A quarterly survey of fleets conducted by Transport Capital Partners (TCP) indicates that rising health care costs are increasing fiscal pressure on their bottom lines as well as complicating efforts to recruit drivers and independent contractors.
According to TCP’s fourth quarter Business Expectations Survey, over 80% of carriers the firm polled report that recent health care changes will adversely affect them. As a result, more carriers (43%) are shifting additional costs to employees and are asking employees to pay more for family coverage (37%). Some 29% report that while they are affected by increased costs, they still haven’t developed an alternative plan.
“With two-thirds of carriers telling us that driver wages must go up above $60,000 to attract and retain drivers, it is likely that drivers will also put more emphasis on shopping for fringe benefit packages as a part of the compensation mix in the future, especially as the effects of health care change reverberate through the economy,” noted Richard Mikes, a TCP partner and survey leader.
“The cost pressure for driver health care and other employees’ health care is just another balancing act challenging carriers this year during rate negotiations and amidst uncertainty in the general overall economy,” he added.
The problem posed by the rising cost of health care is not just an issue for trucking alone. According to a study published last October by global human resources consulting firm Aon Hewitt – a division of insurance provider Aon Corp. – the average health care premium rate increase for 2012 is expected to be around 7%, which is slightly lower than the 7.5% mark in 2011 but on par with the 6.9% increase experienced by businesses in 2010.
However, the average total health care premium per employee for large companies is projected to be $10,475 in 2012 – up from $9,792 in 2011 and $9,111 in 2010. Aon predicts the average amount employees will be asked to contribute toward this premium cost this year is $2,306 – some 22% of total health care premiums – compared to $2,084 in 2011 (21.3%) and $1,952 in 2010 (21.4%).
Meanwhile, average employee out-of-pocket costs – such as co-payments, coinsurance and deductibles – are expected to be $2,275 in 2012, compared to $2,007 in 2011, and $1,691 in 2010, according to Aon’s study.
Aon said several factors are driving health care cost increases. First, employers continue to experience an increase in the quantity and cost of catastrophic claims, as slower levels of hiring have resulted in slightly older workforces who are more prone to costly medical conditions. Second, generally poorer health – leading to increases in costly conditions such as diabetes and heart disease – is making it difficult for employers to deploy tactics that drive short-term cost savings.
As a result, employers continue to ask employees to absorb increases through a combination of out-of-pocket cost and increased payroll contributions, the firm concluded.
“In addition to sharing costs with employees, organizations are implementing more aggressive ‘incentive’ strategies to get [workers] to understand, and manage, their health,” noted Jim Winkler, large market segment leader with the health & benefits practice at Aon Hewitt.
“Some employers are adopting the mindset that says, ‘if you are going to spend a lot of house money, you need to play by house rules,’ including completing a health-risk questionnaire, participating in prevention and wellness plans, and better managing chronic conditions,” he added.
Lana Batts, a TCP partner, pointed out that such health care cost pressures are putting a greater squeeze on smaller carriers and independent contractors in particular.
“Contractors must be compensated for the cost of their own health insurance or this source of capital and labor for the industry will continue to shrink,” she said. “The survey continues to show less reliance on contractors, because they are simply less available.”
Batts added that smaller carriers are being hit harder than their larger brethren (39% vs. 24%) and are shifting more health care costs to their employees, while wellness plans are becoming more popular with larger carriers. “These changes will also impact the competitiveness between large and small carriers,” she stressed.