Firms seek ways to trim health costs


November 20, 1991|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- Money, stability, education -- these are the rewards that workers traditionally have sought from companies. Recently, though, another benefit has topped the list: health care.

U.S. workers are increasingly concerned about covering the cost of medical care -- and with good reason. In the past year, medical costs rose at more than twice the rate of inflation, while wages were stagnant.

Meanwhile, companies, faced with declining profits, are scrambling to limit health-care expenses. They're asking employees to contribute a larger percentage of health-care costs, to pay higher deductibles and to chip in more money to cover a spouse or dependents.

One result: The average employee contributed $93 to an individual coverage medical plan in 1987 and $220 this year, according to Wyatt Corp., a Washington consulting firm. For a family plan, the employee contribution rose from $478 to $863.

Health care, the AFL-CIO says, has become the core issue in most strikes and the key issue in 69 percent of the labor disputes where employees were replaced. Railroad repair workers, who are threatening to strike Amtrak and Conrail as early as this weekend, are fighting over health benefits. And consider the July strike at H. G. Heileman's brewery in Halethorpe: "The No. 1 thing was retiree health benefits," said Jim Glass, secretary/treasurer of the affected local, noting that the company had asked for employee contributions to cover the medical care of retirees' spouses.

Expect more friction in the future.

A new accounting rule, known as FASB 106, forces companies to recognize medical obligations to employees at the time they are earned. For two of the big automakers, General Motors Corp. and Chrysler Corp., the money to be reserved will consume all, or most, of their net worth. And they are hardly the only companies affected.

"We've seen a number of very large companies whose entire net worth has been absorbed by pension and health" obligations, said Roger Taylor, head of Wyatt Corp.'s health-care unit.

Companies have until the first quarter of 1993 to announce the impact of FASB 106, which was adopted last fall by the Financial Accounting Standards Board after an intense, decade-long study.

Already a half-dozen major companies, including IBM, General Electric and Alcoa, have announced they have, or will, each charge off $1 billion or more to conform to the ruling. AT&T announced yesterday that it would take a multibillion charge; the company would not give a specific figure but said that it would be well below GM's expected range of $16 billion to $24 billion.

This harsh dose of reality is likely to increase corporate fervor to limit medical expenses.

Employees are clearly concerned. A survey by McCormick & Co., the Hunt Valley-based spice company, placed the importance of health care above vacations, profit-sharing or any other benefit. And a new study by the Conference Board, a business-financed research group, concludes that the cost of medical care is the most serious concern of American families -- above nuclear war, race relations, poverty and unemployment.

No easy answers

Given the relentless growth of health-care costs, employee contributions are just a stopgap measure.

Efforts to dramatically change health-care policies have become senior management obsession. Once-personal decisions, such as whether to have an operation or take another day in a hospital, have suddenly become a subject of discussion with the boss.

Many companies are restructuring plans to sharply curtail expensive coverage for chronic conditions. Treatment for addictive behavior, for example, is being subjected to closer scrutiny. "What [companies] are saying is that if you can't get it together in two or three treatments, we are not going to send you off for another 30 days of rehab," Mr. Taylor said.

Likewise, companies are seeking to have more psychiatric care and surgery performed on an outpatient basis. Companies are raising deductibles and installing coverage caps, in part on the presumption that employees will become more cost-conscious if the first and last dollar spent comes directly from their own pockets. Although employers once picked up 95 percent to 100 percent of every bill, coverage of 80 percent to 85 percent is becoming more common, said Ian Abernathy, a consultant at Towers Perrin.

Beyond limiting treatments and specific costs, companies have tried persuasion and education to curtail demand. P. H. Glatfelter, the Spring Grove, Pa., paper producer, publishes a newsletter promoting standard health tips -- as well as skepticism about accepting treatment without question. "Don't deify your doctor," exhorted one recent issue.

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