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Item B1 BOARD OF COUNTY COMMISSIONERS AGENDA ITEM SUMMARY Meeting Date: Aori117. 2003 Division: County Administrator Bulk Item: Yes No X Department: County Administrator AGENDA ITEM WORDING: Approval of: l) changes to the group benefits program as determined by the Board of Co~ty Commissioners; and 2) an adjusted department rate for fiscal year 2003 to cover unanticipated increased claims. ITEM BACKGROUND: On February 27, 2003, the Administration informed the County Commissioners of the anticipated major cost increases in the group benefits program for fiscal year 2004. The Board requested a presentation concerning the group benefits program with options for the future. The Board and the Administration then scheduled the morning of April 17, 2003, as a review of the program. PREVIOUS RELEVANT BOCC ACTION: As above. CONTRACT/AGREEMENT CHANGES: To be determined by the Board of County Commissioners. STAFF RECOMMENDATIONS: Approval of revisions to the group benefits program after discussion with the Board of County Commissioners. TOTAL COST: To be determined. BUDGETED: Yes No COST TO COUNTY: To be determined. SOURCE OF FUNDS: REVENUE PRODUCING: Yes No AMOUNT PER MONTH Year APPROVED BY: County Ally _ OMBlPurcbas~ Risk Management _- DIVISION DIRECTOR APPROVAL: ---- -~~ --J~- L. .. , James L. Roberts DOCUMENTATION: Included X To Follow_ Not Required_ DISPOSITION: AGENDA ITEM # (~ - J3 ) Board of County Commissioners RESOLUTION NO. A RESOLUTION CANCELLING RESOLUTION NO. 119-2001 AND AMENDING RETIREMENT ELIGIBILITY REQUIREMENTS FOR GROUP HEALTH INSURANCE COVERAGE FOR MONROE COUNTY EMPLOYEES. -2003 WHEREAS, group health insurance expenses have been steadily increasing; and WHEREAS, the number of retired County employees continues to increase dramatically each year; and WHEREAS, it is the intent of the Monroe County Board of County Commissioners to allow County employees, including employees of the Constitutional Officers and the Mosquito Control Board, who meet the criteria established in this resolution to retire through the Florida Retirement System and maintain their group health insurance benefits with Monroe County as provided herein; now, therefore, BE IT RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF MONROE COUNTY, FLORIDA: Section 1. A. (i) Employees in FRS Regular and Special Risk Classes with a hire date prior to October 1, 2001, with a minimum of ten (10) years of full-time service with Monroe County, who retire on, or after, their normal retirement date as described in Sec. 121.021(29), F.S., and who are covered under the group health insurance coverage provided by Monroe County upon retirement, employees in other FRS Classes who complete the number of years of creditable service required by the Florida Statutes to be eligible for a benefit under FRS, who retire on, or after, their normal retirement date under Sec. 121.021(20) F.S., and who are covered under the group health insurance coverage provided by Monroe County upon retirement, including those who have retired or will retire in accordance with these insurance programs, and all other retirees who as of October 1, 2001 are participating in the County's group insurance program at no cost, may maintain their group health insurance benefits with Monroe County following their retirement at a cost equal to the Health Insurance Subsidy for 20 years of service, which is currently $100.00 per month. (ii) Employees hired, on or after, October 1, 2001, who meet the requirements of Section 1. A. (i) may maintain their group health insurance benefits with Monroe County following their termination of employment, provided such retired employees pay to Monroe County a monthly premium in an amount established annually by the Board of County Commissioners. The premium will equal, but not exceed, Monroe County's monthly departmental cost for active employees. Such premium will be payable on the first day of every month commencing with the month following the month in which the employee retires. B. (i) Employees with a hire date prior to October 1, 2001, with ten (10) years of full-time service with Monroe County who are covered under the group health insurance coverage provided by Monroe County upon retirement and retire at an early retirement date, as described in Sec. 121.021(30) F.S., may maintain their group health benefits with Monroe County following their early retirement, provided such early retirees pay to Monroe County a monthly premium in an amount established annually by the Board of County Commissioners. The premium will equal, but not exceed, Monroe County's monthly departmental cost for active employees. Such premium will be payable on the first day of every month commencing with the month following the month in which the employee retires. Early retirees who pay the premiums described in subsection 1. B. (i) will continue to be covered by Monroe County's group health insurance benefits at a cost to the retirees equal to the Health Insurance Subsidy for 20 years of service, which is currently $100.00 per month upon meeting either of the following requirements: (a) Sixty (60) years of age for Regular Class employees or fifty-five (55) years of age for Special Risk Class; or (b) Qualifications under the Rule of 70 wherein the combined years of Service with Monroe County and the retiree's age equal a total of seventy (70). (ii) Employees with a hire date on or after October 1, 2001, who meet the requirements of Section 1. B. (i) above and retire at any early retirement date, may maintain their group health insurance benefits with Monroe County following their early retirement, provided such early retirees pay to Monroe County a monthly premium in an amount established annually by the Board of County Commissioners. The premium will equal, but not exceed, Monroe County's monthly departmental cost for month following the month in which the employee retires. Notwithstanding anything to the contrary, however, employees with a hire date on or after October 1, 2001 are not eligible for the premium adjustment under Section 1. B. (i). C. Employees with at least ten (10) years of full-time service with Monroe County who are covered under the group health insurance coverage provided by Monroe County upon termination of employment and are fully vested under FRS who elect not to retire under FRS upon termination of employment with Monroe County, may elect to re-enroll under the group health insurance coverage provided by Monroe County upon retirement under FRS, provided that Monroe County was their last FRS employer. Former employees electing this option, may maintain their group health insurance benefits with Monroe County following such election, provided such former employees pay to Monroe County a monthly premium in an amount established annually by the Board of County Commissioners. The premium will equal, but not exceed, Monroe County's monthly departmental cost for active employees. Such premium will be payable on the first day of every month beginning with the first of the month following the month in which the employee elects to re-enroll under the group health insurance coverage provided by Monroe County upon retirement from FRS. Employees electing this option must, notify Monroe County of their intent to re-enroll in the County's group health insurance program. Employees who re-enroll under the group health insurance coverage pursuant to this paragraph are not eligible for premium adjustments under subsection 1. B. (i) of this resolution. D. Employees with less than ten (10) years of full-time service with Monroe County who are covered under the group health insurance coverage provided by Monroe County upon termination of employment and are fully vested under FRS, upon retirement under FRS in accordance with these provisions, may maintain their group health insurance benefits with Monroe ^ . ~ ~ ~ N'l0c.0 ~ ~ J-o..d r-KS ~~ County following their termination of employment, provided such terminated employees pay to Monroe County a monthly premium in an amount established annually by the Board of County Commissioners. The premium will equal, but not exceed, Monroe County's monthly departmental cost for active employees.' Such premium will be payable on the first day of every month beginning with the first of the month following the month in which the employee terminates employment with Monroe County. Employees with less than ten (10) years of full-time service with the County are not eligible for premium adjustments under subsection 1. B. (i) of the resolution. Section 2. This resolution shall be effective as of October 1,2003. Section 3. This resolution does not affect any requirement of eligibility with the Florida Retirement System; it affects only eligibility to receive health insurance benefits under the Monroe County Group Employee Benefit Plan. Section 4. For purposes of this resolution, full-time service shall have the meaning provided in the County's policies and procedures governing determination of service. For purposes of this resolution, the definition of date of hire is the date an employee first begins work for Monroe County determined in accordance with the County's procedures governing fringe benefits. Any break in employment of forty-eight (48) hours or more will result in a new date of hire if the employee returns to County service. Section 5. The Monroe County Board of County Commissioners formally reserves the right to any and all future changes and modifications of this resolution, the group insurance contract providing health benefits described herein and/or the required premium contributions. Section 6. 2001. The Monroe County Board of County Commissioners cancels Resolution No. 119- PASSED AND ADOPTED by the Board of County Commissioners of Monroe County, Florida, at a regular meeting of said Board held on the 17tl1 day of April, 2003. Mayor Dixie M. Spehar Mayor Pro Tern Murray E. Nelson Commissioner George Neugent Commissioner Charles "Sonny" McCoy Commissioner David P. Rice (SEAL) Board of County Commissioners of Monroe County, Florida ATTEST: Danny L. Kolhage, Clerk By By Mayor/Chairman Deputy Clerk C,feet:- INTEROFFICE MEMORANDUM Subject: Date: Constitutional Officers Jennifer Hill Li.~ Monroe County~dget Director Group Insurance Discussion To: From: 4/10/2003 On April 17, 2003 , the Board of County Commissioners will discuss proposed changes to the group insurance program. Attached is the package of information discussing the program and proposed changes. Please feel free to contact me at extension 4470 with any questions. JH:sr attachments '~ Apr 15 03 10:48a I:: o .... ..... eo: "0 I:: aJ 5 e o <:oJ aJ ~ C o .... ..... eo: l. ..... .~ .5 5 "0 -< c o fIl .... l. eo: Q. 5 U 5 ~ l. Oli o l. ~ <:J <:oJ I:: ~ l. ::l fIl I:: - Q. ::: o l. r.. 'wi Gl o I::: CIl .. ~ c - 111 o (.J c: o +l I1l " I::: Gl E E o o Gl 0:: I o o o ci o ..... ff) ~ E rn LL o o N ..... ~ ro ::J 1J :> =a .f: o o '<t .... .2:- E Cll LL o C> CD VJ "" rn ::J '0 :~ '0 .f: o C> 0') .... ~ <l> >- '0 W au ;;; ,~ 6E w~ B 0 0.- ::> Qj ~'@ :;5 ~ <l> :5 ;12. o o ..... <l> :0 ~ ::J '0 <l> o ~ E iU~ g--m uti - 0 ~o.. :0'0 <l> ~ ~o NM 06 o o o ci LO ..... ff) ~ <l> >- '0 .... o~ o c o~ "co o E ~~ .9 0 a.'~ ::J Q; ~~ ~ ~ <l> :5 '<fl. o o James L Roberts Co Admin o .... <l> [ll LL <l> [ll LL ~ c ~ '" '" .f: J!! :.:J '<l' o o 0. o N W e- rn 0. 2 € J:: Ol ::J e :5 <l> (]) >- .Q a. E (]) .8 <l> :0 ..tl) m > <1:: Q) <l> U::: c o en :> Lfi o o o o C':l 00 fI7 >- 1:: l1l 0. 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Q) o ai 305-292-4544 g :c jg c ~ oE 00 00> off) o C ",,- ",C 52 t) ::J 1J [ll '" '" Q '0 ~ ~ >- o N :5 ';,; Q) E -6 (5 '(i) c .oco ~.Q r-- 1::2'0 .5!!g.5!! ~ ~ 2 .~ ~; c5=~ ~~e (/) I Q) ow~ 2~f! U(l)~ <u"'_ o ro QJ 0'> ~ QJ > o U QJ [ll ~ Cl:: Qj E <5 C ~o c..... .9 '0 ~ Q) 55'2 !E~ .... QJ ~~ QJe (/) QJ 2 ~ ~t QJ Cll OJ > o U \l) [ll ij Cl:: ci ..... ", o o ..... ~ <l.l >- W 0. ,~ ro :> ~ ~ W .9~ 1J 0 2 ~ E!!l en Q) 'S; Bo OM 3.9 Q.1J ~ .~ :t .~ -g~ <Ut) >-Cll ~g. QJ .= ..r::: ..r::: f-U QJ 0'> ro (/) '" . QJ Q; 15 Q. O!!l .0 .~ c > [ll \l) ,,~ g~ ~-R U1J U <Il " .~ u.S c- -0'> a.~ ~ <Il 1! 8 f- 0 <l>:;::; 0'>0 (1] o N ..... U> " Q o Q o o It> .n ..... V> Q an a> V> III E., .- 0 i5~ '0>- QlIL.. ... , ra_ E III '- 0 ~u w a Ql o '0 Ql .!~ ClIO:: E :;:; III W Apr 15 03 10:48a James L Roberts Co Admin 305-292-4544 p. 1 MEMORANDUM TO: Board of County Commissioners FROM: James L. Roberts County Administrator DATE: April 15, 2003 SUBJECT: Group Insurance Program ADMINISTRATION RECOMMENDATION '-""""~.-...J,*-,~.-...J~~t-.w'---""""";~~~~I"wI"""''''''''''~''''''''I''''W~''''''''''''''~'''''''''~''"-''''''''''~~~~''''''''''''''''''~f'''''Io<.I/''''''-.I''''''''''''''''''~t-.I 1""t..I/"'ItwI~f"'"Itt..I~~"''''''~fII'ittt.Il-....Jl''tt1..Il''''ttt,I~f'IIttt,If'''tIt,.I'''''''~''''~''''''';~''''''''''''''''''''''-'''''''';''''''';''''''''''''''';~~j#IItle,.J~~~"."..",,..,,.,,,...;fI'.J~l'.I~ The presentation prepared by the Administration identities $5.8 million in services and costs that could be removed from the group insurance program for the next fiscal year. Those changes were predicated upon bringing the program in line with national trends and with programs of other public entities in the Keys. However, as the Board of County Commissioners is surely aware, the impact upon employees, dependent costs, and retirees would be huge. Especially in telms of those who cunently work for the County, those costs could become Wlattainahle. Therefore, the Administration has reviewed the recommendations and makes the attached middle of the road approach to the Board of County Commissioners as a recommendation to be considered on April 17, 2003. This reduces the impact to employees, the cost of dependent coverage, and retirees. It moves the program closer to where it would have been had the COlmty been making small increases annually over the years. The bottom line of this approach is that the cost difference would be approximately S3. 8 million which would cover the anticipated increase for next year's program. This includes eliminating a $3 million ad valorem increase. In summary, the proposal is to: 1. Have the medical deductible at $400 per individual and $1,200 per family. 2-3.Have the program pay the first 75% up to $30,000 and 100% thereafter for the rest of the year. 4. Life insurance will be included within the program at no cost to the participants. 5. Vision coverage will be available through a third patty and a payroll deduction. 6. Dental coverage will be available through a third party and a payroll deduction. 7. The Emp loyee Assistance Program will continue to be covered in the program at no additional cost to the participants. 8. Pharmaceutical coverage will provide a copay of $10 for generic, $60 for preferred brands, and $90 for non-prefened brands. AFr 15 03 10:48a James L Roberts Co Admin 305-292-4544 F.2 9. The dependent subsidy will decrease from 70% to 50% (originally proposed at 30%) by utilizing the rates on the attached sheet. 10. Retirees would pay a cost of$100 per month for health coverage. II. Massage therapy and acupuncture will no longer be covered and chiropractic coverage will be limited. If the Board of County Commissioners adopts this recommendation, the monthly rate that will be paid by the County for coverage will be $720. The Board should keep in mind that this is still a substantial subsidy of dependent coverage and a substantial subsidy for retiree coverage. ~ --J~~U James L. Roberts County Administrator JLR:dlf cc: Constitutional Officers Sheila Barker Jennifer Hill Maria Fernandez 2 WAtL STREET. KEY WEST, FL 33040 . 