMM Gets More Involved
Recently NAMM announced it has collaborated with the association’s health care broker, Mercer, to offer members a range of discount networks for savings on a variety of services. Under the new “Smart Business Interactive” portal, www.namm.org/membership/health-care/, members have access to alternative medicine, dental, vision, chiropractic, and doctor visits.

“The doctor visit discount can be particularly helpful if they are enrolled in a limited medical insurance plan or have family members or employees without coverage,” NAMM noted in a news release to members. “In addition, employers who can’t afford to provide insurance to their staff members may opt to provide a selection of discounts as an employee benefit package or as a supplement to an existing plan.”

“All businesses are struggling with health care,” says Joe Lamond, president and CEO of NAMM. “And while NAMM is still working in Washington as part of a national coalition to pass legislation that will allow associations to use group-buying power for the benefit of small business members, this new program provides access to coverage right now. While there are no easy answers to this situation, NAMM’s goal is to help our members who need it.”

The NAMM/Mercer options break down this way: HMO plans for small employers are offered as an option among 28% of companies; 7% offer indemnity; 15% Point-of-Service; and 64% offer PPO plans. Lamond observes, “High Deductible Health Plans (HDHP) with Health Savings Accounts (HAS) are increasing in popularity with nearly 14% of all firms offering a HDHP as an option, and that number is growing rapidly.”

Jeff Tarae, COO of Music Matters, a three-store operation in the Atlanta area, is looking to NAMM for help on this issue. Currently they are working to offer their employees health care in an effort to retain and recruit good candidates. Tarae says: “The people who have signed on with us are looking for this to be a career for them, and we want to provide them with enough opportunity to do that,” and that involves a health care plan. “More companies like ours are looking to set something up, and just in the past year we dedicated to do a large part of it through NAMM,” he says.

Already it has helped them retain some people who may have looked elsewhere, he reports.

Tarae gives high marks to Mercer. “They were great. They helped us answer questions regularly, and acted as a good point of contact for me from an optional standpoint. I know it’s a lot to take on for a small company. But Mercer really had a hands-on approach and even gave me a point-of-contact person there, who we’ve leaned on a few times within the year.”

Yet Tarae faces a typical dilemma: not all his employees qualify. “Some only want to work 20 hours a week,” he points out. “The biggest challenge overall for our industry is health care plans require a minimum amount of hours per week.” Typically music store employees, especially teachers, might also work for another music store. “Health care now is an option for them, but it works both ways. They have to be available more for us, and we have to provide them with enough students. There’s no way around some of this stuff.”

The Big Picture on Small Businesses
“On average, small business pays 18% more than large business for the same health care benefits,” says Todd Stottlemyer, president and CEO of the National Federation of Independent Business (NFIB). “It’s clear that the bottom line for small-business people is the cost of health insurance and the growing expense of health care. And they go hand-in-hand.” He adds that it’s having a national impact on an already distressed economy, as 70% of all new jobs in this country are created by small businesses.

The NFIB is an advocacy organization representing small and independent businesses. A nonprofit, nonpartisan organization founded in 1943, NFIB represents 400,000 members.

“Health care has been our members’ number-one issue for over 20 years,” adds NFIB senior manager of affairs Amanda Austin. “When small businesses try to be competitive, want to retain and attract good workers, it’s a very important item.”

The health care issue, and the ability to offer it to employees, is in danger of becoming a wedge between whether or not a typical MI retailer can attract quality people. “It’s not a level playing field between big companies and smaller ones,” she says. Larger companies typically have a dedicated human resources professional, if not an entire department, able to sort through it all, too. “Owners can be knowledgeable but, frankly, I just feel they are there to run a business, not spend 20% or 30% of their time deciphering health care options,” Austin comments.

NFIB’s mission is to educate on national and local levels the issues that need fixing and hope the politicians will eventually figure it out. Austin stresses they aren’t looking for any single-payer/Canadian-style government takeover. She points out that California recently tried to pass a payroll tax that would cover everyone in the state, and it “went down in flames. They were looking at an estimated 60,000 jobs lost in the first year, so you have to be careful. The last thing we need is a payroll tax; otherwise, you have to ask, ‘Are you feeding the problem by throwing money at it?’”

Austin agrees that employee education and involvement on the issue is a key.

“Some of our members are sitting down with employees and saying, ‘Your family plan is costing $15,000, I’m paying $11,000, and you’re paying $4,000.’ They will then understand that your contribution is not chump change. An honest and frank discussion with the employee is something that should have been happening much sooner.”

Why are costs going up every year? Austin says that there are many factors, including that people are living longer and thus using more care. State regulations for a smaller businesses with locations in more than one state can drive up costs. The insurance industry, like so many industries, has seen a rise in buy-outs and mergers, and that naturally leads to less competition.

