Flexible benefits and managed health care: an attack on employees' benefits

-_+EMPLOYERS SAY IT IS ABOUT CHOICE AND RATIONAL USE OF BENEFITS: REALLY, IT IS ABOUT WHO PAYS+-_
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Call them flexible, cafeteria, supermarket or smorgasbord benefits, they all eventually amount to the same thing for employees - bad news! They are part of an employer strategy called “Managed Health Care”. In time they result in fewer benefits and an erosion of benefit levels. For employers they are a way of not only containing costs, but also of shifting the burden of cost to employees. They remove the employer’s responsibility to negotiate good comprehensive benefit plans and instead place the onus on individual employees to choose some benefits over others.

Employers promote them in the name of providing employees with more choice about their benefits and in the name of fine-tuning benefit packages to meet the needs of employees. While consumer/employee choice and rational use of benefits may seem like reasonable and desirable goals, they are at best secondary to the goal of cost-cutting and at worst a deception to hide the fact that employees usually will get fewer benefits with no reduction in cost.

Benefits are part of an employee’s total compensation package. Improved benefits have often been negotiated in the past as a substitute for higher wage increases. Therefore, to experience an erosion in benefits is equivalent to a wage reduction. Costs that were formerly covered by the benefit package will have to be paid out of the employee’s pocket. This means greater health costs for employees and reduced income for other purposes.

+SHIFTING THE COST OF BENEFITS+

One way employers can coerce employees into accepting fewer health benefits or a reduced level of benefit is to place a cap on health care contributions by the employer. If employers place limits or a cap on employer benefit dollars, they force employees to purchase additional benefit options with further payroll deductions or to limit the number and amount of benefits to which they subscribe.

The fixing of the employer’s contribution to the cost of benefits in absolute terms is a radically different system than what presently exists for most plans where the employer pays all or a percentage of the cost of a benefit. Given the rising costs of benefits the cost-sharing formula is more beneficial to the employee than a fixed employer contribution.

For example, suppose an employer now allocates $40 per week for each employee’s benefits, an amount that is cost-shared equally between the two. Assume that this amount is now sufficient to allow an employee to purchase a set of “core” benefits. However, the employer decides that he will cap his contribution at the $20 level. However, given the 15% to 20% increase in the cost of benefits the price of $40 worth of benefits this year could be as much as $48 next year, $57.60 the following year and $59.12 the year after. Within six short years the cost of the benefits could double. With a fixed contribution from the employer, the employee is forced to either pay the extra amount or drop the benefit.

+WHY FLEXIBLE BENEFITS AND MANAGED HEALTH CARE?+

Flexible benefits first made an appearance in the early 1980’s during a recessionary period. They seemed to have disappeared in the late 1980’s, but have returned with a vengeance in the 1990’s. Undoubtedly, the reason is the increased cost of benefits.

One group of major Canadian companies, according to a Wyatt survey, reported an increase of 22% in the cost of providing benefits between 1990 and 1993. According to Benefits Canada, Canadian employers have recently reported increases in the cost of employee benefits ranging between 15% and 20% annually.

While we cannot deny the rising cost of providing benefits it is important to understand the reasons for these increases and why the response of employers is limited and misdirected.

There are a number of reasons for the rising costs of benefits in Canada. The continued de-insuring of health services from provincial medicare coverage has had a significant impact on the cost of group insurance. Most insurance policies are so-called “top-up” policies, where the carrier must automatically pick-up a service that the provincial medicare program drops. According to a survey of the Mutual Group, this has boosted the premiums for group coverage anywhere from 4% to 35%, depending on the de-insured service.

The impact of the federal Tory Government’s drug patent legislation has delivered what we knew it would - larger than ever increased drug costs. This is because new drugs have patent protection for 7 to 10 years and therefore have no competition from generic drugs. Green Shield Prepaid Services Inc. undertook a study of drug claim costs over the five year period 1987-1993. The study found that the cost per claim for all prescriptions increased by 93% compared to an increase in the CPI of 23.1%. The increase in drug costs are mainly due to the effect of new drugs which account for 54.6% of the increase while 33.9% is due to increases in existing drugs and 15.1% to increasing use of existing drugs. A recent study by the Canadian Drug Manufacturers Association estimates that Canadians saved $750 million for the period July 1994 - June 1995 as a result of purchasing lower cost generic pharmaceuticals. They also conclude that there is potential for even greater savings.

The increased use of benefits due to cutbacks and layoffs is another reason for increased costs. This has resulted in added stress and poorer working conditions for those who remain on the job. The experience of many plans will likely demonstrate a greater reliance on benefits by employees as they are asked to do more work with fewer resources.

Profit-taking by companies that offer health products and services are another reason for increased costs. Despite the protestations of drug companies about the capital they must invest in research and development, it is clear that the health industry is a very profitable one.

