5 Unpleasant Ways Employers Are Cutting Back on Healthcare Costs

As Obamacare reforms take shape in the workplace, companies are turning to five generally unwelcome practices in order to lower their brunt of the cost.

Aug 30, 2014 at 9:33AM

Source: Francisco Osorio via Flickr.

The Affordable Care Act, perhaps better known as Obamacare, set in motion a series of changes that are drastically altering the health-services landscape.

The law itself was designed for a few purposes. Primarily, it was enacted in order to reduce the amount of uninsured citizens in this country, and to help spread the cost of medical care across a greater number of people. By doing so, long-term medical-cost inflation should be held in check and sticker shock could become a thing of the past.

However, whether healthcare cost inflation is under control is still very much up to debate.

According to a report released earlier this year from benefits consulting firm Buck Consultants, which surveyed 126 insurers and health-plan administrators across the country, employer's health care costs are expected to rise by nearly 9% (preferred-provider organization plans up 8.7% and HMOs up 8.6%) in 2015. Considering the drastic nature of the changes brought upon by Obamacare, this is a potentially hefty increase for businesses to absorb.

Some companies, though, aren't willing to simply take their lumps and "absorb" higher health care costs. They're fighting back with cost-cutting tactics of their own – and in many cases these tactics are bad news for workers. Here are five of the most unpleasant ways that employers are reducing their exposure to ACA-related costs.

1. Showing workers the door
The easiest way for a large employer to cut costs is to simply show some of its employees the door. Fewer full-time workers mean lower health care costs, and as long as efficiency stays the same the business could come out ahead in the long run.

Privately held supermarket chain Price Chopper, for example, announced in June the first layoffs in its company's history. Though it only amounted to 80 total employees, Price Chopper CEO Jerry Golub specifically cited "skyrocketing health care costs" as one of the reasons for trimming his company's staff. To be fair, Golub also noted that increasing competition, rising fuel costs, rising wages, and reduced SNAP benefits also played a role in letting these 80 employees go. 

2. Cutting workers' hours
Unlike Stryker, not all companies can afford to cut workers entirely. Instead, they can work around the employer mandate – the actionable component of the ACA that goes into full effect on Jan. 1, 2016 and will require businesses of 50 full-time employees or more to provide health plan options and possible subsidies to those employees. The nation's largest theater operator, Regal Entertainment (NYSE:RGC) provides the perfect example.


Source: Eden, Janine, and Jim via Flickr.

In April of last year Regal announced that it was cutting all of its nonsupervisory workers' weekly hours below 30, since anything over 30 would be considered as "full-time" according to the ACA. Specifically blaming Obamacare as the reason for this maneuver, Regal avoids all of the obligations of providing health plan options to its part-time workers, and more importantly, skirts the $2,000-$3,000 per employee fines associated with non-compliance of the employer mandate when it does go into effect since it only relates to full-time workers.

Regal's employees, though, not only see their chance for employer-based health subsidies fly out the window, but also receive a loss in weekly pay which can affect other aspects of their economic livelihood.

3. Removing spousal coverage
Another way employers are looking to trim costs is by removing spousal coverage as an option for employees. The move certainly makes sense if you base it on data from benefits consulting firm Mercer. According to Mercer's study, employees' spouses cost employers an average of $5,540 in medical claims per person annually compared to just $4,088 for employees themselves, and an average of $2,000 for children and/or other dependents.

Source: Terrence McNally via Flickr.

This is one of the prime reasons why shipping logistics giant United Parcel Service (NYSE:UPS) announced last August that it would end spousal coverage for the working spouses of about 15,000 employees who it believed could get insurance through their own company or through Obamacare's health exchanges. The move, as UPS spokesman Andy McGowan pointed out, will only wind up saving the company $60 million on annual basis.

For UPS employees' spouses replacing this lost coverage with a comparably priced plan may not be easy. The Kaiser Family Foundation notes that the in-network family deductible for UPS' basic plan is $500, well below the national average of $733.

4. Only offering high-deductible plans
A fourth option for employers is to act as a sheep herder and corral their employees into accepting high-deductible health plans. Plans with a high-deductible push a greater amount of health care costs toward the consumer, and also force that consumer to be cost-conscious about providers since more money will invariably be coming out of their pocket.


Source: Refracted Moments via Flickr.

These so-called "consumer-directed health plans," or CDHPs, are expected to comprise 32% of all health plans by 2015 based on a survey by the National Business Group on Health, up from 22% in 2014.

Ironically, the most prominent company utilizing CDHPs is UPS' primary rival FedEx (NYSE:FDX). Last year FedEx announced that it would be switching its entire workforce, more than 400,000 employees, to these high-deductible plans, presumably to spread its health care costs around to its employees.

5. Narrowing the provider network
Finally, for some companies it's not the type of plan offered, but simply the number of plans offered that matters. Some businesses have been looking to narrow their provider network down to just a handful of choices because it's less costly for insurers to target a smaller market, which, in turn, can lead to lower health care costs for businesses.

And not only are some businesses cracking down on the number of plans they offer, but they're making it hurt if you go out of network. According toa PWC Touchstone survey, the 2013 average in-network deductible for employees was $1,230, while the average out-of-network deductible was a staggering $2,110 – 72% higher.

For instance, insurer Anthem Blue Cross Blue Shield, operated by WellPoint (NYSE:ANTM), announced last year that it'd be operating a much narrower provider network in New Hampshire and Maine. Anthem noted that it would only be offering coverage in 16 of New Hampshire's 26 hospitals and had excluded six of Maine's which, according to its approximately 17,500 members in Maine as of 2013, would affect about 41% of its member network. 

As businesses and insurers push for these less costly narrow networks, employees could find themselves gently coerced toward a shrinking network of providers.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends WellPoint. It also recommends FedEx and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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