Editor's note: The following article is part of an ongoing series looking at the effects of sequestration.
Despite looming sequestration cuts and impacts to bottom lines, defense companies say forgoing insurance for their employees is not an option.
That’s according to a recent group of HR and defense executives at a recent roundtable at The Daily Transcript sponsored by Intercare Insurance Solutions.
“These are interesting times to be in the insurance industry,” said Maggie Osburn, executive vice president of business development and marketing at Intercare, a corporate insurance brokerage firm. “Everyone is dealing with health care reform but then lay on top of that sequestration and it’s kind of a double whammy.”
Every company Intercare is working with is dealing with certainties and uncertainties of health care reform, she said.
One bright area seems to be employee wellness programs, which can impact utilization and fight rising health care costs.
“It’s what we preach as part of our strategy in combating costs. We know you don’t put it in and immediately start to save money. It’s a marathon, not a sprint,” Osburn said.
While some companies see a return on investment in the first year, most see it in year two to three. Due to that slow return, asking a CEO or CFO for money to invest in wellness can be a tough sell.
“The healthier the population the less the utilization, and the happier and more productive they are. That falls to the bottom line,” she said.
Roger Colbath, engineering director at ViaSat, agreed.
“We think a healthier workforce is a more productive workforce,” he said.
A quadruple bypass can sometimes be prevented five to 10 years out through a strong wellness program in place.
“If you give them a free gym membership and they will use it, it’s money in the bank,” he said.
ViaSat has stepped up to educate its work force and place a focus on biometrics.
“We want people to know where they are at and where there’s risk and offer coaching to make improvements,” he said.
Colbath surveys its employees to figure out where the sensitivities are in the insurance discussion and asks whether employees would consider going without health care.
“I find that no, there’s no way," Colbath said. "Not only that, it has to be a really rich plan to compete to attract people we want to come to our business. And so it’s a real dilemma how to continue to provide a rich plan.”
Informing employees that they have choices, in terms of where they go for health procedures, can help save money.
“If you were planning a vacation you would go to Travelocity to get the lowest-priced airline ticket. But if you need an MRI why don’t you find the most affordable MRI provider?” he asked.
That requires educating employees so they understand what the boundaries are.
“It brings them in so they are participants in managing costs,” he said.
One issue standing in the way is that San Diego is heavily HMO driven.
“When looking at an MRI, most plans are a $100 co-pay. It doesn’t matter if it costs $1,500 or $600 -- to them, it’s $100. There’s no incentive for them to look as they do on Travelocity," said Linda Keller, executive vice president of consulting and account management at Intercare.
Consumer-driven plans would encourage employees to shop around and find the best price.
“We are so heavily HMO-driven in this town as long as we maintain that, I don’t see utilization really changing significantly,” Osburn said.“We are an anomaly with HMOs. Most don’t exist in a lot of states.”
HMO penetration in San Diego is about 50 percent, she said.
“That’s incredibly high. It’s not the best way to engage the consumer in that purchasing decision because there’s no transparency,” she said.
Vector Planning & Services Inc.'s customers are working to minimize the effects of sequestration and are being selective where they are making cuts.
“Most of us are working very closely with our military customers or federal customers that are facing sequestration decisions,” said Tony Nufer, general manager of the Southwest region at VPSI, whose company deals heavily with SPAWAR.
While sequestration triggers across-the-board percentage cuts, that’s not always the case for individual programs.
“They are looking at what efficiencies they can gain and prioritizing what needs to be done and who has to do it,” Nufer said.
Phone calls have been pouring into the office of Mitch Danzig, member in the employment and litigation group at Mintz Levin, since talk about sequestration started.
Defense industry organizations want to know how to soften the blow.
“Furloughing is the one standard remedy most companies think about first implementing, but a lot are trying to be creative," he said.
Jim Miller, president and CEO of Del Rey Systems & Technology, finds that each contract is different. It’s had furloughs on one contract, for example.
“It’s unfortunate for us because we are providing the lowest per-hour work group in this contract. A single mother with four children furloughed for three weeks,” he said.
Del Rey reacted to unpaid time off, pulling Christmas bonuses back and handing them to furloughed employees, for example.
“We got gift cards from Target and made a deal with Target to get a couple extra bucks,” Miller said. “The impact is much more on employees than the company."
Miller's company has paid 90 percent of health care costs since the company was incorporated in 1995.
"That is a tremendous burden right now to continue to carry," he said. “I don’t see not offering health care as an option. If you’re talking about changing and going into a government-run pool kind of thing that is something we are fiercely considering because of the cost."
Roger Colbath, Engineering Director, ViaSat
Mitch Danzig, Member, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C.
Leigh Ann Justison, Human Resources Manager, Vector Planning & Services Inc.
Linda Keller, Executive Vice President, Consulting & Account Management, Intercare Insurance Solutions (sponsor)
Jim Miller, President/CEO, Del Rey Systems & Technology
Tony Nufer, General Manager Southwest Region, Vector Planning & Services Inc.
Maggie Osburn, Executive Vice President, Business Development & Marketing, Intercare Insurance Solutions (sponsor)