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September 09, 2002 02:00 AM

Processors grapple with health-care costs

Steve Toloken
Assistant Managing Editor
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    Health-care costs for Toray Plastics (America) Inc.'s foam extrusion plant in Front Royal, Va., have been rising 10-13 percent a year.

    Injection molder Makuta Technics in Columbus, Ind., saw a 13 percent increase last year, and 14 percent this year.

    Molder Precise Technology Inc. is facing a 37 percent increase in health-care costs next year, after seeing a jump of 22 percent last year.

    Health-care costs again have become a major issue for businesses, including plastics, after a period of stability in the 1990s. Pushed by a host of factors, from aging populations to rising drug prices, health-care costs nationwide increased 11 percent last year, and some estimates project double-digit annual increases for the foreseeable future.

    So what to do about it?

    Ideas abound. One plastics trade group, Mid-America Plastics Partners Inc., said the rising cost of health care is its members' No. 1 issue. Indianapolis-based MAPP is focused on educating members' employees, to enlist them in controlling costs.

    Others, like the National Association of Manufacturers and the National Business Coalition on Health, advocate a sort of Six Sigma for health care, saying that businesses need to pressure hospitals to apply cost-management principles.

    Still others push a more radical solution. Martin Kellogg, president of molder UFE Inc. in Stillwater, Minn., is chairman of a private foundation that advocates giving employees extra money and letting them be more responsible for their own health-care costs, instead of companies picking up most of the tab.

    No issue is more critical to manufacturers right now than containing health-care costs, said Jerry Jasinowski, president of Washington-based NAM.

    A NAM survey released Sept. 4 found small and medium-size manufacturers are being hit hardest - one-third of them are seeing costs rise at least 20 percent a year.

    Generally, plastics processors find themselves torn, not wanting to cut benefits but struggling to absorb costs while their customers are demanding price reductions.

    ``We seriously considered dropping health insurance [last year],'' said Becky Wolf, vice president of Scottsburg Plastics Inc. in Scottsburg, Ind. ``The plastics industry was in a tough position and we were in a tough position.''

    Like many firms, the company has had to make its 85 employees pay more for care, which has cost it a few workers, she said. Controlling costs for small firms, such as those with less than 100 employees, can be hard because one or two major illnesses among employees or their families can send premiums way up.

    ``Our cost is high basically because we had a couple of folks a couple of years ago who were very ill, and we started paying high premiums,'' Wolf said.

    Precise, based in North Versailles, Pa., switched to self-insurance two years ago for its 850 employees. Without that, its cost probably would have gone up 28 percent last year, instead of 22 percent, said human resources manager Leslie Quaely

    Precise, too, may ask employees to pick up more of the costs. But Quaely said the firm wants to continue to offer what it sees as very good benefits, and wants to keep employees informed and happy with their health care. To that end, the company installed 15 Internet kiosks in all its factories last year, chiefly to give employees direct access to the Web sites of its health-care providers to answer benefits questions, she said.

    One large plastics manufacturer, Eastman Chemical Co. in Kingsport, Tenn., is taking a serious look at the favorite strategy of some business groups: controlling costs and improving health care by measuring quality and applying management principles.

    The effort is prompted by the perception among businesses that the health-care industry is not efficient. A June study from the Chicago-based Midwest Business Group on Health, for example, claims that inefficiencies and poor use of medical services wastes about 30 percent of every dollar spent on health care. When indirect costs like lost productivity are factored in, that works out to about $1,700 per employee each year, the study said.

    ``It's like everything else that employers have done in the last few years, where they have applied quality principles to take costs out,'' said Rob Johnson, Eastman's manager of health and welfare plans and a board member of MBGH.

    Eastman is negotiating with health-care providers to provide bonuses to hospitals for meeting targets in areas like diabetes or asthma management, he said. But many medical providers need to make better use of electronics records to make the system work, he said.

    Eastman has about 11,000 employees and retirees in the Kingsport market, which gives it plenty of clout in negotiations, he said. But Johnson acknowledges that many employers lack that kind of leverage.

    UFE's Kellogg thinks he has a solution for small companies.

    Kellogg said it's a trap to think the health-care system can be made more efficient with management principles. Instead, he advocates reserving insurance for major health problems, putting in high deductibles of at least $1,000, and boosting cash pay to employees to let them pay for more routine medical care.

    In 1998 he helped start the Citizens' Council on Health Care, a St. Paul, Minn., group that calls itself an advocate for free markets in health care. CCHC wants Congress to make it easier to establish medical savings accounts for employees.

    Kellogg declined to describe the cost of health care at UFE, other than to say it is less than the $390 average monthly cost for family coverage that MAPP estimates for its plastics companies.

    ``We set out to share the cost and to better control what was going on in the health-care part of compensation so we could pay more into the cash part of compensation,'' Kellogg said. ``We believe we've achieved it.''

    Trade group MAPP is spending a lot of time on health-care issues, but does not have any overall solution that it advocates, said executive director Troy Nix.

    MAPP found that its members pay about $4,700 a year per employee for health care, which is within national norms, so the group concluded that its members probably could not control costs without major changes in their benefits, he said.

    Instead, the group is focusing on education. To get up to speed, Nix became certified as a life and health insurance agent.

    MAPP's staff will go to any member company and meet with employees, both as a group and individually, to go over their health-care plans, talk about rising costs and encourage employees to take advantage of preventive care, like yearly physicals, Nix said. The effort, which is just beginning, aims to enlist employees in controlling costs, he said.

    ``Companies can no longer shoulder the burden of 30 and 35 percent increases,'' Nix said.

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