305-294-2587 . FAX 305-294-7806 . WWW.KEYWESTCHAMBER,ORG April 19, 2003 Mayor Dixie Spehar Monroe County 500 Whitehead Street Key West, FL 33040 Dear Mayor Spehar, This budget cycle is no doubt going to be one of the toughest you have ever had to face. You are going to be mandated to cover costs that use to be the responsibility of the state. You are going to be asked for funds from very worthy organizations that provide necessary services but have lost other sources of funding. You always have the upward pressure of staffing costs to consider. You will have to balance these increases with the ability of the taxpayers to absorb them. It will be a formidable task for sure. The Key West Chamber Of Commerce would like to take the opportunity to express our thoughts regarding the county budget early in the planning cycle so that you can take our requests into consideration as staff drafts the initial budgets. We were very glad to see that the. commission met with staff early in the process to come to an agreen;tent on basic expectations. However, we are concerned with the scenario to which the commission agreed and we applaud you and Commissioner Nelson for voting against it. Our ftrst concern is that there is an implication that an increase in the budget equal to the CPI is expected and acceptable. This is not the case in the private sector. We must constantly strive to become more efficient and keep our costs low so that we may remain competitive. We expect no less of our government. Secondly, leaving an open ended increase to accommodate state mandated cost increases leaves the taxpayers vulnerable to an excessive budgetary increase. In his proposed budget scenario Mr. Roberts states that the implications of his proposal "May necessitate cutbacks in services and positions in order to meet goal." We encourage the commission to insist that every possible effort will be made to cut expenses and increase efficiencies to offset any increases to the budget. As you know, the businesses, unlike the residences, have no protection from increasing property taxes. Last year we were united and vocal in our message to you. We are saturated and our margins can no longer absorb the kinds of increases we have had year after year. We must pass "The mission of the Greater Key West Chamber of lornmerce is to serve Its members .. nd maintain a viable economy for the businesses and peopie of Key West." J). these costs on, and that means increases for those that live in our rental properties, shop in our grocery stores, and purchase our goods. Please know that nothing has changed since we delivered that message last year. Thank you for taking the time to read this letter and for your consideration of our concerns. Please kno t we would be happy to assist you in any way that we can. We are certainly availabl 0 be a so ard for whatever proposals you might have. Cc: County Commissioners County Administrator, Jim Roberts County Clerk, Danny Kolhage Finance Dir~ctor, Sheila Barker President, Florida Keys Lodging Association Chairperson, Florida Keys Lodging Association President, Key West Innkeepers Association President, Key West Bar & Restaurant Association President, Key West Attractions Association President, Key West Business Guild President, Key West Association of Realtors Federation of Monroe County Chambers of Commerce Board of Directors, Key West Chamber of Commerce Members of the Key West Chamber of Commerce's Governmental Affairs Committee MONROE COUNTY BOARD OF COUNTY COMMISSIONERS GROUP INSURANCE PRESENTATION APRIL 17, 2003 Table of Contents Introduction.................................................................................................................... 1 Background..................................................................................................................... 2 Current Benefits Overview............................................................................................. 2 History ............................................................................................................................ 3 Current Year- Fiscal Year 2003............................ ...... ...... ................... ............. .............. 5 Department Rate............................................................................................................. 6 Coverage funded by the Department Rate...................................................................... 7 History of the Cost of Claims ......................................................................................... 8 History of the Department Rate...................................................................................... 9 Ad valorem Costs vs. Non Ad valorem Costs ................................................................ 9 Breakdown of Participation............................................................................................ 11 Projected Annual Claims (FY 04) ....................... ............ ................... ............................ 12 Impact on the Fiscal Year 2004 Budget.......................................................................... 14 Proposed Core Medical Coverage ................................................................................. 15 Group Insurance Comparison......................................................................................... 16 Extra coverage options not included in Core Medical Coverage.................................... 17 Attachments.................................................................................................................... 21 Group Insurance Survey................................................................................................. 22 Five Year Summary of Claims by Entity........................................................................ 23 Miscellaneous newspaper articles .............. ...... ...... ...... ...... ................... ............. ............ 24 Introduction We, along with the rest of the country, are facing a tremendous burden with the rising cost of health care. Although the Board of County Commissioners has made changes to the Benefit Program, those changes have failed to keep pace with the rapidly escalating problem. The Ad Valorem burden for the Group Insurance Program is 2()o,Io of the total $62,000,000 Ad Valorem raised by Monroe County. The following will give you the history of the program, explain our current problem and propose possible solutions for the continuing escalating costs. Budaet % Increase FY 95 $7,562,244 FY 96 $9,778,580 29% FY 97 $9,944,154 2% FY 98 $11,671,006 17% FY 99 $12,583,963 8% FY 00 $12,781,359 2% FY 01 $12,914,356 1% FY 02 $14,083,532 9% FY 03* $15,860,383 13% FY 04- $21,607,000 36% *Fiscal year 2003 budget needs to be increased to cover anticipated claims. **Projected 1 Background Monroe County's group insurance program is a self insured program. This means that rather than paying for insurance coverage through a third party, we pay for insurance claims as they are incurred. Because the County is self insured, we are required to keep a certain level of reserves (30% of anticipated claims) for costs that are believed to be incurred, but have not yet been submitted for reimbursement. In addition to claims and reserves, the County also has administrative and operating expenses related to the group msurance program. In fiscal year 2003, the County's group insurance program benefits are as follows: Current Benefits Overview Health Calendar Year Deductible: $300 Individuall$600 Family 80% up to $12,100 in covered expenses 100% thereafter for the remainder of the calendar year Lifetime limit $1,000,000 Annual out of pocket limit - $2,720 $150 inpatient deductible $75 emergency room deductible Dental Calendar Year Deductible: $50 Individuall$l50 Family Maximum payable per calendar year: $2,000 Vision One exam for correction of vision payable every 24 months $50 payable per exam One purchase of either glasses or contact lenses every 24 months $150 payable for purchase of either glasses or contact lenses Prescription Card Generic: $10.00 Retail/$25 Mail In Brand: $20.00 Retaill$50 Mail In Non-Preferred Brand: $35.00 Retail/$87.50 Mail In (Retail- One month supply, Mail In - three month supply) 2 History County Employees began having benefits provided to them under a self-insurance program that was created in October of 1983. At that time, the board was facing an 18% increase from Metropolitan Insurance Company.] The plan has been enhanced over the years with the addition of Dental, Vision, Prescription, & Employee Assistance. Board of County Commissioners' Actions & Approvals Year Coverage Company 1984 Major Medical -Self- Insurance Gallagher Bassett Third-Party Administrator (TP A) Program Acordia National- TPA -1996-current 1987 Dental Benefits - Self-Insurance SunLife of Canada - TPA-1987-1989 Program Gallagher Bassett - TP A - 1989-1996 Acordia National- TPA -1996-current 1987 Vision Benefits- Self- Insurance Gallagher Bassett -TPA - 1987-1996 Program Acordia National - TP A - 1996-current 1988 Free Retiree Insurance Prior to 1988: Retirees under age 65 paid 60% of Department Rate Retirees 65 & over paid 40% of Department Rate 1987 Precertification Medical Foundation Services - 1987-1994 Advanced Focus - 1994-1996 Keys Physician Hospital Alliance - 1996-current 1989 Prescriptions Gallagher Bassett - TPA -1989-1996 Covered under Indemnity Self-Insurance Program 1990 Surviving Spouse Surviving Spouse of Retired Employees can keep ins. Premium Rate must be paid. 1996 Prescription Card WHP Health Initiatives - Administrator - Self Insured 1997 Employee Assistance program Care Center for Mental Health 1999 Rule of 70 Eligibility Requirement of Rule of 70 (age & years of service) or minimum age of 60 J The Kev West Citizen, August II, 1983, Vol. cm No. 190. 3 2001 2002 Adjustments in Plan Mandatory Generic Program & Nationwide Network Employees hired after 10/1/2001 ineligible for free retiree insurance; change in ER deductible; change in pharmaceutical co-pays from two-tier to three-tier program; limitations on chiropractic, massage therapy, and acupuncture; raise base of 80/20 payment from $10,000 to $20,000 at 10% a year; increase deductible; raise dependent care by $10 per payday; increase out-of-network disincentive and other minor changes. On Multi-source drugs with generic available, patient responsibility is 100% if generic not selected & accepted Multi-Plan as wraparound network and eliminated out-of- network exclusion 4 Current Year - Fiscal Year 2003 Current projections indicate that the FY 03 expenses will be higher than originally anticipated. At the current department rate, we expect the group insurance fund to spend approximately $1 million more than it will receive in revenue. Anticipated Revenue Item Description Amount Internal Billings to County $720 per month per active employee $11,805,000 Departments Dependent Coverage Active Employees Dependents $1,440,000 Retiree payments Dependent coverage, Surviving Spouse $235,000 Premiums & Retirees not meeting Rule of 70 COBRA payments $60,000 Interest Earnings $60,000 Reimbursements $60,000 Total Anticipated Revenue $13,660,000 Anticipated Expenses Item Description Amount Administration Day-to-day operations of Dept. $200,000 Operations Life Insurance Premiums, Third-Party $520,000 Administrator, Employee Assistance program Claims Medical, Dental, Vision for active employees, $13,850,000 retirees & dependents Total Anticipated Expenses $14,570,000 Projected Loss = $13,660,000 - $14,570,000 = $910,000 In order to cover this loss, the fiscal year 2003 department rate must be increased from $720 per employee per month to $780 per employee per month retroactive to October 1, 2002. At this time, we are requesting BOCC approval for this increase in the department rate. 5 Department Rate Since the County is a self-insured fund, it must raise sufficient money from the departments to cover all anticipated claims, expenses, and reserves. Expenses and revenue sources are reviewed and when the budget is adopted by the Board of County Commissioners, a rate that will fund the budget is included. The Department rate is not a premIUm. FY 2004 Estimated Appropriations Item Description Amount Administration Day-to-day operations ofDept. $220,000 Operations Life Insurance Premiums, Third-Party $534,000 Administrator, Employee Assistance program Claims Medical, Dental, Vision for active employees, $15,500,000 retirees & dependents Asserted Claims Obligated Reserves. We must have a $5,025,000 minimum of 30% of anticipated claims Contingency Reserves $328,000 Total Fund Amount Needed in Revenues to Support $21,607,000 Budget FY 2004 Estimated Revenue Sources Item Description Amount Fund Balance Forward Fiscal year 2003's obligated reserves will roll $4,155,000 over into Fiscal Year 2004 (assuming additional billing is approved) Dependent Coverage Active Employees Dependents $1,400,000 Retiree payments Dependent coverage, Surviving Spouse $230,000 Premiums & Retirees not meeting Rule of 70 COBRA payments $60,000 Interest Earnings $60,000 Subtotal: Revenue sources other than $5,905,000 Department Billings Revenue Amount This amount will be raised through $15,702,000 Remaining to be Raised Department Billings - 78% will be Ad valorem Department Rate $15,702,000 divided by 1375* active $950/month employees divided by 12 months * The number of active employees may change as part ofthe process of adopting the fiscal year 2004 budget. 6 Coverage funded by the Department Rate The money that is collected through the department rate funds employee coverage (free to employees), retiree coverage (free to those that qualify), and a dependent coverage subsidy. The following is a breakdown of how much of the rate goes to fund each of these coverages: Breakdown of $950 Rate (Department Rate per Active Employee for FY 04) Employee Coverage, $480, 51% Retiree Subsidy, $174,18% Dependent Subsidy, $296, 31% 7 History of the Cost of Claims The cost of claims has increased substantially over the years, as shown in the following graph: . Medical. Vision 0 Dental 0 Prescriptions *projected 8 History of the Department Rate The increasing cost of claims has caused an increase in the department rate. *The FY 9S rate was adjusted midyear from $310 to $410 **FY 03 has been adjusted to cover anticipated claims ***Projected Ad valorem costs versus non-ad valorem costs The total increase in the department rate is the difference in the rate ($950 - $720) times 12 months times the number of active employees (1375) or $3.8 million. 78%, or $3 million, of this increase comes from ad valorem taxes. THIS AMOUNT CAN BE REDUCED BY INCREASING REVENUE OR DECREASING COSTS. ent Billin~ Ad valorem 78% *512,247,560 Non Ad valorem 22% 53,454.440 515,702,000 *$12,247,560 is 20% of Total Ad valorem Taxes (approL $62 million) 9 If no adjustments are made to the current program, the cost of group insurance will account for approximately 20% of the ad valorem taxes collected for fiscal year 2004. Funding of the group insurance program has accounted for a growing proportion of the ad valorem tax proceeds. FY98 FY99 FYOO FY01 FY02 FY03 FY 04* I Ad Valorem Taxes I Ad Valorem Funding-Group Insurance Ad Valorem Taxes $56,584,399 $55,065,927 $56,018,441 $53,250,299 $56,706,976 $60,434,484 $61,884,912 Ad Valorem Fundina-GrouD Insurance $5,783,300 $6,067,963 $5,854,602 $5,951,384 $8,162,170 $9,068,075 $12,247,560 *Assumes a 2.4% increase in ad valorem taxation. 10 % 10.22% 11.02% 10.45% 11.18% 14.39% 15.00% 19.79% Breakdown of Participation Entity Sheriff BOCC Retirees Clerk of the Court Tax Collector Property Appraiser Mosquito Control Court Admin. COBRA Supervisor of Elections TOC Claims* FY02 4,302,110 2,400,934 1,015,924 514,034 399,734 391,304 162,957 105,497 74,399 51,138 8,616 9,426,647 *excludes $1.4 million in pharmaceuticals. Participants FY02 1004 792 325 168 91 66 95 58 9 22 7 2637 Percent of Claims 45.6% 25.5% 10.8% 5.5% 4.2% 4.2% 1.7% 1.1% 0.8% 0.5% 0.1% 100 J)O!o Percent of Participants 38.1% 30.0% 12.3% 6.4% 3.5% 2.5% 3.6% 2.2% 0.3% 0.8% 0.3% l00J)O!o See the attached exhibit for 5 year histoty. This shows almost an even participation rate VS. claim cost per entity. However, the Sheriff's participant number is increasing and the BOCC's participant count is decreasing. If this trend continues, the results will more closely resemble the above results and not the five-year trend. Many of the employees covered under the group insurance program fall under the responsibility of the constitutional officers. Of the estimated $3 million increase in ad valorem taxes, $2.2 million is associated with coverage for the Constitutional Officers. 