While the recession has presented plenty of challenges to most area businesses, the impact of recent national health care legislation has thrown in added complications for local insurance agencies and brokers.  

Insurance businesses are not only busy helping clients deal with the results of a prolonged recession, but with understanding and preparing for upcoming health care reform hurdles as well.

Capax is a Modesto-based independent insurance company whose history dates back to the 1880s. The employee-owned company has clients nationwide, but 60% of its revenues are generated here in the San Joaquin Valley from a client base that includes growers, food processors, shippers, manufacturers and contractors.

Costs and benefits

According to Joel Geddes III, Capax Business Advisor, the current mix of economic and political circumstances is forcing clients to carefully balance cost with benefits.

“Given the recession and the inflationary nature of health care, employers are becoming more and more creative with their benefit plans,” he said.  “Employers are looking to reduce costs in all aspects of overhead, and benefit reductions have been a big part of the cost cutting.”

Employers have hundreds of available options in creating a plan for their employees.  The trick for those that already offer coverage is in finding a solution that cuts costs without appearing to significantly reduce the benefits to their employees.  Currently, a popular way of doing this is through a deductible plan with first dollar office visits.

“What these plans provide is a low co-payment when seeing your primary doctor, but if admitted to the emergency room or the hospital, a deductible applies from $1,250 up depending on the plan,” said Geddes.

High deductible plans

Shepardson Insurance Services Inc. in Modesto offers insurance packages to employers with 2 to 50 employees and acts as its clients’ outside human resources department. Keith Shepardson, President, says his customers are expressing an increased interest in high deductible plans as well.

“I am seeing most look at a $30 co-pay with a deductible of $1,500 like Kaiser offers.  Aetna offers a $15 co-pay with a $10,000 deductible, yet that high a deductible can really hurt some individuals,” he said.

These types of plans are attractive for the low cost of office visits, but need to be balanced against the financial risk if specialized treatment or hospitalization is needed.    “It is not the best, but it works. I would generally offer a side plan that might provide additional ‘first dollar benefits’ that could offset the high deductible at a nominal cost,” said Shepardson.

The slumped economy isn’t the only complication for businesses offering health insurance coverage to their employees.

“This year has been the most frustrating regarding health insurance because of all the law changes, COBRA changes, reduction in benefits and increases in costs,” said Shepardson.

The current open-ended question is whether national health care reform will help curtail costs.

Rising costs

Neither Geddes nor Shepardson believe the legislation will ease health care costs.  In fact, they say costs will continue to rise.

“The reform will not change health care.  It will change health insurance,” Geddes said  “Health care will continue to cost more because the new legislation mandates more coverage.”

Because health insurance companies work on less than a 3% profit margin, the added burdens the legislation requires will pinch these slim percentages even tighter, Geddes says.

“Now they are being required to extend coverage to 26 year olds from 21 and get rid of pre-existing causes.  There does not appear to be enough margin to absorb these costs, therefore the rates will continue to rise,” he said.

Shepardson agrees.

“The health reform is good for few and very expensive for all that are working.  The new national health care is not going to reduce the cost at all.  This is what many believe.  In fact, it is going to make the cost more expensive,” he said.  “The best federal government national health program is Medicare which is a failing system where the cost keeps going up and the benefits keep going down.”

With the legislation’s greatest impact to employers coming in 2014, Geddes says that businesses not currently offering health insurance are in no hurry to do so.  Capax has not experienced a rush from employers wishing to implement plans that will be required in the future. Instead, the company has fielded more questions from employers that already provide health insurance coverage.

“In some cases, depending on the age and health of the work force, the cost to implement a plan that fits the [reform] guidelines can be more expensive than the $2,000 per employee per year charge for the government plan,” said Geddes.  “This could possibly force uninsured workers into the government plan.  It could also provide an employer with an alternative to providing health benefits.”

Geddes believes that businesses that are required by the legislation to offer coverage will do so in order to stay in business.  Yet, the cost of products and services those businesses offer will be driven up in response to the added cost of doing business.  He expects that some companies may chose to reduce the size of their workforce so they won’t be subjected to the legislation’s guidelines.

Perseverance

Despite the uncertainty and strain of a sluggish economy exacerbated by the questionable impact of health care legislation, both Capax and Shepardson Insurance expect to remain strong participants in the insurance industry for the long haul. 

“Shepardson Insurance is doing fine.  I planned on this slow down being proactive with the economics, yet I am always optimistic,” said Shepardson.

Capax has experienced a significant growth from its non-health care insurance lines of business in the first five months of 2010, while health sales have remained stable. 

Just as he expects insurance carriers to develop new products tailored to the reform’s requirements, Capax will take advantage of new possibilities as well.

“In business, change brings opportunity; opportunity to serve, opportunity to grow and opportunity to advise,” he said.  “We remain committed to the employee benefit business.”