The management team of Oklahoma City-based Buy For Less grocers knew they couldn't sit by idly and eat the skyrocketing costs of providing health insurance to employees of their 14 area stores.
Insurance costs were climbing every year by 10 percent or more, human resources Director Max Dubroff said. Meanwhile, the self-funded company's group discount, he said, was stuck at 36 percent — largely because most insurers require a minimum 75 percent enrollment for the deeper discounts and only 42 percent of the grocer's eligible, mostly lower-paid, employees chose to pay for the benefit.
After multiple turndowns, Buy For Less finally found relief by custom designing a health program that, among other things, introduces salary-based premiums. Workers who earn less, pay less. And those paid $10 or less an hour are provided free health insurance.
Such salary-based premium models, or salary banding, are used by only 10 percent of U.S. employers with 500-plus workers, according to the latest surveys of Mercer human resources consulting company. But industry reports show more and more employers are considering the strategy, especially as they look toward 2014 when firms that don't offer affordable coverage may begin to face penalties.
In November, a Dallas-based industrial kitchen design and equipment company told its 450 employees, who work in seven states including Oklahoma, to look for premium increases next year of 12, 15 and 20 percent, The Oklahoman learned. The hikes will be linked to salaries, with those earning $50,000 or less paying less, and earners of $90,000 and above paying more.
Buy For Less, which employs 1,130, didn't raise any earner's premium costs when it introduced its new plan through Blue Cross Blue Shield in May 2011, Dubroff said. “We didn't want anyone to bear the brunt of this,” he said.
Under the old plan, individual health insurance was offered for $40 a week; more for dependent coverage, and workers either took the plan or didn't.
Under its new program, the grocer gives all eligible workers their choice of bronze, silver and gold plans, which bear respective $5,000, $2,500 and $1,500 annual deductibles and $40, $30 and $20 weekly costs for individual coverage. The only salary-banded part is for workers earning less than $15 an hour, who are offered the bronze plan for $10 a week, and workers earning less than $10 hourly, who are offered the bronze plan at no cost.
Participation more than doubled to 88 percent and the company, in its first year alone, saved several hundred thousand dollars between much deeper discounts and fewer high-ticket claims, Dubroff said. Bilingual human resources associates helped explain the program, so that enrollment among Buy For Less' Latino workers grew significantly, he said.
Salary-based premiums especially will make sense when employers have to comply with mandates under the Affordable Care Act (ACA), said Oklahoma City employee benefit consultant Cher Bumps, who helped Buy For Less design its program.
Beginning Jan. 1, 2014, employers with 50 or more full-time equivalent workers must offer employees who work 30 hours or more a week affordable coverage or face penalties of up to $3,000 per employee.
Coverage is considered unaffordable if employee premium contributions exceed 9.5 percent of household income, Bumps said. And varying employee premium contributions by salary can keep lower-wage workers' costs under that 9.5 percent threshold, she said.
Cori Loomis, a director with Crowe & Dunlevy law firm, also looks for more salary-based models. “As we see premiums rise and rise, affordability will become more of an issue for lower-paid employees,” Loomis said.
But salary banding likely won't work for employers with mostly lower-paid workers, Loomis said. “If only 10 percent of your workforce has a higher salary, you can't shift the whole cost to them,” Loomis said.
Oklahoma City independent insurance broker Michael Shaw of Andreini & Co. believes many employers simply will charge workers 9.5 percent of their gross salaries, with a cap of say $350 a month.
“The irony will be low-wage earners will be protected by the 9.5 percent of wages and the high earners will be protected by a cap, but middle income earners will have no relief,” said Shaw, who expects employers, based on current tiers in the fully-insured market, to charge an additional $200 to $400 for spousal coverage; $100 to $300 for a child or children; and $300 to $700 for family coverage.
To meet the mandated limit of 9.5 percent of family income, employers would have to request tax returns or W2s from workers, which Shaw, a former human resources director, doesn't anticipate.
“Not only would it be an administrative nightmare, there'd be huge privacy issues,” he said.
“Workers,” he said, “wouldn't want their employers knowing, for example, if they moonlighted as a trainer or what their spouse makes. In their minds, it might affect what, if any, raises they get.”
“The 9.5 percent (limit) is really just conditioning people for another tax that they have got to pay,” Shaw said.
For her part, Buy For Less hourly employee Linda Pelletier, of Edmond, chose to pay for the grocer's highest plan, the gold option, which carriers a $40-a-week premium.
“I don't get sick very often, but I took it just in case,” said Pelletier, 62. “Just the fact that I'm getting older, I figure some time or another, I'll need to rely on health benefits.”
Dubroff said since more employees now are covered under the company's health plan, more are getting checkups.
“They're catching problems earlier,” he said, “so they save money and we save, too.”
The cost of health insurance
Average annual premiums this year are $5,615 for single coverage and $15,745 for family coverage.
SOURCE: The Kaiser Family Foundation
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