11 Covered individuals are estimated to incur annual claims (per person) for fiscal year 2004 as follows: 12 The $15,500,000 projected claims cost for fiscal year 2004 breaks down as follows: FY 04 Projected Claims Retiree 18% Employees 46% Child 10% The following is a history of the number of individuals (employees, dependents of employees, retirees, and dependents of retirees) covered under the group insurance program: . Employees . Employees Dependents 0 Retirees 0 Retirees' Dependenls 13 Impact on the Fiscal Year 2004 Budget At this point, the group insurance increase for FY 04 totals approximately $3.8 million. $3 million of this increase is to be funded from ad valorem taxes. Solution 1: Increase ad valorem taxation by $3 million to cover the increased costs. Solution 2: Reduce existing budgets funded by ad valorem taxes in the amount of $3 million. Solution 3: Adjust (by reducing benefits or increasing revenues for covered individuals) the group insurance program by $3.8 million to eliminate the cost increase. Solution 4: A combination of solutions 1, 2, & 3. The BOCC has directed the administration to present a budget in July with ad valorem taxation not to exceed 2.4% over rollback. In Fiscal Year 2003, the county levied approximately $60.4 million in ad valorem taxes. To present a budget within the 2.4% ad valorem increases, the total ad valorem increase cannot exceed approximately $1,450,000. In addition to addressing the group insurance cost increase, we must cover further increases in ad valorem costs such as the Florida Retirement System Rate increase ($2 million), Shadek Settlement ($1 million), and salary increases ($1.2 million). Along with the ad valorem increases in the group insurance budget, these issues alone total $7.2 million in ad valorem taxation. In order to reach the goal of presenting a tentative budget within 2.4% over rollback, the ad valorem budget will need to be reduced by approximately $5,750,000. In addition to the tough decision the BOCC is currently presented with regarding the future of the group insurance program, the BOCC will be facing many other difficult decisions during the fiscal year 2004 budget process. 14 Proposed Core Medical Coverage It is recommended that the BOCC consider which benefits to offer by starting with a core medical coverage as described below. Beyond that core coverage, there are many benefits that the County can offer. It is recommended that the BOCC consider which of the extra benefits to fund in the FY 04 budget. If the commission adds each of the italicized items listed, the result will be the same coverage that we currently offer. Weare not suggesting that the core coverage be the only coverage offered, rather we are using this as a mechanism to list all of the benefits the County provides beyond a core medical plan. The BOCC can then review the additional benefits and decide which are the most important to offer. Proposed Core Medical Coveraee Calendar Year Deductible $500 Individual/$1500 Family 70% up to $30,000 in covered expenses 100% thereafter for the remainder of the calendar year Lifetime limit $1,000,000 Annual out of pocket limit - $9,500 $150 inpatient deductible $75 emergency room deductible Comparison See attached spreadsheet showing how the proposed core medical coverage compares to existing coverage. 15 = Q rI:l .... , Q. e Q u e ~ .. QlJ Q .. ~ Qj <:J = ~ .. = rI.l = ~ Q. = Q .. 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CO 0 ~:2 () "- CO Cll >. "- Cll a. 2 "- 'en CO .:; ~ ~ (u a. E.c " ~ :& Cll .~ 2 'en ~ .:; ::Jo t)('I') SE a." 132 (.) '- <:( .~ "'0 C '_ COt) >.co 15-0.. "- 0 Cll .!::: .c .c I-() Cll Ol CO (/) (/) CO ~ "- Cll .c 6 ..- ..- o o q L() ,..... V} o o o c:i o It) &ri' ..... ~ en .~ ~ 100 -N 0> alu. - I 10_ E ~ ~o w o o o O)~ ..... cct It) ~ C") It) C") ~ o o q ..... co ~ 0) ~ ,... 0) It) ~ \0 ...... o It) 0) ~ ..... c.. Gl C 't:J Gl Gl- _ 10 nsD:: E :w en W Extra coverage options not included in Core Medical Coverage If the commission wants to have a group insurance program that does not increase ad valorem taxes, the program needs to be adjusted by $3.8 million. However, the proposed core medical coverage as presented is a $5.8 million adjustment. This means that if we start with the core program, the BOCC can add $2 million in extra coverage options and still have a program that does not increase ad valorem taxes this year. The proposed core medical coverage is estimated to cost $9,681,000 for fiscal year 2004. If the BOCC wants to offer more benefits than the core medical coverage, the extra coverage options listed below can be added and an estimate of the cost of each decision is listed along side of the corresponding option. Deductible 1. a. b. Deductible of $400 Individual/$l ,200 Family - $100,000 or $300 Individuall$600 Family - $200,000 Medical Copay 2. a. b. Copay 75/25 up to $30,000 - $375,000 Copay 80120 up to $30,000 - $750,000 Out of Pocket Limit 3. a. b. Begin Paying 100% at $20,000 - $185,000 Begin Paying 100% at $13,310 - $375,000 Note: In fiscal year 2002, 155 out of 2,592 covered individuals met the out of pocket limit. Life Insurance 4. Life Insurance Coverage - $154,000 Additional Information: Optional employee paid coverage through a third party can be established. Note: Currently, only employees and retirees are eligible for life insurance. **Italicized options are part of the current program** 17 .. Vision 5. Vision Coverage free for employees - $120,000 Additional Information: Previous quotes for employee paid coverage were as follows: Employee Only Employee plus one Employee plus family $5.98 per month $11.96 per month $20.04 per month This information needs to be updated if the BOCC proceeds with optional employee paid coverage. Dental 6. Dental Coveragefreefor employees - $800,000 Additional information: Previous quotes for employee paid coverage were as follows: Employee Employee plus spouse Employee plus family Employee plus child(ren) Cigna $31.08 per month $60.60 per month $101.12 per month $69.92 per month Delta Dental $36.28 per month $62.76 per month $96.73 per month $62.55 per month This information needs to be updated if the BOCC proceeds with optional employee paid coverage. EAP 7. Employee Assistance Plan Coverage - $45,000 Pharmaceutical 8. a. b. Pharmaceutical Card with a $10/$50/$70 copay - $475,000 Pharmaceutical Card with copay-$10 generic/50% brand-$475,000 Pharmaceutical Card with $10/$20/$35 copay - $950,000 c. **Italicized options are part of the current program** 18 Dependent Subsidy 9. a. Subsidize Dependent Coverage by approximately 50% - $800,000 Spouse Each Child Family Cap Per Pay Day Rate* $203 $67 $304 Monthly Rate $440 $145 $659 b. Subsidize Dependent Coverage by approximately 75%- $1,500,000 One Dependent Two or More Per Pav Dav Rate $110 $130 Monthlv Rate $238 $282 * A minimum rate of $110 per pay day for dependent coverage would apply. Note: Currently, 498 out of 1668 active employees, retirees, COBRA, and surviving spouses have dependent coverage. Retiree Premium 10. a. Retiree Coverage at a cost of $100 per month per retiree (only those that currently qualify for free coverage) - $550,000 plus future liability b. Retiree Coverage at a cost equal to the subsidy retirees receive from the Florida Retirement System- $550,000 plus future liability c. Offer free coverage to retirees per existing resolution, but limit free coverage to the number of years served under Monroe County Employment - $550,000 plus future liability d. Offer free coverage to retirees per existing resolution - $850,000 plus future liability. Note: 270 out of 2,592 covered individuals are retirees. *Changes in the group insurance program will reduce the County's liability which is currently estimated at $90 million. **Italicized options are part of the current program** 19 Other 11. Chiropractic, Acupuncture, and Massage Therapy covered consistent with current plan document. - $75,000 **Italicized options are part of the current program** * All of the above costs are estimated annual figures. If changes are made to the existing insurance plan, many of these changes would be effective 1/1/04. 20 .~ Attachments 21 SAed-08 slq!lOnpSa S6eJSAO:) AI!UJe::l SJOUJ JO OMl JOJ sAed SSAOldUJ3 lUSpusdsp suo JOJ sAed SSAOldUJ3 S6eJSAOO UMO JOJ sAed SSAOldUJ::: SAOldUJS Jsd 4lUOUJ Jsd sAed Al!lU3 S6eJSAO: S99J!l9~ 'l? 9A!lOV' JO JsqUJnN Al!lU3 o ~I~ i I ~ ~ "I ~. ~ ~,>< ~ ~I 0 ~ E, N N 0::0.8 ...... I C") 15~~~lrol 15~~I15 OlOl'-IIllll OOO~O ' C") CO ro rol' '<t t:lo I I 025 Q.) 0). I i?5 0..0 I ~NlO E E' ~N'<t ro~ oain CO CO ::Co::;;:IU)u,1 C\I..-C'\IfJ)U) C\I"-,-CON o 00 00 0 g gg ~~ ~ 25 00 ~o EA- o 00 00 ("l") C"?("l') U'),- I " I'- Ifl, ~ Ifl I Ie 0 Q) :J5 N N I i 4lUOl^l J9d I 4lUOl^l JSd[ [ ~ ~! NN I~I~ Ifl Ifl 4lUOl^l J9d o 0 E E' 0Ciii5 C") C") N N Ifl Ifl 4lUOl^l JSd ~ N 4lUOl^l JSd ~ o N I'- Ifl c .2 ll. ll. ll. .!a <( <( <( >w WUJ (ij(ij ~~ "E .2 en Us c3~o~~g ~lijZ;~~~ .- E C\I -.. -.. 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'--~:t;t ~=:= =~~= , '. ~~ 1':: ~~ lit the ~._~..~ . .., ....10 lIIOfeGf1heil:.on1:llOlle100?!ledh- shIItllll.ia-er :.e'ofNiogcqats tl: 'tbeWDiirt_dIlldmoreaperuli.q petCeIltm2OOJ.. . thIa the 6.9, ~~.atld ~__be 1eIa . ..._ .""...... h -.:. ..' ';t' . " "~'_~'bd~ to the perceat ~}!l.:..::~~?l~~, ~ ~;~~~~~ to ".,. _'~_~~ lQ,t '....:~,>;...~ ':. - 10A TIMES ."TUESDAY: JANUARY 8.'2ClO2' . .. . ((Competition may force emPloyers to shift a larger share o/rising costs to workers, who may . no longer be,ableto afford accelerating out-ofpocket cO$ts. Fewer employers mayojfer health insurance, and the recently unemployed are often left tlJitho,utcoverage. " - DEPARTMENT OF IfEAlTKAND HUMAN SERVICES REPORT Health from lA workers. who may no longer be able to afford accelerating out-{)f-pocket costs. Fewer employ- ers may offer health insurance, and the recentJy unemployed are often left without coverage." Consumer groups and employ- ers have sporadkally issued re- ports documenting a ri8e'ln 4rug prices and in~:premjunis. . But ~on~y's ~ilr~t:,programs or oa. . Jarg.e new increased last year, she said. authontative, c.o . ~.gt)V-... subsidiesforthe. ~.oflnsur. The ~'udy J.dentities two mam' emment study that" ance' President' sh~' .' ... ~ata for all parts'of '. care" sio~.Democrats. fla~" d~ for ~surg~ in heal~ mdustry. ,,'" ;",;:,.:,,<>.',,;-..' . . val proposals to~prl)jj~e spen mg: resl ce. manage "l)te n:w n.a.tWI141' ~~lthbeDefitll to the u.negiPloY; care by doctors, hospl~s and con- spendmg estimateS mayweU inark . prescription drugs for the elderJY.sumers, and a deCISIon by Con- the end of an era of reasonably ., '" ~ to restore money cut from affordable 'healtb"dlrc" cost 11re-nation spent an ~e of Medicare, the federal program for growth .. said Katharine R. LevIt. $4.637 on health care {or eachper-. the elderly and disabled. which chief a~thor of the report. LevIt is son in the U~ted States in ~ up .' accounts {or 17 percent of all director of the national health sta- from $4,377.m 1999, s-t,()()l m~': beaJtltspendlDg. tistics gro. up at the. deJ>artmen. t's and $2,966 !D 1991. Thc.. n~ . .'.{, .:~Co.n. surners increasingly Cent.er for Medicare and. M~caid were not adjusted for- ~ti . . " ;Iess . restrictive forms of Servtces. . .' ~ Levit pred.lcted "8:. ','.. '~care," which cost more The surge I~.~ cost!tpufs crease in the health~s . nJ~~ maintenance organizlF pressure on poliucrana to respond, share of gross domestic product in. .tiOl19;'tlte ~rt said. In addition; it but also makes them. anxious the near future." Health care em- ":obse.!ie~,' ':the consolidation of alxmt the cost of expandmg pu81ic ' pIoyment. prices anctpremiums aU' nOf.~Jtats IOto networks and --z.-L\ ... systems" has incrcased their bar- gaining power. so thcy can extract higher paymcnt." from HMOs and othcr insurers. National health spending rose $83.9-billion in 2000, and hospital care and prescription drugs ac- counted (or 45 percent of the in- crease. Spending on hospital care rose by $l!).9-billioll. or 5.1 percent. to S.llZ.1,billion. while drug spendinK grew $17,9-billion. or 17.3 percent. to S121.8-billion. The figures for hospitals were si!<l1ificant because hospital spend- ing had not risen more than 4 percent in any year since 1993. Outpatient hospital revenue Is growing twice as fast as. inFDt revenue. Hospitals say they need tIle money to cover rising labor costs. Weekly wages paid to.work. ers in private hospitala rose 4.1 percent in 2000, up from 2.3 per. cent in 1999. the report said. Congress slowed the growth of Medicare when it passed the Bal. anccd Budget A1:.t of 1997. But an all-out lobbylngcampaign by h~ pitals and other health care provid- ers persuaded lawmakers that the' cuts had begun to harm patients. So Congress. in .1999 and 2000. passed Jaws increasing payments to providers. "Medicare .hospital spending made a comeback in 2000, simi1ar to that in nursing homes and home health agencies:' the report said. The growth in prescription drug spending slowed a bit from 1999 to 2000, but drugs were still thc fastest growing category of health spending. Drug spending increased 19,2 percent in 1999 and 17.3 percent in 2000, the sixth con- secutive year of double-digit growth. Total national spending on pre- scription drugs doubled In the five rears from 1995 tQ 2O(X)and tripled an the. decade froin 1.990 to 2000, according to government data. '. The report. cites several rea- sons;for the rapid increase, includ- ing the effects of prescription dntg advertising, wider avaiJablllty of in- surance to cover drug' costs, an Increase In the number of prescrip- 'tions written by doctors and a shift toward greater use of new, higher- price drugs. Some drugs' can re- cfuc:e health spending by reducing the need for hospital care, ecollo- mists say, but that is not true of all drugs. Hospitals accounted for 31..1., percent of all health spending in 2000, down from 42 percent in 1982. By contrast, prescription drugs accounted for 9.4 percent of' the total in 2000, double their share In 1982. ..; .~.'. . Highlights of the repo'rfi~c:Iild) ed these findings: . Privatc health insurance' ;;re.:;: mlum! Increased 8.4 perccnCln' 2000, to a total of $444-billion. after rising less than 7 percent a year from 1996 to 1999. . .., . Medicare spendfng o,n' home. health care rose 0.8 ' in, 2000. tKe-'first JnccfuU'i" years. Medicaret' 01. .M. home.. care had d .. . '. . than 35 percent from l!lOOtlirl~ after groWing for years atl"d01Jf~ digit rates. ", f.......~:.... . Spendi for nut'Sfni~i%S"" bounced bac~ 2000, aftergrowth slowed. from 1995 to 1999:- . ing l'Olle 3~ percent' in' $92.2-bllliOiiS",,,7t.. ' ".. , , ....: IdonneIIOn wonrti.i u;. _1IMd In tflla'repOn. ~-~.... -. ,;~c.. .~ ----.-1 '.' , ~. ....... , .,.. . --~,.>' .-' .~",,' ^r.'~' i' :~<:L~""'. ,\ ,::- " '; 1-, .'i:i .! i JOHN E. PETERSEN I \3 0 c..A:.- . f5 ('- ..t .~~ #/0 Here's to Your Health The economic slowdown oflast year demonstrated yet again that the state and local government sector does . . not float above the private sector. That reality is rear- ing its head now with health costs and the increasing inability to either contain them or at least finance them. This is true not just for Medicaid and other public health pro- grams but, more to the point, for employee insurance. For states and localities, the unhealthy numbers run this way: There are some 15 million full-time state and local workers. Their annual wages add up to about $600 billion. In addition, they receive benefits, including health insurance, which alone equals about 10 percent of wages. So the health costs to states and localities are in the area of $60 billion. Since public employ- ees 'ust as those in the rivate sector usually contribute to hea t insurance bene ts, t e entire sum spent on ea msur- ance is more on the oraer of $100 billion. That cost is now increasin b double di 'ts and will continue to do so. The growt comes on t e ee s ot a perio ot re ative calm. One of the great-if temporary-victories in achieving low infla- tion rates in the early 1990s was the containment of health care costs. The key solution was the adoption of managed care-let- ting insurance entities such as health maintenance organiza- tions use their leverage to force down health-provider fees and limit patient use of services. But after helping make drastic cuts in health care expenditures from 1993 through 1997, the approach ran into popular and political opposition. HMOs lost much of their ability to check increases, and they are currently operating on thin margins. Now, the cost of health services is rising again. In one sense, it is parr of a trend that reaches back nearly 20 years. To get an idea of the relentlessness of the growth curve, the overall cost-of- livin index rew in the eriod from 1983 to 2001 by 75 er- ~. For some things such as s oes an clothing, pnces grew y only 15 to 20percent. But medical-care prices grew by 177 per- cent overall, with drue-s and hospitals moving up by a heart-stop- . , . cause is the olitical difficul of either doing something to halt the trend or, . the rising cost is accepte ,t en p anmng or t e .!!i~her bills to be paid. Although a huge number of people are uninsured, the Amer- ~. ican approach is to leave the provision of medical services as i. much as possible in the private sector and to subsidize it --even if r selectively, as with Medicaid and Medicare-from the public