Keeping A Lid On Health Care Benefit Costs

PCOs are faced with health care benefit costs that are rapidly spiraling upward. There’s no magic cure, but there are some things you can do right now to protect your bottom line.<

Health insurance. Today’s employer, especially the owner of a smaller business, considers it a major problem. Just look at the current figures:

ITEM: Some 13 percent of U.S. citizens don’t have health coverage. Two out of five workers are not covered on their jobs; 32 percent of their non-working dependents are not covered.

ITEM: Of the working uninsured, more than half are at companies with fewer than 20 employees, a number that is expected to increase; 60 percent of non-covered employees are in service industries.

ITEM: In some states, 30 percent of small business workers are not covered.

ITEM: The cost of health insurance has risen as much as 60 percent in the last year.

ITEM: Of these costs, 6 percent of the big business premium goes toward administrative costs, compared to18 percent of the small business premium.

ITEM: The Orlando Sentinel reports that small companies will pay an average of 35 percent more per employee than a large company.

ITEM: Health care insurance costs account for 45 percent of operating income, according to the Florida chamber of Commerce, pricing out many small employers.

A ‘SCARY’ SITUATION. Small businesses, including most pest control firms, face an uncertain future when it comes to affordable health care coverage. "It’s extremely scary," says Ben Dagostino, president of Erie Valley Insurance Agency, the agent for Cleveland’s Better Business Bureau. "Small business is hurting more than anyone."

Industry consultant Bill Spitz, a veteran PCO who now heads his own consulting firm, agrees. "It is very difficult for small business, which must compete with larger companies to retain their employees. And the insurance companies bend over backward to give the larger companies a better rate."

So how does the pest control industry find itself in this fix? What happened to the dream of a health insurance plan that spread the financial risk to a variety of subscribers, thereby reducing the cost of coverage.

According to Harry Rutledge of Rutledge Financial Services, the rates rose because after the last health care crisis in the mid-1970s, insurance companies required many health-related services to be conducted on an outpatient basis, leading to empty hospital beds. In response, many hospitals loaded extra charges onto outpatient services to produce more revenue.

And then there was the malpractice issue. It wasn’t long before the rising cost of medical malpractice insurance was passed on to consumers, along with the high cost of additional - and sometimes unnecessary - tests designed to protect physicians from lawsuits. There was expensive machinery, like magnetic resonance imagers (MRI’s) and CAT scanners, to pay for, and every self-respecting provider needed one. There also were cuts in Medicare and Medicaid, bringing providers under pressure to make up the charges from the private sector.

There are other, more general reasons, too, including an aging population with greater health care needs; more and more claims, both genuine and frivolous; greater expectations about coverage (old-timers still call it ’hospitalization’); even unnecessary treatment.

Some also blame COBRA, the Consolidated Omnibus Budget Reconciliation Act, which allows departing employees to keep their group benefits for up to 18 months, skewing the costs of insurance, since those who need medical coverage the most will be those who elect to continue the coverage.

But not all agree with this reasoning. Says Spitz, "Why should COBRA force the insurer to raise prices, since they are dealing with the same individual?"

No matter what the reasons, health insurance is getting costly. Despite the cost, however, there’s still some good news:

ITEM: According to the National Federation of Independent Business, 65 percent of small businesses without insurance would like to be able to offer his benefit.

In fact, quality health care benefits are essential to the success of any business, according to Spitz. Retaining trained and capable employees in the years ahead will depend on offering an attractive benefits package.

WHAT CAN ONE LONE PCO DO? The question on every PCOs mind is how can I afford the high cost of health care? Unfortunately, no one has an easy answer to that question. According to industry consultant Sandy Seay, the health care crunch has affected everyone in different ways: some change carriers incessantly, some go to self- (or no) insurance. What follows are some strategies offered by the experts that may help to reduce the cost of your health care insurance:

• Don’t get sick. Stop having claims," says industry insurer Mark Weisburger, with tongue firmly in cheek. "The only real way is to reduce the costs of hospital rooms, MRIs and hip replacements."