+THE EMPLOYERS’ RESPONSE+

The response of the employers has not been to join with us to fight against the drug patent legislation and the de-insuring of drugs by provincial governments. Instead, the employers have been asking for some or all of the following:
· increased deductibles;
· co-insurance (or increased co-insurance);
· the capping of claims expenses (placing lifetime or annual maximums on a variety of insured services;
· sub-standard dependent coverage;
· addition of riders limiting new products and in particular drug products;
· the tightening of claim procedures;
· flexible benefit plans.

Indeed, the following table taken from Benefits Canada, October 1993 shows how serious these threats are. It is likely that the percentages of employers using these methods have increased dramatically since 1993.

Tinkering With Benefits What some employers are doing in response to increasing premium costs
Measures Supplementary Health Dental
Increase deductibles 16% 13%
Increase co-insurance 18% 15%
Reduce plan maximumbenefit amount 11% 10%
Limitations on specificexpenses covered 30% 21%
Increase employee contributions 18% 15%

All of the above changes are part of what is now being referred to as Managed Health Care. This approach has been initiated by employers and the insurance industry as a way of containing costs. What it means, in fact, is reduced health services, greater costs for employees and a more stringent and less efficient service in processing benefit claims. The thrust of this approach is to place more responsibility on the individual employee by attacking what are deemed negative “lifestyles” related to tobacco, alcohol and diet. Health services related to these lifestyles are threatened under such a system.

The basic principle of group benefit plans stands in opposition to what is proposed by flexible benefits and Managed Health Care systems. That principle is that the group shares the cost of providing benefits to individual plan members. This means that all plan members contribute to and support the benefit plan regardless of their current state of health and regardless of their lifestyle. In effect, a group benefit plan is an insurance plan designed to eliminate the individual financial risk involved with illness.

+WHAT TO DO+

The dilemma faced by many employees is that they are being told by the employer that the comprehensive benefit plan cannot be maintained at the present cost and the employer is determined that his premiums not be increased. It is nonetheless important to remember that the benefits package is part of a larger compensation package and that the importance of benefits must be evaluated in light of this bigger picture. The membership gave up other improvements in the past in order to obtain better benefits.

To allow employers to erode benefits is a form of concessionary bargaining which is contrary to CUPE’s policy of “no concessions”. The employer and the union should evaluate the entire compensation package and work situation to see if savings cannot be obtained elsewhere. CUPE’s objective continues to be that employers pay 100% of benefits and that they offer a comprehensive benefits package.

As a way of dealing specifically with the benefits question, the employer should be approached with the aim of setting up a Joint Benefits Review Committee. Such a committee would have equal representation by the union and the employer. However, with or without such a committee, a number of strategies should be pursued.

1. Generic drugs should be used whenever possible. Substituting them for the higher priced patent drugs is a very efficient cost-saver. It is important to remember, however, they cannot be substituted in all cases and that physicians will sometimes insist on the patent brand of drugs.

2. A preferred provider arrangement can be instituted whereby plan members are encouraged to use a designated dentist or pharmacist. In return the health professional agrees to keep costs to a minimum.

3. Medi-Trust, which is a bulk supplier of drugs can be used to supply some drugs. Its dispensing fee is 1/3 of that of most pharmacists. It is important though that members retain the option of using other druggists, especially when Medi-Trust cannot supply a particular brand or the drug is needed on short notice. Medi-Trust cannot supply drugs for emergencies. The use of Medi-Trust should not be embraced in such a way that it puts the local pharmacist out of business.

4. There should be coordination with other benefit plans where a plan member’s spouse is covered by another plan. The total combined coverage should be maximized in favour of the employee and the arrangement should be bargained and put in writing.

5. The joint committee could pursue the possibility of joining with other employers to set up a multi-employer benefits plan. Remember that bigger is cheaper because the costs and risks are shared by a larger number of people.

6. The committee should also re-evaluate the present carriers and the costs and services that are entailed with providing the benefits. Perhaps the benefits plan can be tendered to see if other carriers can provide better service or do so more cheaply. In particular, a non-profit carrier such as Blue Cross or Green Shield should be considered. Remember, however, that lower cost should not necessarily be traded for an erosion of benefits or service in processing benefit claims.

7. The illnesses and injuries of employees who are on short-term or long-term disability could sometimes more appropriately be drawing Workers Compensation benefits, thus taking pressure off the benefits plan.

8. The committee would also look at the workplace and see if changes can be made that will reduce worker stress and fatigue and thereby reduce the demand on the benefit plan.

Remember that benefit costs have been rising every year and they will continue to do so. This will occur whether or not there is a “flexible benefits” plan or “managed health care”. It is important to resist giving concessions on benefits and to continue to press the employer to look for economies that still maintain comprehensive benefits for all plan members. In these times especially, a good benefits package is needed.

For further information on Flex Benefits or Managed Health Care, contact the Research Branch.

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