sec- tor. Freedom of choice of service and freedom from having to pay ~ for it are the twin lodestones of popular demand. t But who will pay for those demands? When health care costs. first started to rise faster than inflation in the late 1990s, state and local governments were in a strong fiscal position, with salary levels in check. The health care increases could be absorbed. Now, in a slower econ- omy, things are different. ~ care insurance premiums rose at a rate ot more than 10 percent in 2000, and by more than 12 per- cent in 200 I. According to esti- mates by health care providers. premiums Will me by lL to 15. ~rcent this year. For man overnments, es ecially small ones e nse could run to percent or more. In fact, you on't ave to fie small to see big increases in premiums. CaIPERS, the giant Cal- ifornia pension fund, which has health care programs for 1.25 mil- lion employees and retirees, is projecting a 25 percent increase in premiums. How much those premiums will be divided between the employer and employee will be a key question. It is not a foregone conclusion that the nation's preference for health spending is a bad thing. People want health protection, and there is economic evidence that it bnn s substantial benetits. Pu ic em 10 ees are well 'usti'e m seeing ea t care as a va ua e ene 't. the difficul is the monumental reluc- tance to resent t e health bill to t e pu ic. osts are urie ,an t e su ject is avoi ed. The rapid disappearance of the federal sur- plus, not to mention the budget woes of states, amply demonstrates that it is unwise to adopt policies (including multi-year tax cuts) based on a few good years as opposed to long-term trends. As David Walker, the u.s. comp- troller general, has pointed out, members of today's relatively large workforce rilUst increase savings and thereby increase future productiVity. In future years, their ranks will diminish, while those of dependents will increase. Hard decisions need to be taken now to avert the future crises of a rapidly aging nation that wants good health but refuses to pay the bill. l!l ! r t Either we take steps to halt the escalation of health care costs or we make plans for the higher bills to be paid. ping 207 and 250 ercent, res ectively. Medical expenditures now represent more t an percent 0 consumption spending, and the share grows every year. The causes for the most recent increases are manifold, ranging from the aging of the population to the rapid development of new medical technologies and the increased use of drugs. But the root John E. Petersen can be reached at the School of Public Policy, George Mason University; jep@gmu.edu 62 G 0 V ERN I N G June 2002 Governlng.com COVER STORY: INSURANCE I I A vicious spiral in healthcare costs is stretching the affordability of health insurance for many small employers. Could it leave Florida swimming in a sea of uninsured workers? No Coverage Uninsured rates in major counties MIAMI-DADE 24.6% ORANGE 15.2 PALM BEACH 15.1 BROWARD 14.8 HILLSBOROUGH 13.9 PINElLAS 13.6 DUVAL 12.1 Source: Agency for Healthcare Administration Florida Trend l_ :':~..:~".' ---.", '_~ .'.......-:-\"':~~_~:!:~~~::~t; "'~..:~.~..i..:..." .,.~... ~~~ ;.'\~~~~..,"'-:\~.'I.'V\'.t.:"t-,."I:'...",." __:'\....:~~._... .............~._..._ ~__. ____ 36 By Mark R. Howard .~ Brian Klepper wears the mantle of Chicken Little proudly. Klepper, 50, is a former analyst at the Institute for Child Health Policy in Gainesville who runs a small healthcar~ consulting business in Jacksonville. He now makes the rounds of health care con- ferences and forums nationally, promot- ing a reform organization he helped found, predicated on the notion that the sky may be falling on the nation's em- ployer-based healthcare system. Klepper tells how he was out sailing one afternoon in 1999 when a simple calcula- tion struck him like a blast of stale air. He realized that if only one in nine people in- sured through their employers loses health coverage, then the number of unin- sured people will grow by half. In Flori- da, that would mean the 2.5 million or so ~~~~.~ ~. f~, -'-~'.!\' ~ "'-~~ Floridians who are uninsured would be- come more than 4 million. Nationally, the number of uninsured would rise to near- ly 60 million - with potentially cata- strophic implications for the whole health insurance system. \Vhat he feared, Klepper says, may now be occurring - courtesy of the return of a vicious spiral in health costs that is mak- ing healthcare insurance increasingly un- affordable for many businesses, particu- larly small businesses. "I'm arguing that we already have more uninsured than we think we have and that the number of uninsured is about to be much, much larg- er than we ever imagined. \Ve are not set up to deal with it." Some question Klepper's credentials as guru - and his aggressive networking ef- forts in trying to build a financial base for June 2002 his reform effort. But few quarrel with the fact that costs are indeed spiraling again. And enough companies think Klepper's doomsday scenario is credible enough that they've been willing to lend some initial corporate encouragement to his group. After a period beginning in the mid- 1990s that saw health insurance costs keep a relatively even keel, employers were jolted by health insurance premi- um increases of 15 % and more at the end of2001. Small employers have been hit the worst, clobbered with increases of 20% to 50%. Industry analysts say em- yers should expect another round of .t1ilar price jumps in 2003, and the an- alysts expect double-digit increases to be the norm for the next several years. Big employers have been able to cope June 2002 with the increases by using their clout to bargain, altering their health plans or shopping for new providers. Many small employers, however, with less leverage in the market, are scrambling. And Flori- da is a state of small businesses - fully two-thirds of the state's 600,000 busi- nesses have five or fewer employees. (The availability of health insurance for workers at small firms - the job-cre- ating engines that make up the state's most dynamic business sector - was al- ready limited. Among uninsured work- ers in Florida, nearly two-thirds are em- ployed by companies that simply don't offer health insurance, according to a state study in 2000.) In the wake of the premium increases, many companies that offer health insur- ance to their employees have increased 37 Florida Trend 'I ,~ I.. JI- '. :1 'I 'j q ;J ~ :' j " I ~ I I i f I I I I ."~'~'--:'";'..;:~~.,..:. COVER STORY: INSURANCE Florida's Uninsured How many: Approximately 2.5 million Who are they: The indigent, who are covered through Medicaid, are not counted in the ranks of uninsured, who most often could be classified as work- ing poor: About four in five uninsured are workers or dependents of workers typically in low-wage service sector jobs at small companies. Some are between jobs; most aren't offered insurance at work; others can't afford it or choose not to buy it. .~ What do they do when they get sick? Mostly, they put off going to the doctor - and then go to the emergency room. Uninsured people don't use the emer- gency room any more often than in- sured people, but many use the ER as their usual Source of basic care _ at much higher cost to the system. And by not getting the basic care that would be more available if they had insur- ance, the uninsured tend to get sicker and die sooner: An uninsured woman with breast cancer has a 50% higher risk of death than the privately insured. . Florida Trend deductibles and Co-pays or cut benefits. For others, "the premium increases were so large and so unexpected that for the first time, employers offloaded" a big chunk of the increased cost of insurance to their employees, Klepper says. Many small firms are simply dropping coverage. A survey by the Florida Cham- ber Federation indicated that in the past two years the percentage of Florida com- panies offering health coverage has de- clined by nearly 15 %. The same survey indicated that 42% of Florida business owners that still offer coverage will con- sider dropping it if insurers hit them with another big increase in premiums. At Alice Martin Inc., a IS-employee clothing manufacturer in Clearwater,]eff Martin says the most bare-bones policy he can buy now costs at least $300 a month per employee, with family plans running $900 to $1,200 a month per em- ployee. Martin, who's had to do without coverage before, says another round of increases may put it out of reach. "You feel like you're losing employees every day when you can't offer certain bene- fits," he says. His firm competes against foreign companies with lower wages and no benefits and simply doesn't have the kind of margins that allow it to pay hun- dreds of thousands in health premiums, Martin says. RESOURCES As more workers lose coverage through their employers, will growing ranks of uninsured swamp already overburdened hospital emergency rooms? Descent into chaos? For society, the issue of the uninsured involves the human needs of individuals who need care for themselves and their dependents: Researchers have found for years that the uninsured get sicker and die earlier than those with insurance. Be- yond the moral issue of providing care for the nation's citizens, health insurance has become the No.1 benefit in attracting and retaining workers. And researchers are beginning to find a real financial re- turn on healthcare for employers whose workers are covered. "Businesses should look at healthcare spending as an invest- ment rather than a cost of doing busi- ness," says Paul Fronstin, a senior re- search associate with the Employee Ben- efit Research Institute in Washington. Ultimately, Klepper believes the unin- sured are players in a scenario in which uncontrolled healthcare costs could de- stroy the employer-sponsored health in- surance system that has served the Coun- try well for 50 years. Businesses see the system as a "house on fire," Klepper told the audience at a forum sponsored by Blue Cross Blue Shield of Florida in April. "It's an unsustainable economic model for costs within any business sec- tor to grow year after year at twice the rate of general inflation, productivity or any other measure," he says. How do the dominoes fall in Klepper's worst-case scenario? As health insurance becomes less af- fordable, the number of uninsured will rise dramatically. Then, Klepper says, the healthcare safety-net infrastructure _ big public hospitals like Shands in]ack- sonville and Jackson Memorial in l\1iami- Dade, and private, n.ot-for-profits like Tampa General - will fray under the fi- The largest group of uninsured in Florida is 18-2' (27.1 % of all uninsured). 38 . ," ;~ ':'..'~"'~"~'\.'\'J. ".~1:~~'~"~':-'~'~.~'~}i~~~"0~~'":":!\:::"~\~~~"~";'\'\~l1~_~~: 't-\."~'~~J';;'\','~"'~'''''~''~'''I:7''....~,t'".....~", -.' .. June 2002 Such a system, they say, would be even more subject than the present one to the "perverse influences" of the competing in- terests seeking to strucrure it to their own advantage - and would ultimately do nothing to hold down costs. Klepper believes the advent of a govern- ment-run system would produce a boom- nancial burden of caring for big numbers let in "concierge" physicians and hospitals of newly uninsured patients who can't pay that would essentially opt out of the system for treatment at the hospitals' emergency by'setting up practices to treat wealthier rooms and clinics. Some of those hospitals '~patients who could pay out-of-pocket for could go out of business, says Klepper, their healthcare. "It's a mistake to think maintaining that "every safety-net hospi- that by changing the finance mechanism tal is poised for collapse." that you are improving" the factors that are Ultimately, in Klepper's scenario, over- driving costs, Klepper says. "They are em- burdened public hospitals will begin to kick bedded in the way we provide care." more of the uninsured up the ladder to what he calls the "carriage-trade hospitals" - facilities that cater to more well-to-do patients with insurance. Aside from social friction, "when that happens the cost of care will have moved high enough that the middle class begins to lose coverage" - a crisis that would mobilize the country po- Ii tically. As the various competing interests _ doctors, consumers, insurers, drug com- . es and hospitals - fight it out, pres- . would build for a government-run n:ltional healthcare system that Klepper and others believe would be hugely ineffi- cient and wouldn't invest in innovation. Trends There are reasons to take Klepper with a dose of moderation. For one, financial problems at Florida's big public hospitals aren't due exclusively to providing care for the uninsured. InJacksonville, Shands has had a plethora of problems that have brought it to the brink of insolvency. Tam- pa General, meanwhile, is acrually in bet- ter financial shape than it was three years ago and has operated in the black for the past two years after converting from pub- lic to private not-for-profit starus. Jackson Memorial in .\1iami-Dade County receives a half-cent in county sales tax money, which June 2002 39 Healthcare spending now comprises $1.3 trillion a year, more than 140/0 of the country's gross domestic product. Florida Trend I Iii , i I I I I I , I II I I I I :J f ,~r~ " , ., COVER STORY: INSURANCE /-IID j~rl1011g Floridians under 65/1 nearly 170/0 are uninsured. What's Driving Healthcare Costs? ., ~ 1 )0 More people are covered by insurance, increasing demand for services. ,.. Benefits have improved. )0 An aging population with better bene- fits consumes more healthcare. ,.. Consumers, angry with perceived problems with HMOs, have shifted away from HMOs and managed care toward higher-cost insurance models like PPOs that offer more choice. I r 11 > As incomes have risen, so has utiliza- tion of healthcare services. ,.. Consolidation of hospital ownershipl1as cut into the bargaining power of insurers - and their ability to control costs. )>0 Technological advances and drug costs drive costs upward - consumers want the latest treatments, stimulated some- times more by drug companies' marketing than by solid medical evidence. ,.. Physicians and other providers don't follow best practice models, leading to wide variations in cost and quality of treatment for similar conditions. ,.. Insurance structures isolate consumers from the financial consequences of their lifestyle choices and their demands for unlimited services. Florida Trend : , has given it a strong operational base. In addition, Klepper's vision, if true, would represent an abrupt reversal of most recent trends in health insur- ance. The country has essentially been living with about the same percentage of uninsured for nearly 20 years. Since the late 1990s, as a matter of fact, both the percentage and absolute numbers of the uninsured actually had been declining slightly, courtesy of the healthy economy. Why? Competition for workers forced many smaller firms to add health insurance to attract and retain employ- ees: Nationally, the number of those who were insured through their em- ployers began gro\\-ing in 1997, and the percentage of small employers offering coverage began increasing in 1998, according to the Employee Benefit Re- search Institute. In addition, more em- ployees worked for large companies, which are more likely to offer health benefits. In fact, during the late 1990s the per- centage of their health premiums that workers had to pay actually had been going down - employers ate a bigger portion of the premium increases, ac- cording to the EBRI. And insurance began covering a broader spectrum of healthcare expenses, from prescription drugs to so-called "complementary and alternative medicine" - acupuncture, chiropractors, etc. Some believe the cuts in benefits and coverage by some employers is a short- term trend that will re- verse as the economy picks up steam again. Competition for workers, they reason, will continue to force employers to of- fer coverage, and the number of uninsured could begin falling again. To dispute that view, Klepper says the most im- portant factors that held health costs at bay - a booming economy and the effects of managed care - have lost their clout. He cites anecdotal evidence indicating the ~. :1 I 40 cost spiral has already begun to bite: Profit margins have declined marked- ly at "carriage-trade" hospitals. And at many public hospitals around the country, the number of emergency room visits nationally since December has jumped - indicating that numbers of the newly uninsured are resorting to the emergency room for care. ' Indeed, while public hospitals in Florida don't report a recent huge surge in emergency room usage,Jack- sonville Shands, Jackson Memorial and other facilities report upticks in the use of the emergency room during the past year. "We weren't prepared for it," says Bernard Cohen, vice president of man- aged care at Jacksonville Shands. "We db have a problem. It's a statewide problem." Mandates Meanwhile, the availability of small- group insurance has been shrinking throughout Florida, where only six companies now write small-group poli- cies. Some health insurers, Wlable to get the rate increases they say they need to profitably offer small-group coverage in Florida, are fleeing the state, says Sam Miller, spokesman for the Florida In- surance Council. (Ironically, the insur- er that provided coverage for the Insur- ance Council's five-person staff pulled out of Florida earlier this year, lea\ing it and other small Tallahassee lobb}ing outfits scrambling for new coverage.) The cost spiral has also eroded the availability of "stop-loss" coverage that in the past has enabled some compa- nies to self-insure. And Florida rules that limit co-pays to $15 also add to costs: According to Mark \\Tilson, senior vice pres- ident of the Florida Chamber of Commerce, letting insurers offer poli- cies ,vith a $30 to $50 co- pay combined ,vith high- er deductibles could low- er premiums by 15% to 20%. A particularly sore point for both insurers ~',' "~"",.