The average cost of insuring employees in the manufacturing sector continues to rise at a dramatic pace, putting considerable pressure on smaller companies in particular. How are manufacturers dealing with these mounting expenses and what strategies can they implement to help reduce rising costs?
Health care in the United States is facing severe challenges, with obesity rates on the rise nationwide, a looming shortage of nurses and increasing numbers of baby boomers heading into old age. These factors continue to drive up insurance costs, and manufacturing companies are struggling to handle mounting premiums. Small manufacturing firms are especially vulnerable to climbing health insurance costs, forcing some to find creative solutions to keep expenses down.
According to the 2012 Compensation Data Manufacturing and Distribution survey from Compdata Surveys, the average annual cost of insurance per employee in a manufacturing and distribution employer-sponsored preferred provider organization (PPO) plan rose to $8,326 this year, up from $7,227 in 2009 and marking a 15.2 percent increase over the past three years.
The survey is based on data from nearly 28,000 manufacturing and distribution organizations nationwide, employing a combined 23 million workers. Researchers surveyed manufacturing professionals across 100 industry job titles, ranging from entry-level to CEO.
The findings also show that 91.3 percent of manufacturing and distribution employer-sponsored PPO plans include a deductible or co-insurance requirement for services. The average deductible on an employee-only PPO plan is $737, while the average for an employee plus family plan is $1,583. The average in-network out-of-pocket maximum on an employee plus family PPO plan is $5,335.
The expenses associated with PPO plans are causing many companies to seek alternative options that could potentially defray rising costs.
"Although PPO plans are still the most commonly offered medical plans among manufacturing and distribution employers, HDHP [high-deductible health] plans are beginning to make headway as employers attempt to contain rapidly increasing medical costs," Amy Kaminski, vice president for Compdata Surveys, said in an announcement of the results. "The high deductible requirement translates to lower overall premium costs, making them more affordable for employers to offer."
Smaller manufacturing firms face some of the toughest challenges when dealing with rising health care costs. A manufacturing company with fewer than 100 employees can see annual health insurance costs climb by 20 percent or more each year. With many smaller firms operating on tighter margins and more modest budgets than large companies, these increases may make health insurance seem prohibitively expensive.
Some small manufacturers are finding creative ways to ameliorate rising costs. For instance, 26 West Coast manufacturing firms have joined the California Small Manufacturers Trust (CSMT), a collection of businesses that have pooled their resources to provide insurance for their employees. Many of the companies in the CSMT have had yearly increases of 10-25 percent in annual premiums over past five years, but joining forces has enabled them to overcome certain insurance obstacles.
"While the cost of health insurance has increased for many other industries, small manufacturers are hit hard with other costs such as workers' compensation and overhead costs..." the Ventura Country Star explains. "[S]mall manufacturers can't cut costs and leverage better deals on their premiums because insurance companies have to assume more risks when taking on a smaller company."
By pooling resources with dozens of other businesses, CSMT members are able to negotiate better deals with insurance providers, opening access to customized plans and providing greater purchasing power that can lead to savings of up to 40 percent.