At the end of 2009, the American economy still suffered from high unemployment. Lending institutions were conserving capital funding for new projects, and small businesses were investigating how federal legislation on health care reform would impact their employees and their bottom line. As the November-December 2009 “Precaster’s Perspective” revealed, much of the nearly $800 billion in federal stimulus had not yet filtered down to precast producers in many regions. NPCA’s technical consultant Sue McCraven invited precast producers James Crockett of Trenwa Inc., Malek Eljizi of Stress-Con Industries Inc. and Steve Wolszczenski of Terre Hill Concrete Products Inc. to discuss how economic uncertainty affects health care planning in 2010 for their respective companies. For recently published “Perspective” articles on the economy and the industry’s response, visit NPCA’s website at www.precast.org.
Q. Do you anticipate higher health care costs in 2010?
A. Eljizi: Health care cost has been rising for several years, and the total health care expenditures grew at an annual rate of 9 percent to 10 percent since 2007. We are anticipating our health care costs will probably sustain an average increase of 12 percent to 15 percent for 2010.
A. Crockett: Yes, it has become pretty much a given. Almost each year we are notified of renewal increases. We are very aggressive in our shopping and research to provide our employees affordable health benefits, but each year the insurance industry raises the bottom line. I wish I had the ability to give raises to my employees at the same rate we give raises to the insurance providers.
A. Wolszczenski: Yes. Our company has already been notified of an increase to keep our current insurance coverage the same in 2010; the renewal offer is even higher than the national trend of a 12 percent increase. During a time when margins are shrinking and the market is uncertain, an increase this large is even more unacceptable to our business than during good times, so we are seeking alternative options. There are only so many changes you can make to your insurance benefits, and we are exploring those options to get whatever impact we can from making changes to co-pays and deductibles, all the while trying to maintain responsible and affordable coverage for our employees. It appears that we will move to a fully insured, high-deductible plan and then implement an HRA (Health Reimbursement Account) program in order to achieve our goals. Implementing an HRA program allows our company to “self insure” increases to the employee’s deductible, and this program has the potential to keep premiums similar to those we are currently paying. Our final costs will depend on how many employees spend above their current deductible level and dip into the portion being paid for by the company. There is some risk/reward with this type of program, but based on our options, the potential gains outweigh the likelihood of the worst-case scenario.
Q. Are you concerned about potential tax changes to pay for federal health care reform, and does this affect your benefit planning for your employees?
A. Wolszczenski: Yes. We are concerned about potential tax changes, and the uncertainty of what may come is contributing to a grave concern for our long-term goals for our health insurance program. However, right now we are trying to keep a good, responsible benefits package available for our employees and are making the best decisions we can based on what we know now. The bottom line is that decisions will have to be made as necessary for the greater good of the business. If health care reform creates additional financial strain to our company, we will have to do what is necessary to relieve that strain. Does that mean that we will need to reduce or eliminate our medical and prescription benefits? We don’t know and certainly hope not.
The House of Representatives has proposed an 8 percent employer payroll tax for uninsured employees. The Senate’s proposal sets a flat rate of $400 tax penalty per employee to employers who do not offer coverage. Although neither of these options is cheap, the truth is that paying either one of the proposed tax penalties would be a lot cheaper than paying the monthly health care premium for a single employee, let alone an employee electing family coverage. Tax penalties may actually encourage employers to eliminate employee health care and drive more people to the private and public options.
A. Crockett: Yes, we are concerned. Taxes like insurance premiums always seem to rise. There is only so much money earned for our product, and the more that is taken from it, the less is available for things like payroll, benefits, incentives and equipment.
A. Eljizi: The two programs (tax change and health care) are linked because both will affect the bottom line for employers and employees. The changes could mean higher cost, and it is difficult to predict what other effects these increases will have on our market.
Q. Have you cut staff in anticipation of higher health care costs in 2010?
A. Crockett: We have not cut staff at this time. To produce our product, it takes a given number of direct labor hours, so we have to employ a relative number to direct labor. The increased mandatory overhead will affect compensation and expenditures first.
A. Eljizi: We have reduced our staff due to a downturn in market share and the uncertainty of the higher health care cost. When you need to save money to offset a higher health care cost, you must consider wage reduction due to market downturn and wage freeze, including overtime management.