~-' ",::7.:'~_Yi-~=:'~'~~l'\'t.\.''''~~~\':.!-''''''~~'h~''\t::~O':\.~'~\.''''''''''':i'~~.~"'W""'b'S'\,;r."\~.:~"'_,____,,_,,_____ .. June 2002 and small businesspeople is tIre high num- ber of "mandated benefits.'~ce 1993, the state Legislature has created 48 re- quired coverages for insurers that amount to one of the nation's most extensive sets of mandates, second only to Maryland. The mandates, with some exceptions for HMOs, include acupuncturists, chiro- practors, coverage for cleft palate, derma- tologists, maternity care, podiatrists, mammograms and HIV protections. In- dividually, many of the mandates seem reasonable; collectively, however, they limit flexibility and increase the cost of health insurance by 15 % to 20%, according to a state analy~.l Some insurers say the mandated bene- fits prevent them from offering small em- ployers a basic package to cover, for example, a limited number of visits to a primary care physician each year along with catastrophic coverage in the event of a major illness or injury. Martin, the cloth- ing manufacturer in Clearwater, says furi- ously: "I don't have a single worker who will get pregnant. \Vhy can't I opt out of that coverage?" One hospital, Sarasota iVlemorial, even looked into getting an insurance license so it could begin offering coverage to local small businesses but was deterred by the high number of mandated coverages that would have limited its flexibility. Last month, the Legislature passed a pi- lot "health flex plan" during its special ses- sion. The plan, to be offered in four test markets around the state, ..viII allow health insurers to offer uninsured consumers a stripped-down policy that excludes Flori- da's mandated benefits. Innovation The system is not without innovation - most of it involving new policies from insurers that let employers shift varying degrees of cost and risk to workers. Blue Cross Blue Shield will launch its new Blue Options package of health plans this sum- mer beginning in Pensacola, offering con- sumers a wider choice of deductibles and co-pays. "There will be greater emphasis on providing information and services to help consumers make choices for them- selves," says Craig Thomas, the insurer's ~ '" June 2002 vice president of product development. And Humana has launched a new health insurance plan in the Jacksonville market - initially only to large employers, how- ever - that aims to cut costs by providing more choice to employees. The plan, SmartSuite, lets employees choose from among four bundles with six plan options. - Young employees who needed only cover- age in case of a catastrophic illness could choose such a plan and keep premiums down by paying a high deductible. Florida Insurance Commissioner Tom Gallagher has assembled a task force of in- dustry experts to explore possible reme- dies, including allowing small businesses to offer medical savings accounts. Under current Florida law, individuals can set up an MSA, but small groups are prohibited from allowing workers to use pre-tax in- come to build up an account to pay future medical bills. "The mission of the task force is to come up with a standard and ba- sic policy for small groups," Gallagher says. "We're very concerned." Gallagher says he'd like to reopen a "last resort" state risk pool for health insurance but doesn't see how it can be funded given the state's financial situation. Meanwhile, Orange County has opened nine clinics in the past year aimed at pro- viding care to the uninsured ["Leader- ship," page 76]. And a group of large Florida employers, including Lockheed Martin, Walt Disney World and Universal Studios, has decided to give financial re- wards to doctors who meet certain quali- ty standards and are highly rated by their patients. The group, called the Central Florida Health Care Coalition, has ob- tained combined "clinical, financial and patient-satisfaction data" on individual lo- cal doctors for the first time. Well and good, says Klepper, but while creating more incentives for providers and choices and levers for consumers may help in the short run, the ultimate issue remains cost and whether rising costs wiII contin- ue to price health insurance beyond the reach of more employers. In Florida, 28.60/0 of rHspanics are uninsured, compared with 19.60/0 of African-Americans and 13.20/0 of white, non-Hispanics. 41 Florida Trend -'I , I CO V E F-~ S TOR Y: INS U RAN C E I. ~---.~:':"~ - l , -I " I Oran~e County and 16 partners, including area hospit<Jls and non-profits, have opened nine neighborhood-based clinics in the past year to provide care to the uninsured. In the wake of his sailboat brainstonn, K]~pper and several associates in] ack- sanville starred a reform effort c<tIled the Ccnter for PLlctical HC<tlth Care Reform. Th:: center's advisory board now includes r<:r:-cs~nLlti\'Cs of Microsoft, Dow- DuPont, Tufts Health Plan, Southwest 1 .~ ~ J .~ " 'j j ..... Florida Trend 1 :\i:-lilles, Gene;';d ,\[,)r:ll's ;llld ocher in:;ur- t:rs, employcrs and hc;llrhcc1rc prl1\idcrs. "Thelt kind of buy-in from hig n:1tional companies for a little ctlort thelt beg-:m in j;lcksonville ought (0 tell you sOl\1dhing ahout how seriously thcy see this," Klep- per S,l}'S proudl:;. Klepper has tried to len.:r:lgc e,lch cor- por,He endorserncnr to prospecti\'e sup- pc/ners - in the process, rankling some early friends of his efforts who didn't ap- preciate his aggressivc use of their names in trying to build a pnwer and rlrunciell base for his effort. Klepper's group has ;1[1 c\'olving list of basic principles for reforming the em- ployer-based hcaldl insurance system that he says will help control costs and can be supported by all the stakeholders in the system. Insurers, providers and consumers will all have to give a little if the present system is to survive, he says. One of the center's principles, for exam- ple,involves so-c'l11ed "evidence-based guidelines" that reflect proven best med- ical practices. In Minnesota, he says, all the health pbns use the same protocols for treating the 50 most common medical con- i 0_ 42 clitions. Another principle involves ac- L'()llnt:1bdity - nuking perl0rmance c\au ,wadable on practitioners, institutions and health plans and holding consumers ac- countable for some of their own lifestyle choices. A third im'olves finding some combin,l- tion of gO\'r::rnment and private insurance that provides a basis on which to insure everybody. The uninsured get care any- way, Klepper says, with the costs shifted ultimately, if raggedly, onto insured pa- tients. "\Ve have to pay for it. '\Ve can't manage it if we can't control it." LTltim,1tcly, he S:lYS, the solution will 11:1ve to be national in scope. 'vVhy save the prescnt system if it has come to such a state? The system, he says, has been ex- tremely effective at generating medical advances and new infrastructure that has made the U.S. the world leader in med- ical technology and treatments. In addition, "employers want to save it. It's in their interest to retain control of health benefits, the single most-prized benefit for attracting and retaining em- ployees - and for cultivating productiv- ity in the workforce." 0 June 2002 i j' \V.\l.L STHEET ,JOUn~{'\L. -------..---. ------.---- ;'Tn C) TECHNOLOGY ~/l' \ /-, o ' /1__./ ,lUll\]'. SI':PTI':\[r~En n, ~il()~ BS T ~ 'LTT ~ -'.nsured rVorJcers fire Paying 1vlore Of Health Bills By PETER L.\NDERS '-:..,,' A nationwide survey has confirmed Wh1l many ',vcr;cers alr:)acJy know: They are being asked to PilY more of their health-care bills out of their own rockets. People wto get family health insurance through their employers have to pitch in $2,084 on average tllis year toward llJ.e cost cf that insurance, up 16% from 2001. Employ- ees who get coverage just for themselves are contributing $-15-1, up 27%. The figures come from a survey released yesterday by two nonprofit research organizations, the Kaiser Family' Foundation and tile He:tlth Research ilnd Educational Trust. Employees also are paying more out of pocket foc ccctor visits and drugs. Em- ployees w!;o ask for an expensive brand- name drug when a cheaper generic is available are no-,\' pilying $26 outof their own pockets on average, up from $21 a year ago. Also, tile average deductible rose 37% to S276 in the common "preferred providi~r" plans that encourage employ- ees to use certain doctors and hospitalS. When t~e ,~c. clll1Y wa:> hooming in 1999 and 2000, many companies swal- lowed health-care cost increases, fearing that they would lose the war for talent if they tried to push the bill on employees. The survey makes clear that those days are over. "With health costs rising rap- idly and no solution on the horizon, work- ers can expect to pay more and get less . coverage," said Drew Altman, president of the Kaiser Family Foundation. in a statement accompanying the results. '~ '~ Companies arc still hit hard thl~msel'les. paying 8n average o[ $:1,810 for each em- ployee with [,Imily coverage, up 12'7, from lust year, and S2,GGG for single coverag-e, up J.!Cl(,. Companies have found they have little control o'leI' health-care inflation because it . is driven largely by new trea.tments_ One new approach is to make employees more responsible for tl1eir own health through "consumer-driven" plans, These give employees cash at the beginning of the year to use for whatever healt,l' purposes they s,;o fit and allow them to kecl) the left- over portion for the next year if they stay healthy. However, tbe survey found limited enthusiasm for the idea, with 6'7, of compa- nies saying it is very likely they will adopt such a plan in the next five years and 17'70 saying it is somewhat likely. Tlle survey covered 3,262 randomly se- . lected public and private employers. Of these 2,014 re:sponded to the full survey arid 1.248 merely indicated whether or not they provide health coverage. )!(O '~r}L ,~".;'/t,:, ", ":{~i~Ii~2i~!~f~~~~t.~,;,;p~;,,:,,:~~~~~~;;~~~ "'''';~:';;''''~~-~';ill~~ed health iIisurers such. ~.~al,~~~re CO~~!!~". ,as Aetna to finally pull out of r"-.s'..-n'g lev.... er-.sh....I.y..-..~?;..~.',. theirunprofitablefunko~the .. . ..' .. .. j:;;ZJi.. 1990s. And they have no m- , ';"~:'.:. '..:':~.." '?'<.:< <:;;r:i'{i,..t1r):::' . tention of cutting rates to un- Here's another dose of bitter;,:, .:~L:. profitable levels again. news !orworkers: Your health-:-f~: The o1;her factors behind. premIums are likely to shootup~:.;:::the rate mcreases aren't by 15 percent to 25 percent next jear:"f;k- . changing either. The average . Also, you'll probably pay more fO.r:",~:.,'tg:- age of workers continues to emergency room visits, physicals'~andf..'.:.:. rise, which means higher prescription -drugs; ~'~,.; .. .;j<-:':.~.;;i~'-~;;f:-- costs as older people tend to . " H~~care .~~ Which liadb~ ~:' . have more health prob~ems. floating aIongWlth the economy Just ';~-:' Also, doctors and hOSpItals .. a few years ago,-have taken off for the'f,:-' are struggling with nursing stratosphere. Next year, according toC:, and technician shortages that estimates by Hewitt Associates, large'.':, , are driving wages up much employers will shell out more than,. ',;.;.;- faster than inflation. Add to $6,300 to provide health insurance' '/2> that the continuing demand for the average worker. That's'a aii:.;t:t:,;~ for access to costly new drugs $82<? jump from this year anddoubre;j~f;:', , and high-tech medical equip- the amount from 1998, says Ken '>;;"::,:'[:"7,:' ment, and you have a recipe Sperling, a Hewitt healthcare prac-:; :.Ak:: for double-digit increases. tice leader.:,';. :.;':'.: ~ .. :':."'-:;\j.-;'.:';'~W.f.i;;k.;, ~ . The only question remain- -hi'ioday's lousy businesS ~n~n.;'t~{.;;~i:~ .. . .,:-"\-f.:."'".' .,.:n:: ;0;\ ing, says Kate Sullivan, direc- . merit, many employers plan to pass ....~~'Showea that the percentage of. SInall." . . tor of healthcare policy for the u.s. on much of that increase, meaning .; '." emplOyers offering heaJ.thiriSurance.~' Chamber of Commerce, is, .Some- workers will shoulder higher copay";. . droppel;l frOin, 67 percenfiO 61 perCent thing's got to give, but what is it?" . IIierits for office visits and drugs. And . in the past year. And KaisE!ire- > ..' She says her members are increasing- employees oflargecompanies, who .' search~ worry that next}>eats cost . ly pushing responsibility for costs pay about $80 a month for their . increases will lead even more campa- and decisions to workers in the hopes share of premiums, will probably end Dies to give up on health insurance. that a competitive market will start up paying more than $96 a month,," Unfortunately, there's not much to temper prices. She thinks premi- next year, says Sperling. . ; . ';, hope for relief on the horizon. Phillip ums will finally settle down when pa- The situation at smaller companies Seligman, who follows the health in- tients pressure doctors about their is eVen worse. A study released by the. surance industIy for Standard &:. . . bills and start asking themselves: "Do ~er Family Foundation last week Poor's, .says that rate increases have I really need that MRI?" -K.C. .. ~~~.~ttt- >e~..:".._':'" ... J'; . ._'.... ._.,,~-. ._._,A-.,f...-~;..'...... ..:...~.J."4.__:.,_..;-":~':'~i;:~::.':"':~ 54 U.S.NEWS & WORLD REPORT, SEPTEMBER 16, 2002 IllUSTRATION BY SEAN KELLY FOR USN&WR '~ I I I I ~ I ! I I ~ Cj ~ ~ ~ ;~ " ... ., r; ; .......:.l. (mer GrOl {O1.1, !".:' .. .~ / 1 '~~/ .2~~:.~, :23: ....:~ 813~0 ! 1 ~~ :..11 IllTE:~(~;:S~:~ Pt.:~GE 02 (>z~;r-' - . '7"'W7!:~~~'?12~'~'~!;'V~~1l;;;'~~~~<J;..;O'<7~' ......,'?;l<~~~;~~~~~ ~~'1~~?<~FJe~ II . .',. :.-' '~':.i ;'i;\$.it:1'.'''f< .oi:. ':;';.1 ,/ '.' ..\,1'> *'~ ..il:....'/,\? <{~,p, >:-';,...., ~"'f(. .~.u, "i.' . '",,'_ ,"':'H,f _"", l't:" <(ili .~.."""1--'l'ir3!'~1:~'<~ ','; -~ .r'\iJ' i:~':~~Ju:':'i;;..<:;,:{&.~~*'; ~~~.::a;,; . ~:' . . '';f{'' . ".-' ...,,,: ~i:;:'1;":' ~}.: . ,i'or'!;; '.,i~~.,:,jj'~:f;;.~~t ~:';:~~~~. .:tt1';:~,C,:,.~ 'i~!t},:,.. ""! ~. .!?"Pr.; ,'l:';' ", "~kT;:j: :!', . " !<~.~~ ',' ,,,,,,.~'. ,.,-.'f'''''\;( .'1.~,":;i."oH"l, .~,.\' "'.,,",,,:( ,""" .' ~ 10/:,", ,.~Rh';<' .' 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'.;: .'..'. -'l'., '~~'i~l' r~~t....r.,.." ,....~ .n,~; 't..~.h;~kl '6.,;,~~ ~ tr~ ~ !!himl~~~~it!'rl~~ '~~ \;Vh;tx,' H~~e, CUprJ.1;'lJ .~ ";P~~~--rt f~i' ~~~C';., c;~'E~r-i~'~ 1t~r' nlght PmJJ:':.k:'ilt~u-'!h"T.rC'l-:'J.&ta~Vlttht?~:~.b1~~}l1?,1O-~~b~.~ti'U??'~;~ " .' t. ....;.'\:.....:.:... --.;..~~. '.' .... . - : '~2: ',<-~~:-+'::""":"h~~2._~~_':"-':'~...>;.::.:." ~~.._ ; , : : ~c.",. ~':,i'~ '!d -10::'3. ,;.tJ, 'ft~d 1.;l.m. ! ~3""~ ~.. I , ,"....; . e (~~~:..~.f!.~.]}:-fli;~;0~ ,;""r:;...~ '. ,. ~". ..:-: ~'.}"'''''' :':;~~~:.' f.. ~~ ,.~.~,:~ ;'~.!.j( ~'/.~:~~ ~ ~;[~~.t ... .=t.~.."". ""f .' '. "..'" "'1' '..j}~i~;.~:~~t't.;,1ij ::::~ ...~t,.~... ...Y..:.. ~~..;L:."'..... ;.L~l~d:f,.....~,j ~ __....},,:rJ;;_ -- - . I . ~ A st.1d)~'fu1m'VS fe~.;rer emplO"jers f41"e . ';1" 1 .~4h ~ .c... f:.1.1l")Sl"..lJZlDg naau. covc"U'ge lCi"' .L:luZ'e r~tiree~) incr~J.1g pre:..~onJ" '. i1r~daTIy s~pped rV!~~re, '.,t:." .' ..... ~ '" -.~.;: 'C~'~~?,'J, :' ~.^""~~:~f~ Y~t,d:Jjrv'.jj l'!'