For home improvement companies, solutions to rising health insurance costs include a switch to high-deductible plans.

Source: REPLACEMENT CONTRACTOR Magazine
Publication date: 2009-10-22

By Jim Cory

Last July, Home Town Restyling, an Iowa home improvement company, held a wellness fair at its office in Hiawatha. Owner and president Wayne Winn says that all 40 employees on the company's health insurance plan — including canvassers, installers, salespeople, and management — moved through a series of seven stations staffed by nurses and received, in essence, a full checkup. That included having blood drawn for blood-work tests as well as blood-pressure and body-fat readings. The event was over and the medical personnel gone in just three hours, but the results showed one 49-year-old employee with high blood pressure, for which she subsequently was treated.

The idea, Winn's insurance agent explained to him, is not so much to reduce the costs of his insurance premiums, as to catch potentially serious medical situations before they fully develop, at which point rates rise. In addition, the wellness fair and consequent recordkeeping establishes a health history for the company's employees, something that is extremely useful in the event that Home Town Restyling needs to switch insurers. The company's office manager and comptroller organized the event, and Winn says that he plans to do it every year from now on.

Unwelcome OptionsHome improvement company owners, like small businesses everywhere, face steadily escalating costs when it comes to providing employees with health insurance. Research based on its annual survey of 2,000 small businesses by nonprofit group Kaiser Family Foundation shows premium costs more than doubling in the space of this decade. In 2000, the average annual cost of an employer-offered individual policy was $2,471. In 2009, it is $4,824. Health insurance costs for a family show a similar increase: from $6,438 in 2000 to $13,375 this year.

For many employers, health insurance is the most expensive benefit they offer, equal to, on average, about 12% of payroll, according to the Congressional Budget Office. When sales were on an upswing, and employees more difficult to attract and retain, few home improvement company owners considered the cost unaffordable. But slower sales combined with those rising premium rates have forced many owners to choose some method of slowing or reducing those costs.

This year, for instance, at the suggestion of its insurance broker, Appleby Systems, a window and sunroom company in York, Pa., with 125 employees at five branch locations, went with a high-deductible plan. The company made the plan palatable for employees by reimbursing for expenses over and above its previous deductible. Generally, the higher the deductible, the lower the cost of the premium. Since high-deductible policies — defined as those with deductibles of $1,000 or more — are a fraction of the cost of conventional health insurance, the solution of reimbursing employees for out-of-pocket expenses beyond a certain point is one that worked for Appleby Systems and is working for others.

Another option: Purchase a high-deductible policy and have employees establish health savings accounts to cover pre-deductible health care costs.

Either way, the switch to high-deductible plans, which can lift deductible levels to as much as $10,000, is a solution that many companies have favored. For instance, a Kaiser Family Foundation survey found that 40% of small-business employees now pay deductibles of $1,000 or more, i.e., are enrolled in a high-deductible health plan. Rising rate increases leave some company owners and managers feeling as if they have no choice. For instance, when in October 2008 S&K Roofing, Siding and Windows, in Maryland, was informed that its premium was set to rise 25%, vice president Scott Hanel at first thought the rate notice was a mistake. "I said: 'This can't be right,'" Hanel recalls.

But it was. Hanel directed the broker who S&K Roofing uses to shop for something else. "But there wasn't a whole lot out there." Hanel estimates S&K saved $60,000 switching to a high-deductible policy that covers 20 of its employees. Like Appleby Systems, S&K Roofing, Siding and Windows reimburses employees for that portion of the expense that exceeds the previous deductible. Employees are issued a debit card to pay for such expenses, and they are required to do some paperwork to activate the process. Deductibles on the plan are $2,400 for family coverage, $1,200 for individual.

For some companies, slower sales have put the question of whether or not to even offer health insurance on the table. This year Jorve Roofing Co., in Seattle, considered dropping its plan altogether, but decided instead to switch to one with a $3,000 deductible.

"Most people [here] thought it was going to be gone," says vice president Dale Burlingame. Instead, Jorve Roofing brought its broker in to explain the new plan. In addition to the increased deductible, the company now pays 75% of premiums, instead of 100%. The object, Burlingame says, went from offering everyone coverage at the company's expense to "protecting our people from catastrophic loss" by allowing them to take advantage of the group rate.

Even companies that continue to offer low-deductible plans have had to adjust those deductibles to stay within the bounds of affordability. Minnesota Rusco, a Twin Cities home improvement company, continues to offer a conventional health care plan and to pay 100% of premium costs for employees. But this year, co-owner Jay Deems says, the company, while continuing to pay 100%, was forced to up deductibles from $500 to $750 for single-employee coverage. "It's been a challenge to keep paying [the premiums] and keep the deductibles affordable," Deems says. Other companies are similarly challenged. "I remember when it was $125 a month per single employee," says Stephen Klein, owner of Anthony Home Improvements, a kitchen specialty contractor in suburban Philadelphia. "Now it's $400-some."

Winn was able to continue to offer a plan with a $1,000 deductible — up from $500 — but one where Home Town Restyling picks up most of the premium cost for singles, with employees who are insuring for families paying the difference. He did that by joining with 30 other members of the local home builders association. The group, and Home Town Restyling, saw a 20% savings on premiums by switching carriers.

Understanding the rapidly changing world of health care is "like learning another language," says Deems, who manages that benefit for Minnesota Rusco. These days, Deems says, he is "spending more time sorting out what the truth is as opposed to what the marketing is."

—Jim Cory, editor, REPLACEMENT CONTRACTOR.

This is the first article in an occasional series on health care and the home improvement industry.