A. Wolszczenski: No. We are maintaining our staffing levels based on the business measurements for productivity already in place. Now more than ever, customers want a quick turnaround on their orders with us, and a reduction in staffing would not allow us to achieve our goals for satisfying our customers’ needs. We know how many employees we need to pour “x” amount of yards of concrete, and that will continue to be our barometer for staffing. Health care, however, is already one of the larger costs to our company, and in today’s economy I don’t think anybody wants to tell a customer that their prices are going up 15 percent because we are passing our health care program increases directly to them. We realize that if we cannot continue to control the costs that affect our sales price, it would be unfavorable for successfully bidding projects and keeping work available for our employees.
Q. Have you postponed business decisions, equipment purchases or other major expenditures because of the uncertainty of future health care costs?
A. Crockett: No, we are expanding our operation due to the growing market we serve. Expansions like labor are a must in our business. How much non-product-related overhead – taxes, health insurance, 401(k) contributions – that a precast operation can absorb: that may be another issue. There are things we must have: raw material, utilities, equipment and taxes. As the profit margins shrink, the elective overhead takes the first hit (bonuses, low-deductible health care, profit sharing). The point is that expensive health care will eventually come out of the worker’s pocket. The company is going to pay its bills in whatever form they take – whether from a government entity or a private insurer. High health care costs will still affect the worker’s income. I think reducing the cost of health care insurance is more important than fighting over who sends the bill.
A. Eljizi: Many companies are delaying equipment purchases due to the uncertainty of our market and the future of health care cost. Yes, we have postponed any large equipment purchases, but we are updating our current equipment to maintain competitiveness with our market industries.
A. Wolszczenski: The uncertainty of the economy has impacted some of our business decisions, but nothing specifically attributable to health care cost uncertainty.
Q. What changes have you made to your health care plan in terms of single and family deductibles? Have you made changes to your profit sharing or 401(k) plans to reserve cash for health care increases?
A. Eljizi: We have increased employee health care contributions by 50 percent to offset the cost increase being imposed by our insurance provider, including doctor visit deductibles, emergency room charges and other related costs. Any and all 401(k) company contributions have been on hold; our employees, however, can still contribute to our 401(k) plan. We are seeing a large number of our employees opting out to contribute to any future savings.
A. Crocket: Yes, unfortunately our deductible has increased some in the past few years. We have gone to extra measures to try to help offset employee expenses. We have maintained the 401(k) and profit sharing program for our employees. We try very hard to take care of our employees in both benefits and compensation. With that said, both the company and the employees have paid more for less insurance with respect to higher deductibles.
A. Wolszczenski: As mentioned in my first response, it is likely that our company will be changing insurance to a fully insured but high-deductible plan. This plan will save premium costs over keeping our existing lower-deductible plan. However, we do not want to pass on a $3,000 deductible to our employees – how could they afford that? Therefore, we will implement an HRA program, which will result in the employee and the company sharing the deductible. Employees will be responsible for paying the first $1,000 of deductible. Once an employee meets that deductible amount, the company will pay the remaining deductible amount up to the $3,000 maximum deductible for the employee and his dependents. This model capitalizes on the fact that not all employees require medical services that trigger payment of a deductible. If we paid the maximum deductible for
all employees, it would cost us more as a company. However, if only 20 percent to 50 percent of our employees require company contributions toward their deductible, we will save money versus a low-deductible fully insured program. This solution will help us avoid making other difficult decisions such as 401(k) match reductions or profit sharing reductions. That said, profit sharing is exactly what the name implies: If profits are down, then the money to be shared with employees will decrease. Health care costs have a definite impact on a company’s profits.
James Crockett has been a plant manager for 15 years, 11 of which have been with Trenwa Inc. at its Warsaw, Ky., facility. He has an extensive background in precast concrete and structural steel. Trenwa Inc. is a leading producer in precast trench products for the utility industry.
Malek Eljizi is vice president and general manager of Stress-Con Industries Inc. in Shelby Township, Mich. He has an engineering degree from UTA and has been involved in the precast industry for more than 28 years.
Steve Wolszczenski is the director of Safety and Human Resources for Terre Hill Concrete Products Inc. in Terre Hill, Pa. He has worked in this capacity for 10 years and is a past Chair of the NPCA Safety, Health and Environmental Committee. Prior to Terre Hill Concrete Products, he spent seven years as the Corporate Health and Safety Director for Yuasa-Exide Inc.
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