Small Firms Cut Benefits, Survey Shows

February 29, 2008
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GRAND RAPIDS — More small businesses nationwide are opting out when it comes to providing employees with health benefits, according to a 2007 survey by worldwide benefits consultant company Mercer.

Faced with per-employee costs rising at 6.1 percent, more than the pace of inflation, employers with fewer than 200 workers are rethinking the health benefit, according to the survey, which covered about 3,000 companies. Five years ago, 66 percent of those companies offered health insurance. In 2007, that dropped back to 61 percent.

The survey results were the topic of a Mercer-sponsored seminar last week at Frederik Meijer Gardens & Sculpture Park. Full results of the survey are expected next month.

Locally, the most recent surveys from The Employers’ Association show that the proportion of West Michigan employers of all sizes offering health benefits slipped from 99 percent to 97 percent, according to Maggie McPhee, director of information.

“I haven’t heard of anybody dropping health insurance; I hear that people are changing benefit plans,” she added.

Whether nationals trend are playing out in West Michigan, the Mercer survey shows while the growth rate in health benefits was 6.1 percent in 2007 — the same rate for the third year — inflation rose by 4.1 percent, the highest inflation rate in 17 years, according to the U.S. Department of Labor. Employers endured double-digit increases in employer costs in the early 2000s, the study noted.

Greg Rhodes, Mercer principal in Grand Rapids, said employers are responding with cost-shifting and high-deductible, consumer-driven health care plans. 

“If the past is any indicator of the future, (cost-shifting) is probably going to continue, I would say, for a couple of reasons,” Rhodes said. “One is that even though the rate of increase has moderated somewhat, it’s still going up faster than inflation. So you’re going to see employers say they need to maybe escalate or bring more up to date what the employees’ contribution levels are.

“I think maybe we’ve had a bit of a lag here in West Michigan compared to other parts of the country. So there’s some catch-up going on here.”

Consumer-driven health plans are another major factor in cost-shifting, he said.

“As you’re seeing consumer-driven health plans grow, one of the keys to that is that cost sharing that occurs with these plans, so you’ll see employers tinkering with that design,” Rhodes said.

Consumer-driven health plans — featuring high-deductible plans, health savings accounts, health reimbursement accounts —  have found a niche alongside other health plan offerings for large employers, Rhodes said, although just 5 percent of covered employees in the U.S. use such a plan. But 41 percent of the largest employers and 14 percent of firms with 500 or more workers offer them.

Among smaller employers with 500 or less on the roster, just 7 percent offer a CDHP, Rhodes said.

“If you have a smaller pool of people, often times it’s easer to do wholesale replacement of a traditional plan with a consumer-driven model. What you’ll see in the larger employers is there’s a lot more of them offering this, but it’s a slice, it’s just an option.”

Larger employers also have options such as health management programs, the survey noted.

Other noted trends include “a slight uptick” in retiree medical offerings by employers with 500 to 999, and growth in same-sex domestic partner coverage. Slower to gain acceptance have been placing limitations on coverage for spouses and tying the amount a person pays in premium co-pays to smoking.

Mercer’s seminar also explored benefits packages for companies doing business overseas.

“There’s so much more growth here with employers globally. They want to know what they need to be doing with compensation and benefits plans overseas,” Rhodes said.

The Mercer survey sampled nearly 3,000 employers with at least 10 workers in the late summer.

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