The Peoria-based company said these provisions would increase its insurance costs by at least 20 percent, or more than $100 million, just in the first year of the health-care overhaul program.
"We can ill-afford cost increases that place us at a disadvantage versus our global competitors," said the letter signed by Gregory Folley, vice president and chief human resources officer of Caterpillar. "We are disappointed that efforts at reform have not addressed the cost concerns we've raised throughout the year."
An email from Administaff( ASF) to a friend of mine, who runs a small business:
Notification of Change in Service Fee
Due to Health Plan Cost Increases
Dear Mr. __________,
I am writing to inform you of an upcoming Administaff Group Health Plan (Plan) cost increase that, in spite of our best efforts to avoid, is necessary and will be incorporated into your Administaff service fee beginning in April 2010, applied to the first payroll that occurs at least 30 days after the date this notice was sent. This increase has been prompted by a series of statutory changes enacted by Congress, related to the extension of benefits to terminated employees under the Consolidated Omnibus Budget Reconciliation Act (COBRA). The increase will amount to $12.00 per month for each covered employee participating in the Plan. So that you can easily see the impact of this increase, we have attached schedules showing your specific service fees before and after the change. Currently, your average service fee percentage is 16.42%, and this $12.00 increase per covered employee will result in an average service fee percentage of 16.58%.
How, specifically, has ARRA affected health care costs?
In February 2009, Congress passed, and the President signed into law, the American Reinvestment and Recovery Act of 2009 (ARRA), which is sometimes referred to as the “Stimulus Package.” ARRA required employers to retroactively offer a second chance to elect COBRA coverage, along with providing a government subsidy of 65 percent of the COBRA premium for up to nine months, as long as the remaining 35 percent of the premium is paid. This second chance at COBRA, coupled with the government subsidy and the high level of layoffs due to a challenging economic environment, has almost doubled the number of individuals electing COBRA – from 3.8 percent of Plan participants in the second quarter of 2008 to 7.2 percent in the fourth quarter of 2009. This increase in COBRA participation is particularly significant, because the cost to the Plan of COBRA claims, per enrollee, has historically been approximately double the cost of claims filed by non-COBRA enrollees. As a result, the net cost to the Plan far exceeds the COBRA premium paid.
Administaff stands by our commitment to our clients.
When enrollment of COBRA participants increased dramatically in the first half of 2009, it was not possible to determine the future level of claim activity and associated costs. As of the beginning of the third quarter of 2009, our best estimate for the additional 2009 COBRA costs was approximately $6,000,000. Last October, I sent a letter to all Administaff clients stating that Administaff had decided to absorb these additional costs for 2009 in order to help our small and medium-sized business clients through a difficult economic period. However, based on the final claim costs for 2009, Administaff absorbed $12,000,000 of COBRA-related costs, as reported in our recent quarterly earnings announcement. Even though the COBRA costs were double our original estimate, we continue to honor the commitment we made to clients last fall, in spite of the financial ramifications of substantially higher-than-expected costs. Therefore,Administaff will make no effort to recover these additional 2009 COBRA costs, and the price adjustment we are announcing in this letter does not include any such effort.
We are proactively monitoring COBRA developments, with an eye on the bottom line.
Unfortunately, because Congress recently extended both the eligibility and subsidy periods for COBRA, this increase in Plan costs will continue into the foreseeable future. Specifically, ARRA was amended on Dec. 19, 2009 and again on March 2, 2010, lengthening the term of the 65 percent COBRA subsidy from nine to 15 months and extending the eligibility period from Dec. 31, 2009, until March 31, 2010. This means the increased level of COBRA costs is expected to continue until July 1, 2011. Furthermore, now that we have received the 2009 results from our insurance carriers who underwrite the Plan, we have more precise information concerning the number of participants, the level of claims per participant, and when each participant’s subsidy and coverage terminate. Using this information, we now estimate the additional COBRA-related costs for 2010 to be in the range of $11,000,000 to $13,000,000, if no further subsidy extension is enacted. If the subsidy is extended, as some political analysts predict, the additional COBRA costs for 2010 are estimated to be in the range of $13,000,000 to $16,000,000.
Administaff works diligently to help you control costs.
According to recently published reports by insurers, additional COBRA-related health plan costs increased insurance company claim trends and are being incorporated by insurers into their customers’ health insurance rates throughout 2010. As stated above, prior to the service fee increase we are now implementing, Administaff absorbed all additional 2009 COBRA costs, as well as an estimated $3,000,000 in 2010. It bears repeating that this service fee increase does not recover any prior costs, but rather offsets the estimated ongoing extra costs we expect to incur due to a continuation of higher COBRA participation levels under ARRA. We currently anticipate that these extra costs will decline when, and if, the COBRA subsidy period expires, at which time any resulting reduction in cost trends for the Plan will be incorporated into Administaff service fee renewal rates.
As part of our ongoing effort to help you attract and retain top employees, we remain committed to offering the best benefit plans at the lowest possible cost. Additionally, to provide options for you to control costs and determine the appropriate level of investment you wish to make in employee benefits, we also intend to continue to offer a wide variety of plans. If you have any questions regarding these alternatives or the service fee increase reflected in the attached documents, please call your Administaff renewal specialist, Dede Fountain, at 281-312-3656.
Thank you for allowing us the opportunity to serve you and your staff.
Paul J. Sarvadi
Chairman of the Board and Chief Executive Officer
Chairman of the Board and Chief Executive Officer