Others agree. Unfortunately, individual PCOs have little control over the cost of hospital rooms or the latest medical procedures. But they do have the power to do some other things:

• Develop a co-insurance program or increase it, say from a 20 percent-80 percent split to a 50-50 split.

• Eliminate first dollar coverage; increase the deductible that the employee pays. This is one of the most popular and effective strategies, and it was mentioned by almost all of those interviewed for this story. Other variants include deductibles for non-accident, non-emergency treatment and in-hospital deductibles.

Spitz reports that one pest control company found a way to deal with worker’s comp claims, an allied cost that is rising as fast as health care costs. "They decided to pay the high deductibles themselves, saving tens of thousands of dollars in premiums and yet getting their employees taken care of."

• One universally recommended strategy is to have the employee pay for part of the premium. But, says Seay, be sure to do this on a percentage basis not in straight dollars, so it need not be updated yearly. Adds Spitz, charging this way is fairer to all employees, since management can afford more coverage than field technicians.

Another approach: Have the employer pay for the employee’s health care plan, but have the employee cover the costs of his or her dependents.

• Require a pre-employment physical, including drug testing. This can hold down your premium cost despite a $250-$300 up front charge for the test, says Ray Crim, a specialist in personnel development at Arrow Exterminating Co., Atlanta, Ga. This tool, used during the hiring process, eliminates those with a history of health, alcohol or chemical dependency problems.

• Choose a plan which includes managed care. This is an alternative to the indemnity system of insurance, based on compensation for loss, and it is said to operate at 75 percent the cost of an indemnity plan. It instead works from the supply side to balance access to health care. It can range from a health maintenance organization (HMO) to a system whereby costly operations are performed only after a second opinion from a physician approved by the insurance carrier has been secured.

• Offer limited emergency room visits to encourage patients to use these expensive facilities only when immediate care is needed.

• Create a flexible benefit program, with a very basic package augmented by dental coverage or by life and disability insurance that is paid for by the employee.

• Set a "medical cost incentive limit," where employees are reimbursed a percentage of the money that they save on health care costs throughout the year.

• It’s a long-shot solution, but one suggestion is to look into the "new concept" companies, where all of your workers are actually subcontracted from an overall umbrella employer, which pays for their benefits.

• Join civic groups or state associations to increase your buying power and your bargaining position. If you can get a large enough base, you will spread the risk and reduce premium costs.

STRENGTH IN NUMBERS. The final component of the aforementioned list is considered one of the best ways to increase your insurance spending power. Such groups are legion: they include such organizations as the Better Business Bureau, or a civic group such as the Council of Smaller Enterprises (COSE), part of the Greater Cleveland (Ohio) Growth Association.

COSE offers the largest group health care plan for smaller business in the United States, covering 130,000 workers and their dependents in the area, with an average of seven workers in each employer group. It’s a model for some of the legislative programs being considered by the federal government.

However, this program is just an adjunct to COSE’s primary function of encouraging and supporting the small entrepreneur, since Ohio law makes it illegal to create special interest groups in order to by group health insurance. A bill to repeal this law is currently being studied in the state legislature.

Bill Spitz suggests that PCOs not overlook groups like the real estate boards, of which they may be associated members, or credit unions, both of which may have excellent benefit plans. "But," he warns, "with these groups you can’t pick and choose benefits. You have to abide by their limitations. You might want better benefits than they provide.

But the owner of the group can do far more than benefit the individual member’s bottom line, notes COSE Vice President John Polk. "If enough small employers get upset and decide to take action together, they can have an impact… Their lobbying effort can match that of the medical providers."

And, of course, when discussing group buying power, it is logical for PCOs to look to their state and national associations for leadership. The National Pest Control Association (NPCA) tried, but the ill-fated PESCO Insurance Program eventually went out of business.

