5 Unpleasant Ways Employers Are Cutting Back on Healthcare Costs


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: WLP  ) , 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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Read/Post Comments (12) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 30, 2014, at 10:47 AM, foolsall wrote:

    Soon People will be saying, "enough of the sleight of hand," tricks of the trade; to weaken Health Insurance for the Masses." The duplicitous of the greedy corporates; cries out for a Single-Payer System. It would be much more affordable; and take the manipulation; out of the Hands of Predators. Coarsely, and Rudely: "We don't need no, 'Stinkin,' Middle Men; standing in the way - - or between - - patient & his/her Doctor.

    If the Puppet Masters lack creativity in devising a Plan; put everyone that wants health insurance under Medicare. It works! and Seniors Love it!

  • Report this Comment On August 30, 2014, at 11:08 AM, mntechdad wrote:

    Single payer? No. Cross state competition? Absolutely!

  • Report this Comment On August 30, 2014, at 11:40 AM, Lovesmusic wrote:

    Single payer systems will be very-very managed. Healthcare providers will be few with the low ball contracts offered. Medicare Advantage is a good example of this process. The patient's choices and options are more or less chosen for him/her.

    Be careful what you wish for. Decisions on your healthcare will be made by the power that be..

  • Report this Comment On August 30, 2014, at 11:50 AM, yardomd wrote:

    MEDIBID is the way to go: Mobile device marketing, like for small business in Asia and Africa, with competitive pricing, transparency and accountability.

  • Report this Comment On August 30, 2014, at 12:08 PM, ps271 wrote:

    Yep as we thought, only the rich will be able to afford Healthcare.

  • Report this Comment On August 30, 2014, at 12:54 PM, Jim8 wrote:

    President Obama should have been smart enough to realize all of this will be seen as his doing.

    As to the amount of uninsured people, this is a false notion. Insurance is now not worth purchasing if you have to pay the entire cost.

    So now I'm uninsured for the first tine in my life. But it's hard to ignore the reality that cash is the best way to go.

    The way to play it now is to get a physical at the end of the year (or the beginning if you purchase insurance) and let the results of that physical determine f you are going to be insured for the rest of the year.

    I am now risking my retirement savings, and that wasn't necessary before, but if I have no insurance I can save, and if I have insurance I'm into my savings to make the premiums. The entire deductible comes out of that savings if I need it.

    Knowing cash prices are as much as 2/3 cheaper (I can prove that) makes my paying one cent towards that deductible very unlikely, so, why pay the premium for nothing?

    If you want to disagree it's either because you don't know the numbers because you are subsidized, or you just believe health insurance is necessary.

    It's not even a good idea for a lot of us.

  • Report this Comment On August 30, 2014, at 1:01 PM, Jim8 wrote:

    My prediction:

    We will elect Hillary in a landslide, and tell her we were wrong to not let her health plan go through as it was in the 90's.

    The ideas that the Heritage foundation and other right wing groups that we are now stuck with make Hillary's single payer look like the best choice.

  • Report this Comment On August 30, 2014, at 2:55 PM, Leftofcenter wrote:

    It is a great tragedy that healthcare systems already exist in other countries that cover everyone for half what we spend per person and they are just as healthy if not more.

    If this country was a corporation with stock it would be a good short. The boomers are getting older and there is no control on healthcare costs. Campaign contributions from the big corporations and their lobbyists control our government. There is so much to this I can't post it all here. Please visit Reorganizehealthcare.com for the big picture.

  • Report this Comment On August 30, 2014, at 6:14 PM, rayrock1 wrote:

    Anybody with a clue knew this was going to happen years ago. The administration’s response was to call people racist if they didn’t agree with them.

  • Report this Comment On August 31, 2014, at 7:53 AM, cookie58 wrote:

    Ain't hope and change wonderful!

  • Report this Comment On August 31, 2014, at 9:05 AM, NoMoeMoney wrote:

    No matter what happens its only going to go from bad to worse. The system we had wasn't perfect but it worked, now you will see all the real bad things with healthcare happen over the next few years..Don't get sick because those with major problems will die from inaction.

  • Report this Comment On August 31, 2014, at 9:48 AM, conservative wrote:

    I said years ago when they were going to pass this law it was going to raise the cost so high that people would be begging for single payer and heres the proof. The only reason that single payer saves money is because of low reimbursment to doctors and hospitals. The government will have to raise everyones taxes to pay for a single payer system which is what medicare is now. A lot of doctors won't accept medicare because of low reimbursments. The government will have to pay for people to become doctors because there won't be any money it for anyone to want to go in debt $200,000.00. They leave all these things out and then say how cheap single payer is. I can't wait for single payer to go into effect so all the people that are for it will once again find out they were lied to again and believed it.

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