During the first decade of the new millennium, a huge number of baby boomers will retire, heightening the current labor shortage dilemma. This demographic shift has many companies scrambling for solutions.
“As we look at the labor shortage that’s upon us, in terms of, ‘Is there enough requisite talent coming in from high school and colleges?’ it’s getting harder to find the best people,” says Regina Sacha, vice president of human resources for Roberts Express in Akron. “So we are turning to other creative avenues, such as adding maturity to the work force.”
Countering the labor shortage by bringing in older workers, however, introduces another obstacle: health care costs associated with employing an aging America. When companies that employ senior workers start negotiating for employee health insurance plans, does the older age median result in higher insurance costs?
In the 1998 “Older Workers Survey,” jointly funded by the Society for Human Resource Management and the American Association of Retired Persons, 392 human resource professionals responded. When asked if older workers increase the health care costs of their organizations, 33 percent contended they do, 36 percent disagreed and 31 percent said they were unsure about the impact older workers have on a company’s health care costs.
“Some of it is myth and some of it is true,” says Paul Magnus, director of the Senior Employment Center, a division of Senior Workers Action Program in Akron. “In some cases, employers will perceive that health care costs will be higher. You just have to look at the overall picture.”
But the big picture, say area employee benefits administrators and insurance specialists, illustrates that the greater number of mature workers in the work place, the higher the premiums for health care coverage.
“Certainly, where you have the higher ages, you’re going to have a higher cost factor,” says David Stewart, director of compensation and benefits at Diebold Inc. in Canton.
Susan Palomba, manager of health care planning and administration at Canton-based Timken Co., concurs.
“I would say that’s a logical conclusion, because as people age, they often do have a greater need to utilize medical services,” she says.
“When you start shopping for insurance products, carriers ask for census and demographic information of your employees. And the age does make a difference,” Sacha clarifies.
Ed Morrison, president of the employee benefit division at Evans Insurance Agency Inc. in Akron, confirms the contention.
“It does definitely change the demographics of a group. When we quote, either in a stop-loss situation for self funding, or when we go to a fully insured carrier, an insurance company comes up with an average rate for the group,” he says.
“It’s just a plain fact that the older the employee, the more it’s going to cost for insurance, because you can almost guarantee the claims experience is going to be higher than a younger group.”
That reality is one reason many companies — Roberts, Diebold and Timken among them — are going the self-insured route. The alternative is a cocoon of sorts.
“We have been able to secure competitive benefit plans because we are self insured, and it does insulate us slightly,” says Sacha. “Obviously, you still have to pay out what you experience, but you don’t have the demographic issue that determines what your rates are going to be.”
Palomba says that’s a problem with a fully insured situation.
“You’re paying a level premium regardless of the claims experience of the group. We wanted to assume the financial risk for the claims rather than pay increasing premiums when the insurance company didn’t necessarily incur that much expense.”
Morrison sees a trend in larger firms moving in the self-insured direction because “fully insured rates are pretty volatile right now,” he says.
To minimize the self-insured risk and reduce their health care costs, Roberts, Timken and Diebold promote healthy lifestyles for workers by offering wellness programs ranging from nutrition education, cholesterol and blood pressure screenings to weight management and smoking cessation programs.
“We have a lot of wellness initiatives to keep our work force physically and mentally young at heart, despite the chronology,” says Sacha.
In addition to encouraging preventive services such as routine physicals, well-woman exams and mammogram screenings, Diebold and Timken advocate on-site health risk appraisals.
“[Workers] get a report back that tells them what their risks are and how to address those risks. For people who are identified as high risk, our nurses follow up with them,” says Palomba. “We have actually steered some people into preventative programs to help them look at their health risks and we offer them opportunities to do something about it.”
Do such wellness initiatives, in turn, reduce health insurance costs for self-insured companies?
“Absolutely,” says Sacha. “There is a lot of data out there that suggests that a healthy work force costs much less in insurance rates.”
“We certainly believe that the more preventive measures that can be introduced will impact on our costs,” Palomba says. “Our trend in terms of medical expense increases over the last three years has been very low — and there are a lot of factors that influence that — but some of it we may attribute to these preventive measures.”
Sacha speculates that as America’s work force continues to mature, it will alter pricing of premiums for employee health care plans.
“I’m always looking at the big picture of things and, as the work force matures, I think that’s something that will change the demographic pool in the future, especially since people are healthier and more vital. Sixty isn’t 60 anymore — 60 is 50,” she says.
Morrison disagrees. “It’s doubtful. There’s no way of getting around it — the older the demographics, the higher the rates. After all, insurance companies are in business to make a profit, like everybody else.”
What difference does it make?
Size matters, says Morrison. For larger companies — with greater resources and more options — self funding is more easily effected.
“If you’re self funding, you’re the equivalent of an insurance company,” he says. The disadvantage, when it comes to paying your own claims, is an unfamiliarity with “reasonable and customary charges.”
Including a preferred provider organization in your plan — as does Diebold — can buffer the blow, because you can take advantage of discounts the PPO negotiates for medical services, says Morrison.
Better yet, contract a third-party administrator to adjudicate claims for you.
“Of course, you don’t want to pay a million dollar claim out of your own pocket. What you want is to allow a third-party administrator to go into the market place and find a stop-loss insurance company — one that specializes in self funded — that will give you a specific, per-individual deductible,” Morrison explains.
In that case, most self-funded employers will attach an aggregate, he says.
“That means if you have multiple claims, but you haven’t quite met all the specific deductibles, there’s an attachment point which is a higher amount. If you reach that aggregate, your stop-loss carrier will pay the claims.”
How does a small company with fewer resources for self funding deal with the dilemma of higher insurance premiums associated with aging Americans?
Consider hiring more mature workers for part-time, consultant and mentorship roles, Morrison suggests.
“Typically, older pe
ople are looking for part-time benefits and work hours anyway,” he says. “But the critical issue is that we don’t have a trained work force, and a more mature work force will bring more stability and experience.”
How to reach: Evans Insurance Agency Inc., (330) 535-8157