With health care costs rising an average of 10 to 11 percent per year, large employers are being forced to adapt to the increases by shifting more of the costs to employees, switching to more inexpensive health care providers or increasing deductibles. Some major employers even maintain that the crippling costs of workers comp have forced them to only offer health benefits to management. While the majority continue to offer health care to employees, all agree that paying health care would be infinitely easier if workers’ comp rates were lowered. Steve Ustin, the owner, president and CEO of the Van Nuys-based Western Bagel Baking Corp. has a more unique situation that many large businesses, essentially operating two businesses in one. Ustin operates 11 Western Bagel retail stores as well as two factories that produce bagels for a wholesale operation. While Ustin has been able to increase prices in his retail operations to cover the growing health care costs, he has been unable to cover the increases in the more price-sensitive wholesale industry. To Ustin’s lament, he has still had to pass more of the health care burden onto his employees. “We used to cover 100 percent of the coverage for our full time employees, but now we ask them to pay $10 a week,” Ustin said. “For our managerial staff we pay for half of family coverage. We had previously paid for all of their family coverage but the costs got too high.” The astronomical health care hikes that Ustin has incurred have forced him to switch to his third carrier in as many years. “We were with Blue Cross for 15 years and then one year they raised our rates 50 percent. We told them ‘no thank you’ and went to Pacific Care. We were with them only a year before they came back with a 30 percent increase,” Ustin said. “This year Aetna came in and they were reasonable and they’re a good company. We’re an extremely loyal company in general, but not to health care companies. They forced us to do this with their skyrocketing rates. There’s something wrong somewhere.” Barry Cohn, president and CEO of RGEB Employee Benefits, a group insurance and employee benefits firm located in Tarzana, maintains that Western Bagel’s situation is common among large companies. “What I’ve seen is that when large companies are receiving these premium increases they are generally sharing the increases with their employees. If they previously paid 80 percent, they’ll drop what they pay down to 75 or 70 percent. They are not absorbing the whole thing themselves,” Cohn said. “In order to not have a premium increase, some are modifying the benefits structure by increasing deductibles or increasing co-pays for office visits. They might change the pharmacy benefit as well.” Because 97 percent of large businesses (companies with 200 plus workers) offer health care to their employees it is a common misperception that they aren’t hit as hard by health care rate increases. “Large and small companies are being affected equally by escalating health care costs,” Cohn said. “The average increase in the country is between 10 and 11 percent this year, depending on how a company’s medical claims run. In the large market, I’ve seen clients with 15 percent increases.” Press blamed While Cohn attests to the changing nature of the benefit structure at large companies, Carla Magarity, the owner of Woodland Hills-based Time Employee Benefits Insurance believes that the press has over-reported the prevalence of this trend. “Employers aren’t passing the costs on to employees nearly as much as the press says they are. They are passing the benefits to employees incrementally and carefully. No one wants to lose good employees. Despite all the reporting of this trend, that hasn’t been my experience,” Magarity said. “And when they do pass the buck on, they make employees pay more of the premiums or the co-pays for prescription drugs and hospital visits.” But not all large companies offer health care to their employees. At Sun Valley-based sushi manufacturer Okami Foods, only the management receives company provided health care. According to the company’s co-owner Laura McKee, the high costs of workers’ comp prohibit it from offering health care to 250 of the 300 employees. “If we had to pay for both workers’ comp and health care insurance, we’d go out of business. When they tried to pass the bill in Sacramento requiring employers to provide health care, we were in a panic. We pay $200 a month per employee for health care. If we had to pay more, we’d end up paying an extra $600,000 a year,” McKee said “You can’t stay competitive with all the increases and you have to make up that cost someplace else. We already pay over $1.2 million year in workers’ comp fees alone.” Managerial benefits As for its management, thus far Okami has managed to stave off having to make its managers pay for more of their premiums. McKee is adamant about being able to allow them to maintain their standard of living. And as for her manufacturing staff, McKee remains open-minded about the prospect of one day providing them with health care, that is, if workers comp rates ever drop. “We’re always open to looking at every option. Our goal is to have employees that are happy working for us and feel that they are being treated fairly,” McKee said. “I’ve always tried to give what we’ve been able to profit back to the employees. But there’s no money left in there to offer employee benefits. We would love to give back, but there’d be nothing left in the bottom line.” As with Okami, many employers believe the health care problem is directly tied to the workers’ comp crisis. In their eyes, a solution to workers’ comp might allow for more comprehensive benefits and lower premiums for their employees. “It’s a tremendous burden on us to pay for both workers’ comp and health care. But at least with health care, it’s a nationwide problem, so you’re almost even with your competitors. But workers’ comp puts us at a great disadvantage,” Ustin said. “The workers’ comp costs compounded with the health care costs were so great that we couldn’t afford regular workers’ comp coverage anymore. We had to become self-insured.”
