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Executive roundtable

Businesses worry about health care costs

Although California's health insurance pool is on track to hit its coverage target this year — so far providing coverage for roughly half a million people — businesses throughout the state continue to be concerned about what will happen when it comes their time to set up.

At a health care roundtable held last week by The Daily Transcript and sponsored by Barney & Barney, business leaders outlined steps they might take to keep their own health care costs down, including adjusting workers' hours, outsourcing or off-shoring work, introducing "wellness plans," or giving employees more responsibility for managing their costs.

Even though the pace of price increase has slowed in the past three years — dropping from an average of more than 8 percent in previous years to about 4 percent after the recession — business executives said they fear that further price hikes will make coverage too costly both for their employees and their companies.

"We can handle the cost structure today," said Scott Dennis, CEO of DK Engineering. "But if it rises more sharply over the long term, it will be more difficult. We're already turning over every rock and shell looking for ways to save money."

Shawn Pynes, director of employee benefits at Barney & Barney insurance brokerage, said "even though part of the Affordable Care Act is designed to control costs, the reality is that nothing in the legislation is going to drive costs down. Health care costs are likely to double by 2020."

Pynes said the continuing rise in health care costs is going to lead many businesses to pare their coverage for workers by providing fewer benefits, narrowing the coverage or pushing the deductibles higher.

A recent study by the Kaiser Family Foundation suggested that the reason for the recent dip in health care costs had much more to do with the recession — in which workers lost their jobs and health care benefits and did not make as many trips to the hospital — than with the onset of Obamacare.

When the economy improves, so could health care costs, the study suggested.

"It's like we're one collective boiling frog," said Tom Gehring, chief executive officer of the San Diego Medical Society Foundation, referring to the idea that if changes occur gradually — like the gradually rising heat of a pot of water with a frog in it — the negative consequences of the changes will not be noticed until it is too late. "We're all being boiled."

In the meantime, companies are using different methods to address the rising costs.

At ViaSat Inc. (Nasdaq: VSAT), Vice President of Operations Kevin Hunter said, "we're looking long and hard at outsourcing as much as we can."

The Carlsbad-based satellite communications firm already outsources 60 to 70 percent of its production work, so that only 25 percent of its local workers are in manufacturing. But there are limits to how much more the company can ship off, especially because about half of its work is for the U.S. government, with some security-related provisions against offshore outsourcing.

Ted Fogliani, president of Outsource Manufacturing, said he, too, is considering asking his manufacturing staff to work longer so there would be less need to hire more employees. The fewer the employees, the better the health care plans the company can afford to offer those who remain, he said.

"Over the past few years, we've seen annual increases of health care costs of 8 to 12 percent," Fogliani said. "Eight percent we can manage. But if the rate gets much higher than that, it's going to be difficult not to pass more of the cost to our employees."

But Brook Logan, chief financial officer of Emerald Textiles, takes the opposite approach. Her company is exploring the idea of "managing down" the hours of its workers below the 30-hour range to see if it can avoid required health care coverage.

But companies can't cut costs too far for fear of alienating their workers. The companies at the roundtable were particularly worried about the highly educated, highly compensated professionals involved in research and development. "The R&D side can go anywhere, so you have to offer them the best," said DK Engineering CEO Dennis.

ViaSat offers a relatively gold-plated plan since 75 percent of its local employees are highly educated, highly skilled research and development workers. Even so, the co-pays on the plan are difficult for workers to make, even with the company's subsidies, Hunter said.

At Lumedyne Technologies, "the question we ask is whether we can retain the talent to compete with a company like ViaSat," said program manager Keith Easler.

Already, the company has set its health care deductibles so high that employees pay an average of $4,000 out of pocket before coverage sets in, Easler said. "If costs continue to rise, it can be very difficult to compete," he said.

Some companies have responded to the rise in health care costs by implementing "wellness" policies, ranging from gyms to diet plans designed to keep workers healthy so they won't need to make so many trips to the doctor. A study released this week by Obesity journal detailed the correlation between body weight and health care costs.

ViaSat has opened its own Pure Fitness wellness center, requiring employees to go eight times a month to keep a free membership. "At first, people might scratch their head about how you can save money by having a gym, but it really does pencil out," Hunter said.

An onsite gym isn't the solution for every company. Pynes said companies generally need 800 employees for a gym to break even. He said some companies are pooling their resources to launch joint programs; others are exploring other methods of encouraging fitness.

"We've had some fun with wellness programs, such as offering gym memberships or encouraging people to ride bikes to work," said DK Engineering CEO Dennis.

At the same time, health care firms are adapting to the new reality as well. Gehring said one of the positive changes that has occurred under the shift to the Affordable Care Act is that community clinics have been ramping up in some of the county's poorest neighborhoods.

But he said he worries that too many people will opt for minimum insurance coverage, leaving them unequipped to cope with a catastrophe, which could lead them to seek care in emergency rooms — the costliest form of health care.

Steve Escoboza, president and chief executive officer of the Hospital Association of San Diego & Imperial Counties, suggested that if costs keep rising, the United States may shift to a single-payer system over the next 10 to 15 years, similar to the systems among other industrialized nations.

"We can't sustain the way we're doing it today," Escoboza said.

Executives who have had experience in foreign markets with single-payer systems said they have some advantages over the U.S. system.

"Our system is very poor at designing help for a number of people, including children and the elderly — the people who need it most," said Mimi Nguyen, vice president of sales and administration at L&T Precision Corp. "I'd love to have a system where help could be better balanced among everybody."

Related news: Affordable Care Act: A high priority call-to-action in 2014

SD Medical Society's Tom Gehring on the ACA (video)

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Roundtable Participants

* Chris Bao, Manager of Compliance & Regulatory Affairs, Barney & Barney (sponsor)

* Scott Dennis, CEO, D&K Engineering

* Keith Easler, Internal Operations Manager, Lumedyne Technologies

* Steve Escoboza, President and CEO, Hospital Association of San Diego & Imperial Counties

* Ted Fogliani, President, Outsource Manufacturing

* Tom Gehring, CEO, San Diego County Medical Society Foundation

* Kevin Hunter, Vice President of Operations, ViaSat Inc.

* Brook Logan, Chief Financial Officer, Emerald Textiles

* Mimi Nguyen, Vice President of Sales and Administration, L&T Precision Corp.

* Shawn Pynes, Director of Employee Benefits, Barney & Barney (sponsor)

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