October is the month when Americans thrust out their little benefits bags and ask their employers, “Trick or treat?”
In recent years, the treats have become less and less generous.
As the annual benefits enrollment season gets under way, experts say employers are reacting to soaring medical costs by continuing to cut down on the choices they offer employees and generally reducing benefits.
“A lot of them are dropping down to one or two carriers for the cost, and it’s an easier management situation,” said Marianne Fazen, executive director of the SouthWest Benefits Association and the Dallas-Fort Worth Business Group on Health, both of which represent employers.
Many employers continue to add so-called consumer-driven health plans to their offerings. These plans involve high deductibles paid with pretax money out of personal savings accounts, creating an incentive for employees to weigh costs when making health-care decisions.
Employers also are reducing the number of health maintenance organizations they offer, while employees who opted for preferred provider organizations may see smaller networks with fewer choices of doctors.
And employers generally continue to raise co-payments for prescription drugs.
Some have moved to limit the number of participants in their health care plans. Some impose a surcharge on employees who opt to include their spouse, if the spouse has access to coverage elsewhere.
Time to pay attention
Many workers routinely ignore the flood of communications from their employer through the year, but open enrollment information in the fall shouldn’t be one of them.
“It is amazing how one thing one time of the year can impact your family sometimes irrevocably for a 12-month period,” said Derrick Kinney, senior financial adviser at Ameriprise Financial Services in Arlington, Texas.
“Open enrollment is a good benchmark at least once a year for people to look at all of their benefits and company-provided programs to see if they’re in the right places.”
Make sure you clearly understand the options your employer is offering, which include health care, retirement and insurance.
Study your benefits selections from last year, how much you spent for them last year and the benefits you received. Then estimate your needs and costs for 2006.
“Many people spend more time shopping for a new refrigerator than they do selecting their benefits,” said a report from Hewitt Associates, an employee benefits consulting firm. “Given the impact benefits can have on overall quality of life – both now and in retirement – you owe it to yourself to seriously evaluate all of your benefit options.”
A higher share of health costs
Of all the benefits, health insurance is the most crucial.
“Benefits being offered in the medical area are the most important and the most personal to a lot of people,” said Sara Taylor, annual enrollment leader at Hewitt. “There continues to be cost increases in the medical area.”
Employers continue to make workers shoulder more of the cost.
Nationally, employers will face an 8 percent increase in their health care costs next year, according to the 2006 Health Care Cost Survey by Towers Perrin, a professional services firm.
In flat dollar terms, next year’s gross health care bill for companies and employees together is expected to rise by an average $597 per person, up 8 percent, to an average total cost of $8,424.
Employees on average will pay $155 more in 2006 for health care coverage, up 10 percent from this year, according to Towers Perrin. Employers will pay $442 more per person, up 7 percent.
So, while workers will see a slightly larger annual percentage increase in their share of the health care bill, employers continue to pay the lion’s share, Tower Perrin said.
Workers are paying 64 percent more in health care costs today than they did five years ago, Towers Perrin said. Employers, meanwhile, are paying 78 percent more.
The survey includes data on the health benefit programs provided by more than 200 of the nation’s largest employers, covering more than 5 million U.S. employees, retirees and dependents.
“The health care cost crisis has become a chronic problem for U.S. employers and employees alike,” said David Guilmette, managing director of health and welfare at Towers Perrin. “There is a fundamental tension between managing costs and managing people that constrains how much of the cost can be shifted to employees.”
Some employers are trying to mitigate the cost increases by basing a worker’s health care premium on salary, with those earning more paying more for coverage.
Of course, if you have employer-provided health care coverage at all, consider yourself fortunate.
The percentage of businesses offering health insurance to their workers has declined steadily over the last five years, as the cost continues to outpace inflation and wage growth, according to a survey by the Kaiser Family Foundation and Health Research and Educational Trust, a nonprofit group that studies health care issues.
Employers are providing more Web-based tools for their workers to learn about benefits, as well as to calculate how much they can expect to spend on health care in 2006 so they can pick the right health plan.
Health savings accounts
Use the tools that your employer gives you and attend the information sessions during open enrollment. Make a list of questions and don’t be afraid to ask all of them. This can be complicated stuff.
So it is with the new health savings accounts.
The main restrictions for contributing to such accounts are that you must be younger than 65 and you must be enrolled in a health plan with high deductibles.
The savings accounts are a cross between a flexible health-care spending account and a 401(k). As with those accounts, you contribute pretax money. Like a flex account, you can use the money to pay for most of the costs of health care that your insurance doesn’t cover.
Unlike a flex account, you invest the money as you see fit, it grows tax-free, and you can roll it over from year to year – or to a new job.
You’ll use the accounts to pay for medical expenses up to your deductible, or for other expenses that aren’t covered.
Once you meet the deductible, your health policy will cover you for the rest of the year. If you don’t spend all of your account on health care, you can roll the extra money over and spend it in the future.
Young people in particular can benefit from a health savings account because they have more time to accumulate savings. Also, young people generally have fewer serious health problems than older people, so they can let the savings build up.
But older workers can also benefit from the account.
You don’t pay tax on withdrawals from your health savings account as long as you use them for medical expenses. You can use the accounts to pay for premiums for long-term care insurance, Medigap coverage, premiums for employer health insurance that you’re entitled to continue on your own if you lose your job and your share of premiums for employer-provided retiree health coverage.
When you die, your account can transfer to your spouse tax-free.
Open enrollment also encompasses benefits such as life and disability insurance – crucial if you have a family.
Disability coverage and life insurance are two areas where many employees are underinsured, said Todd Katz, vice president of MetLife’s institutional business.
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