-?1.3~. &~:%~~; ~j;l\'!;~,l t;1-:'~.;., t.! fj ~~:., {~.,.J . , .K ....,. -.' ~.:o.: -, . ~. . ", . .' . ~. . .. " ~~\-l.:..:':<:.~:. .... : " . . ~~ rising at (~,)\~b~e:.digit:rateJ..~.t.l~~i overnll inn4tion ill w~n und~r control. It IDrn"..JUtdows tro!.t- bUilS rlppk~ ~H.ect:' ~d even tougher p.~UCy ded- i!on3 ~i~~<<.:1 as e1~tt:!d offidl!il coiLlTent growlnz numhr3 of Ari'"Jedeans withoot hen!"th insurance. And with fe:'i7er emp: "'fern &'Ubsidiziug hea.lt..~ - ..-;- C()V~ for their retireea, the cost ~iUre on the . ~'__-::J!t!.~ . .' ~.. ,~~d Medicare program win ont,rinctease. . . . .' '. ...: There wss. e. J~Y of good n-eW!l in the survey, . .!/ASH1N~lON - ~Qre ~'lan one-thir<! ?f t.:le conducted 'by th~ H~lli1' J. K~lser F~.lT'JrJ Fo\!.nd~ UnHeq Stares large employers. thtlt offer heait.l care tiOll and, H8"f'iitt .~-c~~~9. a hurtuUH'eeoutce9 to refired workers ~ave w::entrj stopped ~<:h . oonaulting firm. All but 5 p<>...rcent ol the cvmp!mfca benefits for f.Jtur.e retirees or ex~t to do eo ~1t.~lO. 8'Jrveyed said they wO'~,d continl:e to subsidize the .ne^t t.'lree yem-s. a compre.1e.mll-:re SUl'le<1 reo . h~aIi.h imumnce fol" CUl"rell\ retlre~ a.'1d their lC'~-e-d 1 na:-:-..d...."Y has found." , (SPOjUses Th~ report hL3"hl~hb yet another unwekome. . cOJ:!.seque:1ce.of spiT2~ing healtb-cve costs, which. Ple;m~r~13.A . ....... . , . - ...;.. ," - ., ~'\,:,.J~ ~ .. . ,~ ,. m~ . fA ~ !'J ~ . . ~. ~ ~, ~t,~~:~;j;;j :.E"~i~.~W ~tf%'~.'::~..1J ~~ ~F1f~~ l'1J ill~ ~~, ii::J ~~ ....".:7~ , >ill ~1~;~#'ih~f~';i:iJ Hi -". -.;'~ i;.~- -:.. .~ .~ ~. _~,..~~~(~~,~~)~t;/ A ~'\L --"0 1I t.. .3A.':'dti ,..~. ~ -- .... . .~'- " ,";:. . '-.':' l.""'..l.; ""..t.., ....~, .' t ~. ....... '-.,~ ........:;.... . -. ,-.,..".... .., ":'-r ..........:.."-': ~. . ~' ~ ~..~ ..~':_~_:".' \r-....... ...:-"- ~ ,,,-",_. "._ ..~.~~,. - . . ~.,. ""'- ..-I.' _ ~ . .' "'.'." . -'. ...........~',~~.......,.~~~____~ ..i_-;. .. ~. . . '-..t.. -._ ~.. . . .' . .. , . .I.,' h --".I' ....._.~~i ~..>< '.~'~~;~.;,;.:.~::. ';.,1..;;;1" ii.l I ~'r':'..':"\ t:.'J ;\~\/';~:rt.~,.oj ;':.;,:-:,~ .':;~~ ,'-: 7'.~1 y,,,~::,'i ;,:r,;"o::;-~ .~~, ~ ~.~ . ;;;~..t';\",r{ p.1>.ri:.....~,~ ~ 1"~"",.<.I>i1~ \-~'.ru1!:ti' fTQm 1A I , I I I I I Yet 53 ~ercent of ll'1em said. t.h:;y wC'..lld continue to r;;:lse on m(:T~ of the covera;:::e co:;tg to reo ~'I~C$" Over the past Y<~dr !.lone. n:t:r~~ C::lutribuaons b:Tea3e'.l an a~n?i:: of :;0 ~rcent" rifle study 01 435 c(;r.lO::nle~ \tnt emplc'f more t;\:m 1,000 ~.:).j offer heald. b',mefi.$ for re;~et\ wOi~ers W~S conducl.cd orJine be- t;,"ccn ]1J..l'y 2 and ~-er.;;:. 9. "Employer-sub$:diz~cl h~.:;Hb. ca.-e co.;erlige f;)r ret!rez!s is not colli'peing, but it is eroding:' S111d Drew .<Utln.an. p~s!dent oJ the J<ai. . -~~r F~T.11y Foundation, 'a1l ~de. p""deut heaJth.clU'e pni13;Hhrop}' itl ?-Je011c P~k, Calli. ~'rt.s a balancing act," said P-ancly John3011, head of human re~urces stnltegt~ initi30Vc$ for Motorola tile. "If \\I"e're going to be a~le to previde jobs to future retir- ee3H ti1 an en~ironn1ent ci ri,~~11._7 cost:) and gl~bal comye~i"ion: ~Vle.'re going to have to manage costs now:' For current retirees., thnt is likely to mean reduced benefits <md hlgher inSIJTance premiums. ceductib!es nnd co-payments. But for older workers - tlte very age group that has the hardest time buyIng individual policies - it may mean no ernployer-piovided coverage at all. 'J\venty.two percent of employ- ers sun"eyed - more than one in five - said they were very like!}' 'or somewhat likely to terminate health benet'ils for future !'eti:-e'~;) with,in the n~1 thn:e yeM6. .An addHional 13 percent said they had stQPJ;lo2d offering heaitl} ben~. fits to future retirees over the past two years. 'This is a u4end we have been watching for some time," K2lt~ Sul- livan. director of health poliq for the u.s. Chamber of Commerce. F.:lld in an inter..-iew. "It means we have to look beyond employer groups to help people pay for heeHh cQYerag~." Given the extremely hi~h cost of h::;1ith i:'l3llraace for iildi\id~!ais at or r;€<!c retirement age, Sullivan said, retirees deserve a tax code "that gives them the same ki.,d of ta.~ benefits they had when they were working." Current fiscal policy encc:iu{'. ages employe!'$, in the form. of a tax (;duction, to pro.noe hcaJth benefits to t:'1eir employees, while also giving insured employees a I I I : I 1 .J ta;I, t..~:lk. "ll1Cj' do net h.".iC to P< income Ul...v~~ on t1:~ value of t:H~ /.;crCJt>;. I S-c!~\~ ~:')rrlbin0.f~.on of t.'=l1.: di dU1:tious !.Ind r:n:.free medic. sa'JinE{s I\CCOU,r:~ cr IRA -..titi'ldrn1.1 ~l(:l should he oti~r.;:d to r-;:tiree~ ~ '.'l~IJ.. SulHva..'1 said. ct lcilSt unl th~y quall.."'y for Medkare. iJ The re~:{e'e he,llth he~efits &: 1ered by (.mplGY~f::; I!...~ s1gi\ific:iJ":l\ in hom cove::;s~ <'1',d cost. N rille typic.1.1 packa,q;e include contlr,.~-ln.g cover~\ge fer survivlf:l1 SP'D',23<:S of d;;ccasc:d worker:>,; Ii? :l11nuc! lirnit ot O\lt-oJ-pocket e& ~ense9 of $l.SC,? per r~Jr~e ~! $3,000 fCi' a ret.ree and spou~. and gen~rous - usuaL'y unlimited - ~re!:.c:"Jption drug cO"'''1.~raJe. r~ Th~ benefits give retirees w~o are younzer than 65 sustained cov- e~ t.hat is far less expen$ive than an individual policy. For rew- ~ 65 or older, t.h~ benefits pr9- v:.de. valuable 5upp1e....'1Wut.s - prj. Ill?.rily in the form of drug cc':~r- age - to traditionai Medicare. () The benclits provided by the sun-eyed compwies. which covr;,r 5.4-million re~s <.nd their tu", 1y members, CC3t $12.5-billion ill 2001, the employers reported. B.y timated costs for this ye-ar ll.i:e SHr.5-billion, a It> p-::r':Cllt i~. crease. On averag~. emplcyer5p~d 60 percent of the cosK d Fs~:- doe-tCS"'.J ~~b '2 ctmlH.y (:iH'ii, muw! 3a\<S II W}~5HINGTON - The shaVe of physici~ns pro~'iding ch;jri~ care and treating Medicaid pa. tients c1edined by as much as'';s percLlt bet",veeu 1997 and lilst year. acclJrding to a study releasod Thursd3:'-. J Just 71 percent of doctors saM they provided any charity c~e l~ 2001, compared Vrith 76 percenNn 1997. At. Li.e same ti.,''11'C:, th~ peT- cent.'J~e of phY3idans who ~-eet any P-ledicaid patients fell from 57 percent to 85 ~rcent. according to the Center for Studyi.'lg Hea.th System Change. a nonpartisan pQI- icy re:!earch organization. ., Physicians also limited tbe number of new uninsured and Medi~id patients accepted in'to their practices more than they did other patientz with more lucrative insurance coverage. "I The survey tracked changes jn 12 healtJt<are markets. ~ -Infonnlltlon ~ S~ Howard NO'6/lI S9JVice wu uud In 'l.'\ls r&pOft. ') '.i.- ~, ~t ~< f ~ .t-> ,: i;- ;~. ';-,;' < .~. ~-i y. '" .t~ ? .t, ~~. :t ~. ! , \..1 t ....~ .~'\;'. ~;,...-,.:',;.~.~.... .-...~- , .' !,..' ..... " MANUFACTURING ., 4J; :2 !. /0 Generic drug makers like Andrx face a barrage of legal and regulatory hurdles put up by big manufacturers intent on protecting their patents as long as they can. lit EXPIRING PATENTS Brand-name patents facing expiration through 2005: Abbott Laboratories .:,,,,,,,- 2005 AstraZeneca ".('Jr.W;I_ 2005 Aventis Pharmaceuticals .~tJ'i:J,r,,_ 2004 Bayer ~'J" 2003 Bristol-Myers Squibb .eT?1iJF.J1u. 2004 "'ilr:f'l:r.;r;r_ 2005 Eli Lilly ~rrr; 2002 GlaxoSmithKline ~:./"l;l'J~ 2002 -iiF.Tl:J'- 2002 ~ 2003 ...,.~ 2003 t:UI.~;lf"a:_ 2003 ~i"",,, 2005 'orida Trend Merck .IlIl!J."r.II~ 2003 "4('UI'tJ 2005 Novartis Pharmaceuticals .~tJ""'fI~ 2004 .~r.r:r"n 2005 '~ Pfizer .'l,""w:t,_ 2004 WLiJliJl 2005 ..tl"'IIUln.. 2005 Roche Laboratories ..(;llll.r:'~ 2004 Schering-Plough ."r..,.,.,,_ 2002 .mni'lilr'_ 2002 Tap Pharmaceutical ~'1I1U 2004 _.~"rJ':"n.~ 2005 Source: Generic Pharmaceutical Association By Lisa Gibbs The number of major prescrip- tion drugs that will lose their patent protections between 2000 and 2005? There are 43. Total sales represented by those drugs? Some $49 billion. Those numbers make Richard Lane's mouth water. Lane is CEO of Davie-based Andrx Corp., the world's fifth-largest gener- ic drug maker. In massive warehous- es in Davie and Weston, Andrx crafts off-brand versions of popular drugs that it sells for as little as 30% of the price of the brand-name originals. Check out some more numbers: Spending on prescription drugs has more than doubled since 1997, to $154.5 billion, and is expected to rise as much as 14% a year for at least the next three years. Industry analysts ex- pect generics, whose lower prices ap- peal to both consumers and insurers, to double their share of total pharma- ceutical sales to 16% by 2005. "Tremendous opportunity," says Lane. But if the future's so bright, why has Andrx's stock fallen by more than 75% in the last year? There's one more number that Lane isn't so excit- ed about: 11. That's how many patent infringement lawsuits Andrx faces from large drug companies _ so-called Big Pharma firms. Big Pharma's success at using the in- tricacies of patent law and federal reg- ulation to delay generic competition has made the generic drug business 74 much more complicated and much less predictable - factors that send investors running. Meanwhile, Andrx and other gener- ic firms must conduct business in a state of perpetual gamesmanship, trying to stay a step ahead of the brand-name drug makers' efforts to protect their products, particularly their blockbuster sellers. The patent infringement lawsuit is typically the first hurdle for a generic firm attempting to win Food and Drug Administration approval for its copycat version of a Big Pharma product. In recent years, brand-name drug manufacturers have taken to bombarding the FDA with addition- al patents that sometimes verge on the absurd - patenting a medicine's color, for example - and then filing additional infringement lawsuits against the generic firms' products. (President George W. Bush an- nounced a plan in October to limit Big Pharma's ability to use litigation to delay competition from generics.) Beyond patent lawsuits, there are several other obstacles. Technically, a generic drug company can market a drug while patent litigation proceeds, but it must have regulatory approvals from the FDA. Gaining those ap- provals can involve testing products in the same ways the original manu- facturer has tested. There are other potential roadblocks: Big Pharma firms can extract another six months of patent protection by testing their products on children, which a feder- -E ~ ~ !OJ December 2002 allaw allows in order to '1courage development of drugs for c,hildren. Consider Andrx's battle/to sell a ,. generic version ofheartpurn drug Prilosec, also known as the "purple pill." In 1998, Andrx applied for FDA approval for its generic Prilosec. It had to know that As- traZeneca, the company that makes Prilosec, wasn't going to relinquish the rights gladly. At that time, Prilosec was the world's top- selling drug, bringing in more than $2.3 billion in 1997 sales. But the stakes were also high for Andrx: An- alysts estimated that generic Prilosec could generate sales of $500 million for Andrx during the first six months alone. In May 1998, AstraZeneca sued Andrx for patent infringement. That alone, according to federal law governing the generic business, au- tomatically delayed Andrx's ability to sell the generic for 30 months. The litigation dragged on much longer than that. The lawsuit didn't even go to trial until December 2001, and the trial lasted well into July. Finally in October, the judge ruled that Andrx had infringed As- traZeneca's Prilosec patent. Andrx plans to appeal the ruling, but the blow sent shares tumbling 40%. AIMING TO BECOME LESS VULNERABLE TO THE UPS AND DOWNS OF THE COURTS, ANDRX IS DEVELOPING ITS OWN BRAND-NAME DRUGS - AN EXPENSIVE,CUTTHROAT PROPOSITION. The stock rebounded to more than $18 after Andrx decided to join forces with another company, KUDCo, that prevailed when AstraZeneca sued it for patent in- . fringement over its version of Prilosec. Unrelenting campaign Meanwhile, AstraZeneca pursued a campaign against its generic rivals outside the courtroom. In March 2001, it listed four new Prilosec patents with the FDA, prompting Andrx to strike back with its own lawsuit claiming that AstraZeneca was illegally trying to block gener- ic competition. Florida Trend 76 .... December 2002 I f ( MANUFACTURING AstraZeneca also tried to foil rivals by winning FDA approval for new labeling based on an "applesauce test" - it per- formed a clinical trial demonstrating that patients who find pills hard to swallow can sprinkle Prilosec on applesauce. Doing so meant that generic firms seeking FDA ap- proval would have to conduct applesauce tests on their own pills, introducing fur- ther regulatory delays. Having fought enough similar battles ov.... the years, Andrx had anticipated As- t neca's move and already had submit- teo an applesauce test to the FDA. It won final FDA approval for its drug in Novem- ber 2001- four years after applying. AstraZeneca's most recent tactic to hold onto Prilosec dollars: Wmning approval to market the drug over the counter, which would greatly lessen the appeal of an Andrx generic. Andrx isn't immune to criticism that it's trying to play the system. In 1997 Andrx cut a deal with drug maker Aventis over Aventis' hypertension drug Cardizem: M- ter Aventis sued Andrx for patent in- fringement, Andrx agreed not to begin selling generic Cardizem while the suit was pending, even after receiving final FDA approval to do so. In return, Aventis paid Andrx roughly $89 million. Consumer groups, in numerous class- action suits against Andrx, called that "il- legal restraint of trade," claiming they could have saved millions had Andrx be- gun selling its generic sooner. Andrx denies thatj it says the Aventis agreement didn't hurt consumers because Andrx never would have risked selling the geT''''';'c before resolving the patent lawsuit :u y. (Generic makers who start selling a generic and then lose a patent lawsuit may have to pay damages.) Andrx also said it used Aventis' money to create a differ- ent formulation of its drug, thus ending December 2002 battles between the two companies. The Federal Trade Commission inves- tigated but found no wrongdoing. Mean- while, attorneys gener.u from 28 states and the District of Columbia, as well as four Blue Cross Blue Shield insurers, also have sued Andrx over the Cardizem deal. In September, Aventis and Andrx settled some of the claims for $110 million. Dumping drugs The impact of the war with Big Pharma imposes other costs beyond the hundreds of millions of dollars in delayed sales. Most obviously, legal fees add millions to An- drx's overhead - it's impossible to say how much, as Andrx doesn't break out those costs. Delays caused by either litigation or the FDA sometimes force Andrx to dump drugs the company had hoped to sell; in the third quarter, Andrx wrote off $41 mil- lion in Prilosec-related inventory, putting the company into the red so far this year. ''Lane, who arrived at Andrx just five months ago, shrugs off these issues. "You've got to play the game," he says. "Our legal expenses will be well worth the price as our products make their way onto pharmacy shelves." But Lane also is aiming to make Andrx less vulnerable to the ups and downs of the courts by developing its own brand-name drugs - several featuring an extended- release technology invented by Andrx's former top scientist. Its first branded product, Altocor, is an extended-release version of an off-patent cholesterol drug called Mevacor made by Merck. In addi- tion to Altocor, Andrx is working on an extended-release diabetes drug and study- ing the use of its extended-release choles- terol drug as a treatment for Alzheimer's. Ironically, Lane, who for 20 years was a top executive for Merck and Bristol- Myers Squibb (most recently as head of its 77 entire $ 18-billion pharmaceutical divi- sion), led the launch of Mevacor when he was a marketing executive for Merck. A Wharton MBA with a bachelor's degree in biochemistry, Lane, 51, says he has the skills to move Andrx into the branded business - a big reason Andrx's board hired him. "I've built sales forces for four different companies," he says. "I know what makes brands successful. " Getting into the branded-drug business is an expensive, cutthroat proposition, however, requiring a highly trained and well-paid sales force to push products. Andrx already has built a 300-member sales force and is considering beefing up that staff to 500 within 18 months. The sales team and legal costs are a big part of why administrative expenses nearly dou- bled in 2001 to $119 million. Brand-name drugs do require higher "activation energy," as Lane puts it, but if launched successfully, they can drive sales for as long as 10 years. Lane's plan is for those brand-name drug sales to balance the uncertainties of the generic business. Underpinning Lane's strategy is Andrx's distribution ann, Anda, which sells generic products to about 14,000 inde- pendent pharmacies and regional chains. Anda's 2001 profit margins of 17% pale next to the 72 % gross margins of the generic business, but it's a cash machine that has helped Andrx fund R&D and lit- igation without going into debt. "Ideally, we want to complement generics with brands that have longer predictable life cycles," Lane says. For now, though, Andrx still depends on generics, with a total of 27 awaiting FDA approval or the resolution oflawsuits. "On the generic side," Lane says, "legal is the equivalent ofR&D." 0 Florida Trend :..