“Blue Cross/Blue Shield has a strong hold on the market, and that makes it harder for others to compete,” she adds. “They, in turn, can offer ‘take it or leave it’ options. The inability to allow small businesses to pool with other companies is frankly not fair, but check with your local chamber of commerce, as some are able to help do that.”

Snapshot: NAMM’s 2007 Annual Member Survey

Do you currently provide health insurance benefits for:Your employees? Base: 914 Responses

Employee dependents? Base: 894 responses

If you answered “Yes,” what percent of your employees’ total health insurance do you pay for? Base: 403 responses

The Trend Toward HSAs
Falcetti Music has six stores in Massachusetts and Connecticut, with around 75 on the payroll. Of those, about 25 or 30 are on the company’s health care plan.

“We actually are in the middle of renewing our plan right now,” Tony Falcetti says. “Our old one is going up 16% again, and so we’re going to try a Health Savings Account (HSA) system. After some analysis, we think it will save money for the company and the employees in the long run.”

Similar to the idea of an IRA, the savings account portion of the HSA plan works in conjunction with a high deductible health insurance plan. All the money deposited in the HSA is 100% tax-deductible. The insurance company will pay the large bills, those covered in excess of the deductible (say, having a baby.) But the “small” bills – those to set a sprained ankle, for example – are paid out of the account.

In Falcetti’s case, the employee must put in $1,500 for single plans, and $3,000 for family plans.

“Initially, the employee has a little more out-of-pocket, but the employer has substantial savings,” Falcetti says. “Other advantages are that employees can put as much as they want in the HSA tax-free, and they don’t lose it going from year to year. If a person doesn’t have any medical expenses in a given year, they actually come out ahead.” For the worst-case scenario situations, the account is overseen by an insurance company which covers and offers discounts for big-ticket health care items.

But that is not so easy. “This takes a lot of educating the employees,” Falcetti admits. “It’s a learning process that involves spreadsheet analysis.”

If the organization didn’t make these changes, he said health benefits would cost upwards of $100,000 a year after this latest double-digit increase. “We’re trying to be proactive with this because we can’t afford another 16% increase,” Falcetti says. “We did that two years ago, and went to a higher co-pay to try to keep it under control.”

Healthier Lifestyles Critical
The health care imbroglio has one not-so-unintended result: the employee is being asked to take personal responsibility for their health care expenses, and by extension, their health.

First, when a non-emergency accident happens, the employee might be more apt to go to one of the growing number of urgent care facilities popping up throughout the country than the expensive emergency room. For doctor visits, they are going to be much more sensitive to costs and may decide to shop around, or at least asked more questions of the doctor regarding cost of treatments, medicines, and procedures.

Finally, those employees who hit the gym, don’t smoke, and watch their weight are going to benefit the most from this kind of systems.

CBIZ consultant Steve Simon, who has been providing information on controlling health insurance costs to businesses for three decades, remarks, “There’s been a lot of cost-shifting, both in terms of premium contributions and out-of-pocket expenses for employees. Deductibles go up and people are paying more for less coverage.”

He says the current trend for all businesses is to get their employees to live healthier lifestyles. “Lifestyle is a direct cost to health care,” he says. “In the short term, you try to have employees become more responsible for living a healthier lifestyle through incentives and disincentives.”

Simon points out that the older traditional model of a health care plan really fostered a credit card mindset, requiring little thought or responsibility. He tells his clients that wellness is increasingly becoming a priority in the workplace, and not just because it’s a feel-good-right-thing-to-do, but because it can influence an employer’s medical cost. Also, a healthier work force is a more productive workforce.

“As more employees become more aware of promoting a healthy lifestyle, the insurance companies will take notice.” In theory, if you get your workforce healthy, and you avoid the cost of a large claim – cancer from smoking, surgery because of an inactive lifestyle, low birth-weight babies, etc. – you can lower your cost or at least use that as a bartering point when switching from one plan to another. Simon says it’s affecting some large companies’ decisions on who they hire: the applicant who looks like he’s running five miles a day might have an edge over the guy who looks like he’s spending five hours a night playing X-Box.

Americans have been badgered about their health, but now that it’s increasingly affecting their company’s ability to be competitive and thrive, and (gulp) possibly affecting his or own pocketbook, maybe HSA is the ticket out of this problem and to a longer, healthier life.

“There’s a little more work for employees to understand these HSA plans, but it also makes them more aware and responsible,” says Falcetti. “And it’s absolutely an incentive to be healthier.”

Something has to happen though. As Faulhaber states bluntly: “The way things are going, small businesses can’t win.”