This makes sense, considering the nature of medical treatment, says Dan Reardon, president, Wyomissing Indemnity Co., an insurance provider to the pest control industry and part of the Wyomissing Group. Health care coverage is very regional in nature, he says, unlike general liability coverage. "It’s tough to do national health care collectively and hard to be consistent in benefits and price, as provider costs fluctuate across the country. So we are attempting to link up with various two or three state regions. The premiums are lower, but it goes slower," Reardon says. "In the meantime, tell the PCOs that we are making an effort to collect data on the situation."

There are also many legal restrictions in each state that preclude a national effort; when NPCA’s program was in force, Texas PCOs were excluded from joining because of the state rules.

If health care is a regional effort what of the state associations? Texas and Florida bravely made the attempt to offer a group plan, but they encountered problems and fell by the wayside. However, other states among them Georgia and South Carolina, carry on.

According to Georgia Pest Control Association (GPCA) Executive Director Valera Jessee, GPCA had a program for about six years, but it found the premiums were escalating rapidly and the coverage dropping for far too many employees, a problem faced by several other industry groups. After a long search of four or five carriers, she says, "we finally found a carrier that will write or people," the nationally respected New York Life. It was developed through the Georgia-based agency Hilb, Rogal and Hamilton with what Jessee descries as monumental work by agent Pam DeBoy. "It’s an excellent plan," she says. And, giving hope to those looking for association coverage, "we are bulked with other associations in a special New York Life program for associations, which disperses our group’s liability.

"It surprised us to find such a good plan," says Jessee. "The program is not guaranteed issue, taking anyone who is a member of the group. Plus, certain high-priced conditions such as cancer and heart transplants are excluded. In many cases the premiums are higher than individual members can get on their own. But the program provides the basics, plus other cafeteria-style benefits which members can elect to add to it."

A SOCIETAL STRAEGY. But these are individual ways of dealing with the current situation, band-aid approaches, as it were. What’s being done nationally to address its problem at the grass roots level?

The federal government, of course, is exploring many options. It’s involved in everything from getting any public or private program approved through Medicare and Medicaid to additions to the IRS rules, which have greatly increased the level of medical costs required to take a deduction.

One major national effort is being put forth by the Pepper Commission, a bipartisan panel studying the problem of health insurance. Its recommendations include a "no frills" plan, eschewing what some see as luxuries such as chiropractic and psychological coverage, that are currently available to small businesses. Washington and Virginia have passed such programs, and six other states are considering them.

Another product of the Pepper Commission is a recommendation for 100 percent tax deduction for money spent on health care policies by self-employed business operators instead of the current 25 percent.

Some states are exploring state-subsidized pools for those employers who have been turned down for other plans and who are without coverage for certain specified periods of time. A Central Florida pilot program covers companies with under 20 workers and without coverage for six months; they must pay 50 percent of the cost of coverage. The program currently involves 7,000 people with a policy that costs an average of $90 per employee per month. The program is expected to grow to cover 30,000 in three years.

Ben Dagostno calls these efforts to create insurance pools at the state level "the light at the end of he tunnel." But, he warns, although they give all employers an opportunity to get insurance, "it doesn’t bring the cost down."

Other programs under consideration in Florida are a minimum benefit insurance plan for small business at a cost of $60 per month and a plan that unifies health insurance and worker’s comp to reduce administrative costs.

And, of course, Florida, along with many other states, is considering mandated health insurance coverage, perhaps funded by the payment of a state payroll tax. This move is generally opposed by business.

But not all those who look for health insurance reform are dumping the problem onto the lap of the business community. Senator Bob Kerrey (D-Neb), who is putting together legislation for a state-administered national health insurance plan, noted in the Cleveland Plain Dealer that the U.S. is the only developed country in the world without a belief that health care is a right. But, he noted, "we have to move the siting of health care away from business."

The author is managing editor of PCT magazine.

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