- ..:.i.:..__~~~::.:..:!=~..:~:..:...::.~~.:::::..::.___._:.... ~.:\ '1)t . "' i~ ,<~ t. ~ ,,,~-'~ .~?, ~ ~.,.. -'1 :L'~/ ~~L~~,,) .~~ ~'::~~ . .....-.. <ol:.f' g ;. ..~ ';J''1.?f''~.:Qa41.' l' 'll(,'V .t'~0~ irt.~: t1 i'~~":'1 \~ 1"[i~.0 [ ~,1-"~ !J r\_:li ~;-""~\. .,,: r~~.....~ ~!-,...~~ ",-!~.:.f ,,-~.':'tt.. . Jl. Jl (} !, 1t1~ [r~ 1(" 'r~lYw. (O~ "1f"I) .j ~"p':. ~:r i'" fJ!~ fj ~: ~ d~' ~ !;J 11 ;~! !I\' "~..l '.\,..:.. J.':. ..;i:,.r. ~"f ~!..' ',r.~.... _ .t _~. 0., ...~...,.I.. l!l. . " ~. ,~ 11' on-.nl:>ml.,'le -.'. }) ab'.. b r.lf.'. ......) ('r. ';o'nc silver !tung L<; 95 per~ent o? '0'[ m;t:~RI rl~'!)i~~ " _ _ J _",.. ~ , MW v;crun r.DIJi~a gcneratiol\: lvlmq of tod<,y'swork; cC'l,panies p:an to continue som\. CALLAS Mom,'",] N::WS ers may find hcnli;h co\"{;..ag~ h3~ level of coverage for existing retir~ When Huby Myers l'etrred as a evaporated by t.he tiInl~ t~le~' retire, ee;;, Even so, the sur-vey S;lCWE'l:" c;:cdit coll~~ctcr fram Scar-s, Roe- 'TIle Kr"ise:-Hewitt suncy of 435 th'3t an ovcrwhelmbgnumber 0",' b,!ck and Co. in 10[13, she h::-.ct no c(lrpora~jonS found retiree healtll COmpil.llicS said they pl::U1. to cuI:; b 'h ~ I., . > "cneflts and sl!!nificantl" incre"sf.'.: W01TICS a OLl~ .er Ii?:'.!;'" tr...c;l.L.a...'1ce']:;en.;;}t coots were rising nlUN1:t"lge .... , . _ v'j: Bntheali:h SeCi.'l1t.y tlJ..m8tf lute. : of 16 percent annu8j]~', Compani~s the prE:rrJlLm, and c.opayments re'c; insecm'itv as her r,r2miumc; m- SUf\;c~'2d reported spending m n.v- quired ofl'etiree benefiCi"'rie~.~r c)\~ase,j, . this y:!ar rfsing to $86 a erago of $23 million each YC2r OlHe- Tn fact, mzny companrcs ~"E;{ mcnth from $75. An,d nGVl, Myers, ti-re\: health care. putting caps' 9P- the &.Inol~ts th~!i; 7v, doas not knew hOl,' S;le "Will pay " i Comn:illies' that pro,.id,~ rdr.-ee ~1l1 'pay . f~r: c~yerag~', '~'\rld ":helfi for $3,800 h'1 t:11~ from t!entrnents c6vera~ have-otten picl(.}d'up the costs rise abo~c the caps, ret!l"e~~ Ivi ulcers and. tac~~ pf.L."1. _' bin cv;n for emlJiOVeAS who lea,:e \\-ill be a<;ked to pny for lOG percentt, "'t:ha~ I have experie,nced ~ \\IOr;C befor~'rellicn;€'nt age. A~out ofthe additional exper~~~. ; fj that every, yec;.r tht: pren:mm "'''!ll ' hh1(the':burden is picked up', by At rnost~ ,~;perts :~ct OnftJ.;.ilf; increase or the coverage will I . . " , ' " "'. ~', 'J.::' ',<' ..".' :~ cha..;ge,",theMesquitc,'l'exas,!e.sf-.. ";", " , .;,' ';':., ,:-.~.;,1'm'~:':',:::l dent said. '::Sorpetbin? 1'12:5 chan~~ : ~inploy~rs l"oiltinely are ei:r,.eiienclng-doii]j~e~~f;li "',,' '~ everv yeaJ.'. It's con:u&ilg:' ..~, . I , ". ' . . . '. ~ '. ... '".:' .' i. . k(yel'S is not uniq1.le, &nd rnany ."p~~~~~~age ,~~r~al:;es ~n n~a1~ co~ts f?r ~~.~l~~~s; ~:d. '!. '., . retirees face 'signiti~t~y;' .?J:ci!S~\f~~;~W. ~~~fe~ir~es}s of~ep.. out;P~~1p~,~.1~.~~~,~~\ ~c~Y;~I~:" :,." problems. .Just l~t ":~~~ .~e,~J.re_~~ ~'vi'Oik.ers';because seniors tend to haye ch.t:onlc health:' v " ' P'3Ppered Lucent Te~nllO~?gies ex-_ 1 'oj ";/',, .....j...1.. '.i ';. " ," '. , ". - i: .~'::~~" ~~,~~ =:;~ :;:~:!~:~~~w~:~~:;,~:rrs Ofe,,':t:,r;,; .?~t'l..' 'cu~!; ill their h""'''fitfl '. "...,:-t':"'t" ~ '. ,.;;., , , ',' " .. ,. 7' "" h' . ..5., "," ~ "_' w....,.y".~. . ..1"- ~.. .-'. .. . :,:, .:.: ..:'.'~':f. '} .. .,<rncrt!asing;;,_:..c~en~.,;; lV.~)l~~er3 ~ }cl ~~;",. :'l,;,:"d::"'t~},: ; ': ,:," ',.' "\',' :..: --;. <, ...~-:"" :~.~.,.:, ~~;:~:'7;,:: ~~:~~~~" .: , . ., : ,:'and ~e.~~.e~ ,o~ ma~cr . c?~'ora~?n.: ::~~~~'cli'k'ati~\'~~nr ~~~i~rS' tUrll, 65, but, t~d ot~~rki~ :'~~et;q~~ifi;~ 'fql~ .," ~:.". '!. , ~ fi~~,,~q1JI1Q~~ ~r~\,~.e~J,~,,):'e'~eI~tOyel'~'';!'f~.'left .'t.i~h one of,th~ :ret!tee .,~ealtli,}Oyet~~e:i9~c3USEI' ...' , '. . . - fu,~..Q\~lr pe~o~ ~~?Eit.~t;S; .~d,,~mdSteosWbeiiefi,ts..::.... prescription : ~nc5.ts:~tL..'Ually, ;vet'~.'tWWteg.: _ .:, : ::one'atea.of cos.lis un~.er_ren~~~, - .,,' "'''-S:'~'.', " .,: i.:', ;,:.?:'" c,'.: '.f.those \v'orking foi'" .tne:lafgest ',em t:'. i ~~~~~i~~~,~:?e,~.!f,~~eti~:,~-~~ .~" J~~~Ii:;t~i-:'e~#i~~~)~'i.\it~: t~e . plcye~. SIll~YS 'o:l:t!1~;t~pioy~~.: ,', ':::G::~E~l~y'e~ r~~~iil.ely we,\~~n:,~ ~es(Rr.m~~t~~rl.~; t!-~ S"~:Y::~.):2:.~es Ben~iit Rf;sero::<;~ ~!Sti~q~ ,~~l!tr:~.'" , ~.~e~?,ln.g,,,d,,~ul{~e-digJ.~~p~rc~r~~~~.~~:.{;d .cq?c~ri1;~b.9Et the~s,:';:.:rity ;O~,~.7 'f:;~ha~p~r~~~~ep,~~~ ,t?,Ee~rm.:~Ji',: , ' ." ~., ~eas~~~u::~ l:eal~~,~~~ [0; ~o~!.ett"'i ~~'< be~~ii"tg :for many :wo:1\ers, 1-:::,; -i'he, rf.s~~rch"~~p.,f?~~~~l~,, .. . ,A\ld the Ml i0', ttOt,ree.. l~ oft"n ,s31d l'l1Cla '.Neuru::m, clirec,,{;r of I)al"jes 2"e Cl',tffng back'on"eX!Sfi.ng~r , (l:utpa~jp~ 'u-,~ tab 'J. ;- a.cC';<).,y, 01'1, ':' KaiSer ~,le(1i.care Policy PrrJject. , ~o';cr'I'J'e . 8ild riedv forme(l'ente~,' '. "J~JsJ ~t~?,I5.~n.iof~Uen(~.t;o ~ye'", :,"'>~!Emplo~eis, -are ,'-really ..caught":::orises 7irk'decirr.dng''i<i:even':b~'' .' . :::c~~iJ:1~~t!l~Prol?l~ J~:fi4;"*;(,.~~:~~~~~:~!:. ~~.1~~d .p~.ce/"~i~fferi,ng ret~etcov~~ge)Ii)'fa~;{at. .' . '.' ' . ~,J.g,~o.~€~S o!.e~~o~~re~~~-;~:~s~~' ~~d~~F~~~~Y are tryu:lg to .~t. :study by dnisti1tant:'W~~9~Wta~~:. '. . ~1~~B~~~;~.P~9~~ ~~: ..~:..('::'}.tl ';2..~~ir'1>ym .exp.8~e ~nsl,fin~!!?Ia: ~. ..': predicted that, b~ ,2031',' 'empII?Y~rf}l . , : " :.: -A?;f.~P~.~~~prt: by, the r~~~r),.. ~9nttY,5J~~~YLl!I;~ trymg ~o maillt<~ . . would be payl~~ ~u~t .10 ,J.;~~cep~<~_~' . F~!o~~~on ar..d ~C.Wltt '~;:;.t~~.f9~.rn~l!-t to cUITe~t re't~; . ~di.,1du~1 re!;ll:~~ ~ealt,h,~xpe~~~. J . socU!.~es Jo~tl1~ ,.that a cecadeIon~: ees:~v that_ may be ~ff fa. futu.. - ,- "Heal~ ~1 care caul'lotcontinueOtcl eJ'Osi.?~;~::M2:eehellith b:leiit~)!r 'rr~~frges.':. .' .:"" "? :_ . be v:kwed .a'3 an entitlement," S~(:l acce!eratll)g"c':And . a . va!l~ty.. 6f.:, ,I~eed, the StlrVcY found ~2 ~er Loia Chriss,.' total .' compensatlOfi:" . herJlth" benelit,>.?xP€rts s:ud:, t~e cent. pl:m.. to, eventLlalJ~r .dU..l1p and benefits managerfor Texas rn..f ~renr~~~e;~"a~nung for the 7? ;~~:: 1 health coverage for future retrrees. struments Inc.'> ," . 't . . ,. . " Chr'.ss said Texas Instrument.3i is a good m~~tio~.ofy.rhy .co~i)lit ~~~1'rr;~~~~e~). '. .,.Shes~dthe'Dall~'chiP ~::m,~j:" . facturer haS' 11,500 ,retirees;aIl;,~, .' 19,500'~ct~v,eu.S',:W9~k~~:;'.~", ' company spends $142 '.n@ion.:j,o . heal~l.i cat~,,' Qt.'X~c~ _$8!:~6~ ,- forretirecs .,y, ~: ' .... ':';<'o;:);;,,~ ...,. ~ '.-' 1-~~.~.;:..' -.. ,............. ':....t " '. ' TeXa.'l~~ln..stnunen~,.:PllU'1JlI~'" contin~~,Rf{~g'9~v~rage'tQ e ~~ '.' lng ret4'~es.;;~~"get ,a ,handle,~,o ._' . costs, It~w.:~.~ft..~'g~J). 9r!hOWp:lii~ I n. Ulfl111rl -. nol)..{1 ""'l"l"'11f"'l11u. !to? ('l("l:'\ (".....~.. '" ~. j. )-' .. --- --------.~---,~--~-_. .-.-~.::::...~.. ':'.':-'=":--~'~-~~~~~:-'::-::::-'_'~::-:,:~:~~:f'::~"':"~2.'2:"~..:~.:~~ . -"1 ~ ~1. (~ .""""'.... 'C:UI rru TiJ.iE, 11 ~'?(~ . !J'"1~ g'~ ";Yi} tr:Jl. ~?i""r';l -g" -fl""'l ' ''''.-' l:'. ~l~:'" " j. \..t;'). ....1 r;::. \~ ,4 f,j ; , \):. [..,\ ~, ..J. .1>'.. ''J.-I ../;t...."... ~;..,\J, ~") , . ;'>t,:;'{ .:] '~'~ (~:\f~ .t:~ ~.- \,,'>.1' . .p, ......,.~ .\..~ ..\,... I..." '.;'1, ,--------- ------------,.-.. ---------.. .--------..---- --"1 . C~1:.Jy"i~i:r~e3, at'd ~'il,500 for benell. c;::ri23 who tum :35 ,.r.d C'4C t:ligibl? fOJ" Merli2~re.------ loW ~ do not. want to s,"c the rug pulled out from under a ietiret~ or [:etivC' eE1p!oY::~J~J Chrtss snid. "Vi2 '.fiLl wihjl:st ::;"ur.d up ;mc: i-aJ', 'You ^J~ a! d~.~:h ^mccr.! . 'lIe complet21y 0;1 Y01J:: Q',1,':1.' Abso- 80 -;i"';,.J1'::"~'" ,:.r:!\Pi:"$~3Oi $137 000 lilcely not. 'lllat would be a pi'e- >t, ''''''''''_ ..il!;,,,.;!l.'1...........1 . 85 :r>"""""'f.. :'?::\<nl:"~1""."r'-1j;,'(FC;:~'"", 1 $189 000 SS\rtioi1 icr di.;,asb"." ~;d4,L ,:'..t.',i~;.:;~b';;:\.';.;.~L , B:j~ the e'')mp~my tas se;."ied . 80 -1f,;.~f~f~'E!~~t.~l.W-f~~ $'243,000 no~iec . or: empl"J-'ees ;J..!-ed aft.~r 95 -b'f7~~~~~~~u~.&.~~ $300,000 J2.U,' 1.. 2CiJl. Tex~s rr~stn.lIn~..nt.s t,~,",u.,_ 0&." _ __"., . . 1 CiO ~;.t:$*::t'l~7,;f.w~~!~E"!;~t~~."7F~~~":i $35900.0 pla.ll, to us'; its mU::de to fl0gotiate ..........~.~_......:.w:......~~ .~:t.m~'.t!.T.tfu;,;'J... . Lvolable 1'3tes onhezltil care.CQ'!-, '.. ......,.' .b"; .' ..' . . ...... Emp,cY:Jr C\3sts B. . i;Jge.r toritTl,. uttl"...s., ':':.',':.~' ':!'"ge, b'lt future retirees hired . t <, , . Percent irlcreasB in .'. 'Averag' El. ailn.ual. perce.. n. U.n.' .c. r.ea.. se \:. Liter t!l?t d.ate will Day thefLlll bill. '. .~. ae ~~;~: a ~~~~~::.-.?i~~2~~ :';~.' 'P'~~:~b~ ~:i~~ 0'" ,~~:'iiJfWsWfg;%;i~ft . r. Effective' Jari,'l, 2002," the company, 2001 ~2002:':' "'2001.t(j'2002:;.'!youiiiJER'itoLD~A':d electJ1C-r:ent:IT'ti:1g corur..any said it I EM?LnYtES '. %CrlG.'Ei,1?lhYEES > "'! n;:~N 65 "'THAN 65 1 WOlutl not U"" f", "tir" health 1 0lJ0; 4 9"9 "'7%" 'f 000 , 4.999' :i "", ".,' . 18' " ~, ~~':t~~':\:~~e::,~~~~; I ~;Q<ii~:~:,e:,;;;:'.!:1t1?~~~t,i~:@~~g:~;:~tZ;~~~JTC:=':i~:=: .1 . .. . f<ltllit medical "",,"s,.; the' ~om, '0:000 : ,",999 .1S "" "10:000 '.'9,999: , ' " , . ."', 23 ; '. I panY'..s:ignificantly . increased '.' the 20','OOO'~~ ~';~~';"'''''':;15'''': ~ '20~'OOO'Or?,~~~~';"":""."'zi)"'~:"':""",'''.''1'8'''''''''' ': l1jutcli to its 401C'{) savings plan. '. '. . ~""~:I '.', . '1' ,. ';{"~;: .,.O>~'. .~t: Richard Wistn1llcI,: ~enior v!.'r: Enlplcl./;:;rba.1efi{ char.gas .,,':~ /~:>'~:::.;' ',i ~i:;;;<' ~.~':':'-';<'"', j' t r'1:esid..7!l~ for hum~i reSC1.:rc~s at,. I Pe:.?~ntage:of large c,ompahi~s'ihat'm.aae;;c'~al")g~s.:.Jo:g~:;y~ . "'. j_~;~ ,..{Uj' smd the company has s~en' . retIre>>. health benefits within the lasttwo yaars:",:';,.,~; .' .' " .'. ,..,,~~~::, >:" 'I' . '....1" "Ik--''''''l-''k'''' . 'b' ..,.... __.. ,..,. " '."~,:;';J Cf)re cost.s cmli;.; "' pe;:cei1!,. ~";'~~"1!'~~t<:,v' 44% i"creas~d retiree CO!ltn ~J1Jons to prem ums' ",,' ::":~-;_ :: l~ tv ::U. DE-tee,. ~t <:nnU4tLJ' iOi'seve::al ii~~~~~-;r,% j~c'~cas~H co~t'Sh~ring' ,':; ~;;,.:'; :-";~.''',> .:'~ ' '" ',' . '~;. ,,::,;..;. ... ~r:" ,. , ""', l"h ~'*-ot~~... ,,...,.~\\. -;-""'~"~: .. ~. .~. ., . ,'ear's,: Bcuween H/97 a..>:d '200, e.' 'mr..t~ ~,,;,>,~_.., 'd"~t , ..; c.',;j: ""b'''~: ~"'t~">' ".,:.. .,( .' '.~ . (', ,~~; :'.~~"'" ,..', t' ~"']'d.:'h' e..;..l"h.....c.o-'*..s J.l,n.;n6ij f>'8.."'er'~". l'!'l~':tl..!.'4~) 29'1(, Increased,. eRendentcontrf otions. 0 prcrn~lJ!T1s .' ,", , ", ~:".~'~:,:"::, ';', ,~~ "": a.:~. "" uUvt;" ~ -.'. ~,.. "', '''~'''~':'''k:''"''- .,...."-.. ,<,\..;,.~,~.Y" .....;...,,"',..;.~ 'i.,,'C' cr:1t'~ withprescnptfori mugs 'gcar- '. ~ m~ a(Jded'~r jrr.proV:e~ coverilge /:;'-$"".",1" ,:;t';'~~:;i: ~.:: '?"" '. '~~'..' ....~~:?.:~:;;:t,':. t,o( ing ij2 pere"," '.' ,':.. ~ 14%'fii"d"~c;;' :e.choi';; ;;pti;i0~: ,';;d" ~<d ::, j(;' ~,.. , I';' j,:i;;i~" .:;:: t .. .-'-. '-'t' (> -., - " '--.. 'A~~~,....;< ....1<,""< ~~,-""';'"' .r.., ~.. ":"r.'... . c.'" , : ',' ;, '. .....,,~. .;.. .' TXU.speD.' '1'13.1 nulJlOr,l. on.: ,~ Wi, requlred,re{i(ces'to pay I(;io.~(o1 cost,s2.: 1'~\f,','~ :j~': " '- ;. _ '~-:, '}'~'>-:'" :;. t" heflit11ca:e in' 2001. ~"3 million of" A - " , - ,,~1.'. .' . >)-',_.... ,>,", A,.,. '.. " f,~. :;. \ < " ".' i:. ;:, :~, fI 't a onn .' :,. c", . .;: ,tr:,.;fi. .1'3,,% (;ncte~ s,u~siJ;~~.~~_~Jih..~i~~jfs}9!: f.~~~e: rilti:.~e?i~:;-~,. :f',....:. , . _ ..:- ._< ~:' . ." :: thatit reduce lilturecosts: . '. :'~':,theihe31th-cai-e'ibusirtess:.~.'i~aid'\thefte'€'tfi'es'& Il~lbe~,:':'FrOnstfu" " 'c: r . "We via provide the plar" and," Rick . Bank, ,director,of theC~I.lter ..i'slud. "Tl1~ ~abYboo~ers,are:iI!uch >::';: .,:~,' Jevemge the size of tbe_k foree," .JorColiective. B~;~ttthe ", ~ IjlieJ!' J9 ge."tiiee.'helrltltb"" ';i ' )'.,1, Wistrand said. "We have v~ry littlei\FkCIQ."., 'J-.!~:~, );k ":';'efftsisutisidiz~dpytAeir employers." ''1J;{.;J;. turnover. The average age at the .' - Paul Fronstin, a senior ~search ':' And"there' is'a good chance they . . ;/~,~ If "m,,",or Is geifing older." "''')date at th, Employee Beneftt will not hm.. acco", ro prosedption ' .li Compa.Des such as. :l'ex~s!J1- ~esear~h Ins~itute, 'said the tJ:end'dnigs;'eyentfii:qugncMeRtic~.": ,.( ;;~l strJ.l!'l1cnts und T.t.:U ~ are trymg IS afiight~I""l!1g development.for:',: My' . ".th': W' .t" -'d t ":]! to hold ?own ~ealth c?s~ throu~ . baby boom workers; He said many,," ~,e lesqUl e re~ e~: IS >:; i negotiatlOP,s WIth proVlders and In- boomers have planned on health "not sure,.ho\V mt!ch. or.~enl!cel ~ ,ij:.; t nov~tions like m:tQ-dz:der prescl'ip- co\;erage beLl1gav-a.ilableandhave'.back, tr~atmentsJ1ill b,~ %>yered by. : " . ; ::.. ! LiollCl.rug plans: . . . not saved to Cover the additionalher,~olicy,She c~~,.though,t about ". .f ~ Sfill? Ct~tics :vionyt~t the tradi- costs..; . ". . :~;>:.:.... .' loo~g for~t~erc?Yerag~,'B,ut.for,.. " .. ., i ....~,/l, ti()r:a.I,~o~laI cont~fJ~etween em- .In an upcou11ng report;thein~,.~o~~~l?-e~ ~~e~ ~p~tyn~Job,. ~', . : 1-: f f pl0yer and w'Jr:~erL'> under attack, stltute shows that a JJ5-year-q~g_~ea~gr$5~,,.~l].oE!;~to.~p.~P:'<"~_~-,;';:;4~,~d --f. ;ln~ "they:'~re':'<?cncemeq:-that,. the "'\Vo,rke~.1e!iriri{;fu~~26Q?';:aiiLWh{):.WgE!~.~~r,~?~t~~~.~t!7P-<tIU~' '_:' ... .-/f.'2;~H:'1" t, . ~,:].tI.. Q.Il:S. "..~PPIOym... e...I1,.t.-..-~ased health '. ~IV~d.t~~ge85,.w.~u!d_h.~.ed $3. 27,O.OO..'~,.:. ;1~.,a.~P..JUS.,..~. 8. o~.at.. ~.'. ec.l1n..tY.!S. ....n .ot ':'::. '(:'.~'!:.': rJ' I r;' l:l~~i~C~.J~'lpdel may' ~appear: .,'Ill additiOnBl~vmgs. t() ..coye~.. the 'Ano~gp:}~~:~~~6v~r{. V(~~t'I; haye . to '.' "::. ,:;: ; ,'''l'!l:''.<" .,bugeJW~ this ~ In,t ~'1>!rate ~.~9v~,M!"liear. c, PI'>,'c~;0al<l.,,'1!'r!gary:I .don't - '.": ." .,'.i' r I t: Ie ~P?f.t~~,J~eberg,.tnat this is . Part~.D" pre~~,~ andf'out~Clf>,want 'c~ty~,!I don't.want 'people '~;, . _if r lne ope~1!rgs?rtleo~,-~e.Part ofir.poc1Lt expens~3< "r'. ,', :;', >,,^,.:.tc)'takei:care"ofme:+want to be " " ;,";pons161e'employersto ~et O~1t of "It'::; (':Jir.r' t" r" <l "1-.....",, ,..l'A~ '~"~" ~;-~. "!..:"fj'P,... ~<:\i:\<<'1l..1I.::.: ~'il' .' !!I.~'!,n.i" ~~~~~ ~~~1.\.~~~~~1 ;1i1e~3[ftl ~'.Jaf*lf,u~~) Pm'sollal costs: Wh3t u person who retired in 2003 at age 65 WOL:lrJ pay for a rV1Gdignp policy, Medicare Part 8 premium and out-of'poc~~;:lt exr.;enser.: ~. ./ t--- ~;. ;.~ ., ~: ~.. r~ .~~ . '~. ;: J.~-.6.~ '~'''.LlI:M;.~.r..:&ft>tI:,~~." .. ...". ..~..~ ". . ' _ ~~~"'~~t:',[~fi:; I I Ii II !I II II I' I I I I I Ii ,I I i I i I the ,,;..~ ;.'/ :1 .1 !I ;1 ,I :1 .~~~~ {~ ~ffi!~~~2 ~.. ~~~iC\,:.-.'~ , "'- __ ~.-<r"~_'" ,t " ~--i../~. >':':. I ;-, . f! , , ... ~ } , , ~ ,,' " 1-:- 48 HR Ma'l3zincADril ~C=:: hen 17.000 unionized blue-collar employees of General Electric Co, staged a two-day strike in January at 48 plants across the country, they were protesting not only increases in their own health insurance costs but also the 8200 or so boost in yearly health cm-erage costs for GE's 25,000 early retirees, The GE strike may hm'e been only the start of the difficulties yet to come regarding retiree health coverage. After all, the strikers-mostly production workers-were em- p]oY~Qs at one of the most stahle companies in the country. "It surprised me because GE and the union had a history of being able to talk things out, and the Hn. team at that company is about as good as you can get," says Charles Thal1). an HR management pro- fessor at Rutgers University. 1\lore conflict O\'er retiree health costs will sur[lce in a few months when General Motors Corp. opens triennial national labor negotiations with the United Auto \Vorkers (UAW). It's nearly certain that GM will ask the union for higher co-pa:ments and per- haps other concessions that would affect retirees as well as active workers. But it's al- most as likely that the UAW will balk at such demands, More and more, employers trying to trim their overall health costs arc considering ways to shift some costs to retirees who have company-supported health coverage, Op- tions for reducing or e\'en eliminating retiree coverage are gaining attention as the workforce gets older and the ranks of the retired continue to grow. HR professionals at companies that have assumed responsibility for retiree cO\'erage over the years are now \\Testling \\ith questions ofho\\' much they can continue to prO\icle-and el'en whether they should prmide co\'erage at all. "It's really becoming a mission-critical issue for many companies because the under- lying trend is that health care costs are going up in the significant double digits. and the biggest portion of that cost is for the older population:' says Eric Parmenter, practice leader in health and benefits consulting for Grant Thorntun, the Chicago-based account- ing and consulting firm. The comp~U1Y's surveys show that retiree medical costs have be- cume the Nu. 1 concern of HR professionals at lar~c and medium-sized companies. up '\ ~":- " \ ~ -~\ D g > D 'M'l ~..i I, ".- j'. 'iI. :~~ ~T~~, . .;& ,..-,~ ' '" ",.' -. '! .1\S e 1111) 10 )7e r- SUr) 1)0 rtecl 11 r.JJ'i ! 1- 1} (1.f'.>; ;p.I~'1 1)'.0 c'r)st' C" l~,-c.b I..tv \ 'L (.~,~.'--- \. ..:) {).c ""11 atp, C'O~1'111"~ ;-1'; C' S 'll"C' ~,--1',-<. 1C..'L, " lJc.u.l. C . COllSideri11gV\VaVS te- e. ~, 11<1yre retir~es l)a~r a larger sllare of tIle 1)111. ff :, ;...... lh Dak nuss ! \ I. I ,"""" I ,)1 \:,II:.:\."~."" p. ~~ il,.""." ii:lj"';-) i; 1-:' I; -. "\'Ii i I~t ') 'M '. ;. :! ~! I~ r.lj'k."{ i; 'ft ;i .' \ , ~.. .fl'Q .'(1. EJl'~ 't ~~ rtf,' rt~ ~ ~" ,g &OLG: f0~ e:::Ji;>. (<~~ ff,. ,Jf ~C ~~ liE IS U...a~ !!s. . ~,;~..,,~ ~ ", 'Qo-:u 'Iiii from third place just IS months a).!;o and replacinr:; the f()]'mer top worries about attractin;; and retainillF; employees. "This is a perfect storm. unj(lrtunately," says Tharp. "Thel'C arc a lot of betors cominh tOF;ether at once." Those factors-\\'hich include the stahnant econOJl1.\' and fast-risinh health co.'ils-eould "kL'ilen the decline of retiree health bendits" in coming years. according to a study con- ducted hst tilll of large private compa- nies' retiree health coverage. Of employcrs wlH> responded to the study, .14 pen:cnt had already raised the amount that re- tirecs contribu tl' to premiums, and 1;; percent had ended health benefits f(lr future retirees, ." Even more drastic chan\!;es are expectcd in thc future, ae- ~. ' cording to the study, which' was conducted by the Hcnry J. . ,.,1 Kaiser Family Foundation and Hewitt Associates. Looking; three ycars dm\11 the road. more than half of the companies are considering increasing retiree contributions (82 percent), " raising deductib1cs (75 percent) and raising out-of-pocket lim- ~~ its (64. percent). The vVashington. D.C.-based HR consultin:; firm Watson . . "'yat! vVorld\\ide says many employers already han' adopted benefit plan prmisions that \yill reduce their financial support of retiree medical expenses to less than 10 percent by 20:31, d()\\'l1 from the more than 50 percent share now paid by typi- cal large employers. The projection is dnl\\11 from the firm's re- cent study of 56 large employen,",,\ith at least 5.000 emplo~'ees. The study sho\\'s that 20 percent of employers ~urycyed haw already eliminated retiree medical plans for ne\\' hires. --- ~- / " < , :tJ , t ,,-: .\ L I, \ . ......- ~. ........' .... Ao; employers try to reduce their share of retiree health bene- fits, they may be passing on additional costs to retirees who are already facing significant financial pressures. In fact. for many current retirees and retirement-age employees, health cost concerns are compounded by the tanking of equity markets and retirement nest eggs. 'The financial equation for most people now isn't nearly as good ao; they thought it would be for the last 20 or 30 years:' sa~'s l\1ark \\ -hite. a senior consultant for \ Vatson \Vyatt. "So maybe the~' end up retiring at 62 instead of 5S and ha\'e to use that ex- tra income to help cover the costs of retin.'e medical benefits." A couple retiring at 65 and covered b~'l\1edieare but not by any other health insurance can e:-.vect to spend S160.000 fill' medical care o\'er the remaining course of their lin's, accord- ing to Boston-based Fidelity l11\'estments. J\lon.'o\'l'r, once retirees start getting health coverage, there's no guarantee that it will always be there. In early Feb- '. "'$0 , . ~~j~7..n::!}'~. ~ "" ~ i~'t (1'" r....... ~,p ~ . ,~ .,:,"~ ~;!"~;' ;~. (.lI ~ 'f. . ~ r? f.y: Sf' bl riW~H.. ~", .~~~~ ~ ~~ ~l:. 2': ~~f.p~~l~~ &...~L&&1 ~;:~ ~ ~~ :t~ M rt.i ~~~ ~~~ U ~~. ',; iii.'~ i ~,! E?t,"i~ if",>~l;;b ~~l~.:& ~ <::2..4 ~~ ~~4,~';'~ a. E~~1i~k Jg., ~ ~. . 'U' ~. ~~. ~ ~ " t~. It'-, ..'~, r ,.'~ "r ?I} ~ ~~ . ~ r " &~~. ~~:' '4~ ~, .~;; ;1i' , ~'.--' '." "',_ ~.. S'i, l':T/ ". '" . "".""", ..,' .. J', ~~ . "1/b.s..liUC ~ . :I" ~ ~-:f,-i' ...- ~ -.;.1:'( j;y l .0.... ,. ~n ~\On'" ~,..~~ .~. ., ;~: .... '~, ;' " 119 "C'. ; ~"~ - mary, Pcnnsylvania-b~L<.;ed ];ethlehem Steel Corp. became the latcst bankrupt company to announce an end to retiree health benefits for fin~U1cia] reasons. The TIethlehem Steel action af- fi.~cls about 95.000 retirees and dependents. The company said it would try to line up discounted group coverage that retirees could buy on their own. As a result of these financial pressures. companies that trim or eliminate retiree nll'dical cO\'eragc can expect retirees to fight back. "If you try to put more of' a burdcn on them, rl'tirecs are likely to poke through and try to find something in ~'our pre\'i- ous dealings with them that indicates you may ha\'l' promiscd them something:' says David Pearson. a benefits attorney fl.lr Orlando-based Ford & Harrison LLP. Tharp says there may be morc agitation by retirees at cor- porate shareholder meetings fl.lr thini's such as restoration of cost-oj~li\ing ad.iustments. \\'hich largely disappeared during the past decade oflow inflation. C. vVilliam .lones, ewcuti\'e director of thc Association of BellTe! Retirees Inc., a Cold Spring Harbor. :!\.Y.-b,Lsed 2,1'OUp representing 90.000 telecoml11unicltions industr~' retirees. says. 'A lot of retirees didn't realize ho\\' big this issuc \\'()uld become until this ~'ear. \\'hen there \\'erc huge out-of~pocket increases, palticularly for :Medicare-eligible people \\ho mere in HI\IOs." Some analysts expect retiree health co\'erage to mushroom into a broad political issue. Jones' association and other groups, including a \Yashiug- ton, D.C.-basee! coalitio:1 e,tiled the :\ational RL'til'L" Ll'gisla- ti\'C Nev,vork (KRU\;. are pushing for legislation that woule! bring retiree medical co\'Crage under the same kind of federal supel'\ision that exists for many pension plans. The KRLK says its top priority is legislation designed to "prohibit a comp:my from reducing or taking away health ben- etits promised and owed to thei" retirees" and to "requir,' a comJxU1~' to restcJ1'e' health bene': ~s that wen;, pre\'iollsl~' re- duced or taken away after retiremcnt unless a COl11jXtI1Y could demonstrate substantial business hardship:' \\'hile some groups arc willing to join thc fray n'garding re- tiree health bend1ts. unions-especiall~' those in troubled in- dustries-ma~' nel[ be among thcm. "I can't imagint' unions hming a tremendous amount of PO\\'l'r right no\\' \\'hen this comes up with airline' 1'01' cxam- ple:' sa~'s Paul Frol15tin. director 01' the health-I'l'searl'll pro- gra' sea, Cll: Li( tire 1l1l, R .1::,:<-,' '~;~ :,i~ ~~'7' r "~' ~.. . , I. ~; .t~:: ~~ ',,-t:: I!, ~ . , ."...-- ____.........~c... or. ~ ~.- .......,~_.....'.<..:~.~_w_~._~__ -~.~, ."-~hIiG~....-.s:"~2l:j~':'~::-:-~"f><~;~~':;~'-:-:::1i:.:"~Zfi~k r.: ~ ~ !lI I;':J '" .~~ ~~~.;'~ H jii~'I> h~Ii,' 4' b~ ~. if !5,";~'.r li:i: ~ t.:....tt ~(J; ~,~i r:ot~ ([ ;~~~ ({~~ ~ ~ f,.:.' ~ ~ ~. ~~ 'i ~,~r(~ '",-,= U lillf~ \" 5:![S: iik Ga: rAt :a. r..;..;: \'i ~ Et& I(['~ t'::...., ::~~~. eFE. k; ~ ~ ri~ ~~. ~ ~~.f!:!j..'1:. t~~~~~Ui'~ '". ~~ ~~tl~& ~ V ~g l~~ ~:~~i~ ~ ~~~~.rp;4~.Em~ J,; ::!.'it:~.:t::m:; A i,,~ L'lr~~riil:; ~ ~ ", ~ ~ G[ ~~ Ilia 'f-vere In nt ilrp. )WC<l:Il(' t I() rl'tircl' hca SI('c1 <lcl ion, R ~~ ..1'" '4- wJ;;:"" lIW V: ~..;- fti"; E:: ![Ji~. .".. r;i:~f.. b, '.: ~; I~~ ';'l'it.\ti'~ ~:N' ~.~ " P fl'" ''''''':..U'., ., ~.;z::~ . o.o<ll ~'1 1(' company S";CD at th(' \\'ashing10!l. D.C.-bascd Emp]o.\'l'(' I:clldit Ik- :lgC thai n'til'(~"rch lnstitntc (E);lUi. Tharp S:I)'S that ullions in SOl1lC industrics mil\' bc rcady to :l,mil'S that ht retirecs take the hrunt ot'h('alth-c()\'('I'agc cost shifting "1)('_ Il('ct retircc lUSt' ,.(,tirccs dOll't pa)' union c1u'5 or Hltl' Oil contracts." A:: c:\eeption coulcllll' the auto industry, \\'here Iahor Ilego- '111, rl'tirccs aations this summcr could produce a standoff on whether re- ~ in ."our prc'irees will ha\'e to pay lI!ore fCl!' thcir Iwalth eO\'erage. h:l\'e prom is If employcrs bel' rcsistance Ii'om unions, there ma\' not be Is attorney tnuch middle ground whcre the two sides can meet. !\etiree "e[II",S al co. restoratiol I il('alwl dUlr ,fl, 3'1: , .~~~;.:~.:::..~..., -\ssociation '-based gro Istry retire ell'signed t, health In'n , ""('quir. c'\I;lusl.,' 1I>an.,' co ~;lrdino; re '(I,d,' .1 in illr (':\;1,11' ';lrch !':\I' .~ .', ~)' '~""Il"'" .! ~ 1J't~ :." ';,~~:. f'::)~ :- .....-t.. .~ ~,..~ ::l '., ~! 'rEt~~ i ~~~~ G~~t.iI&;;;; ~t; 1~ ,~~~~ :tjz ,.,,~~~, ~~ e ~ 1. t:e l~ M ~~ ~ !:M -<..1: ...,...~'"""''''''' ~~.~ '''.'--'"_........;:.1.. i<~":.. t:<.' ..~ ....... r:: f:,; ~ ~:~: '.~~~ '({~. f;~k ri:~>,: ~ ~ -s ~.~......'......j....:....5. t<} i ~: ,: ~' . "1 health carc is not an issue that's liked)' to he ddi.lscd by a shar- ing of infclI'Jllation about thc dil'(' dcmands of rctirce medical costs, says Parmenter. "ltOs a fighting issue rathcr than an un- derstanding that \\'c're all in this togethcr. So I don't ],no\l' tbat thcrc's positioning that an cmplo.\'cr rcaliy can do in a union cll\'ironlllent." ""... I( ~, . .;r t'i ~.<!' ~ .....J. ~~" r.,._..... ., ", ',', l..i,~~~~;~.. l,~.,~. f?: ~, L: ~.~'" ~.:: ....... ,. Companies that arcn't rcstricted by labor contracts can do much more, of course, to corral retirce ^.;..~'='Ri'?,., :il1 . Jt~-:,,;:',:f~~'" c'; health carl' l'O~ts. IIg pror'essional' weighing such opti(J!ls should consider recon\lllcndations such as the fc,jI(J\\'in;.;; hom professionals in Ll1l' field: Take action sooner rather than later. If a company decides to cUltail retiree health benefits, aet quick- ly, befelre cost escalation worsens. says Petcr .smoyer. a compensation consultant ;n l\lesa. :\riz. And companies that h,l\":n't bq!;un offering; retiree Iwalth benefits shouldn't beg-in. hc adds. "The on- I~' organizations [that] should e\Tn consider ofit~ri ng these benefits toda~' are tbose that want to havc If, ,. ;:, lon).';-tcrm employ- , ees:' Smoyer says. 'And in today's eeonomv. who wants em- ; 1 '~ : ployees around ft)!. ~() years outside of education or public ~ I ~, f' ')" , j \~; sa ety. ~ ; l': ,. Concentrate on current employees. "It's really about setting id. 'a new eleal witb those people," Tbarp says. "Good managers are ~'~ . " hming to step up and bite the bullet and say, 'Tbis isn't sus- .. ',:t." tainable o\'er time. And let me tell vou wbat the new rules \\ill ......... . \. , be so that YOU can gct rcadv for them: 1 applaud managers ~.! ,? j who a<., wiiling to p;" tlii, i,~u, nn tli, table ,,,,d ",lk alinnt it. 7, 1 1,lfr ;;,~,:,"''- ?ecaus~ the more you put It of!. the I::ore draCOl11an, ~,'(mr ae- ;,IJ~ tlOns I11lght have to be dO\\11 the roael. : .,,' .' . Consider possible long-term effects. Putting tbe squeeze on retiree health coverage may lean' a company \\ithout an important recruiting and retention tool ifthc economy reco\-- ers and a worker shortage de\'elops. 'S;ome exper1:s suggest that \\ithin a few years employers ma\- face a labor supply even tighter than that of the 1990s. par1:icularly among older and more experienced baby boomers, \yho \\ill be planning to leave tile workfclITe in unprecedented numbers later 6is decade. "The number of young people coming in \vill be shrinking. and lots of companies \\ill be looking to get more out of their existing workers, so encouraging deferred retirements might be a good strategy again." says \\1lite of\Vatson \Yyatt. "Com- panies may need to attract fClI' a while longer those mid-career people \\-]10 arc in their 40s and SOs_ to \\'hom health benetits for retirement art' going to be increasingly impOI1:ant:' Although clamping a lid on retiree benefits may saw mon- c~', \\11ite says, employers "hawn't really gained an~thing if they han' to pump money back into regular compensation to attract and hold people. .-\nd you might hm'e lost something because retiree health benefits are t;L\:-Pro- lected. whereas regular compensation isn't:' If reductions are needed, make them in- crementally. A company could link the size of its retiree health contributions to each bem', J"\'} ;::;1 :\' ~:" ,; 't' fieiary's length of service with the company, frJr example. limit or even eliminate its contribution according to some, It er measure. Among the large com panics slu'\'c.\'edlJ\ \\'atson \\'yatt f l'x,lmp]e. 90 percent said that iU19f),j,1lH'Y oii(.rr'd retiree n c ical cll\'Crage to those over liS with fj\'{, 01' j,,\':u Yl'''r, or SIT iu'. hut by last year onl\' about onc quark: 0: l:lC compa:li of1"'I'('d bendits to retirees with that len).';th of slT\'ice. In ade lioll. ahout 4.S percrnt or the companies had capped contrib: tions fCJr new hires a.'; orIast year. \\.hik :)9 percent had done: ftlr currl'nt employees. An additional possibilit'). is to phase out retiree medical t'J' eragl' fCJI' employees hired after a celtain d,ltc. whether pas \ future. And yet another option is to kcep retirees in the c( a pany's health insurance pIau but not pay any IHll'tion of tLe prcmiums: the discount fel!' the group polic~ \\'ould keep n tin~es' hcalth co\'erage premiums lower than what they wou! pa~' fell' indi\idual coverage. But eyen that approach would not necessarily be bencficii for employers because simply having retirees in thc com pan plan "drives up the cost of insurance," Smoyer says. "That's he cause retirees arc the ones [whoJ have open-heart surgery,' (1, b~lJasses and other complicated. expensin' procedures. S. : hUlts the company's experience ratin!!;s with insurers:' Another type of employer-set limit is to pick up only tb prescription drug portion of a "I\1edigap" policy-a type Ofpl~ \'ately sold but reg;ulated policy that cowrs ('u-pa~1nents an, other medical expenses not covered by Medicare. Such policie cost companies 8:;.000 to 84,000 a year for an incli\idu<1 Tharp estimates. ,-\5 part of an incremental approach. a company can try t. steer retirees-just as the~' encouragr current employees- t, opt tell' generic rather than brand-name drugs when possi ,J; and to use mail-order suppliers for medicine's they take re~_u lari~-. PrO\ide more information. Finally, HR can playa roll' il containing retiree health costs by prO\iding employees as Wcl as retirees the information they need to manage those costs. ' "Companies have iIl\'ested a tremendous amount of tilli' and money in telling employees about the need to start e,;i''' \Iith their 401(k) program. matching contributions. proper "'. set allocations-thcy'\T taken all those steps:' says Ell' L Fronstin. "But they ha\'en't done an~thing like that regaro nf retirement health care, The ne!.1: logical step is to edul',lt' workers about that:' lID t i I I t ~ : \- . ( r" ., Or;.!:ne Resources i',J" , ~, L: r~ \ 1)1- !:(' lhJ.l: Bl'SS, A FOl~~IEl~ \\'AL!. STla:ET ,1<)['1;\_,1 H.FPOlnTl~ A~D ~E\\'SPAl'EI~ HC~lXESS EIllTt 11.. l~ A n~EEL\:\'CE \\'lUTER 1:\ I{Ol'llI::-:TLI~ I!: 1.:- :\!Jl'lI. . ,~', " \'.:1";:'\' . ; \ ; : ~ r~! [E~r1,i \loti:: R ~{ EmpI'.)J?ers entting heaJthbBneflts A few dayseach"NC{:k, Iody Maxfield andh'iO or three co ~ workers sbare 1 un ell tj me co nve rS~1' tion.:.- and .'.'Orries<lbounhe future.', ',"Th8.1's always .the tOlJic of. conversiltion, retirement," says :MaxfieId/a 42-year-old elec- tdcal engineer for Boeing COP,). in St. Lmlis. "How the company is pulling benefits away froni,.us,"'.", .. " .:' ,Or .. <..< '. . Maxfield said he and others arc rankled by a decision to stop Sttbsidizing health in~cranct for fl1tui"etetirees:By th~.Hme he is eligible for reti.renl(~nt in 10 vears,Jylaxfieldfigures hl~::Llth inslU~ail.cc premi~ms. \viil claim ';i 'substantial J.1or99nof IJi~iflOtlihly p'en;ior{alecly .... ,. ,AJegi6r.~ oLhab"y\b~omei's ' co.uId' ~ace . Ow que3tio~~ ~s rn(il'9)~omI?anies scrap,.1onp-s[and.. ingconimitmems'to pay for retiree health care. *" '. ',' .~