Health Care Costs and the Ink Industry

By David Savastano, Ink World Editor | October 10, 2005

Ink manufacturers large and small alike are facing dramatic insurance increases, which are impacting their health care offerings and the bottom line.

Anyone who keeps up with the news in the U.S. is aware of the escalating costs of health care. Throughout the U.S., businesses and employees alike are trying to keep up with what have typically become annual double-digit insurance increases. In many cases, companies are having to go out to bid for new coverage and ultimately passing along higher costs for lesser coverage.

It should come as no surprise that the printing ink industry is facing a similar crunch. Whether it is human relations leaders at the major ink companies or the owners of small business, health care remains a major concern.

When the National Association of Printing Ink Manufacturers (NAPIM) conducted its survey of ink companies for its 2004 State of the Industry Report, the top internal concern was the rising cost of health care. To consider the ripple effect of these costs, the second largest concern was finding qualified employees, which is also impacted by health care plan offerings.

For large and small businesses alike, health care insurance increases have become a major obstacle to overcome, with companies seeing the cost of insurance spiraling upward. How to handle these costs while keeping an eye on the future has become a major part of business life.

Color Converting Inc.’s (CCI) health care costs have increased more than 50 percent in the past five years. “This year alone, we are looking at more than 10 percent in increases,” said Annette Lavia, CCI’s director of human resources.

“In the last 10 years, the price of health care has nearly doubled,” said Harold Rubin, senior vice president and CFO at Superior Printing Ink. “It has become an important issue on the P&L, and now we have to shop for health care with a critical eye.”

Smaller ink companies are facing similar pressures.

“On average, you have to expect 10 percent to 12 percent per year,” said Lawrence Gamblin, president of Collins Ink.

“The price of health care has been crazy,” said Brian Templeman, president of Kolorcure Corporation. “The cost of providing health care insurance has probably gone up 25 percent in the past few years, even if you haven’t had any major claims. We’ve been switching providers just to maintain our costs.”

“Health care is such a huge issue,” said Edward Weller III, president of Central Chemical and Service. “Across the board, there have been 15 percent to 20 percent increases in insurance rates, although ours was only 6 percent this year. We offer full coverage for our employees, while they pay for dependents. It’s a costly benefit that’s a necessity, but it’s out of control and no one has a handle on how to fix it.”

The Impact on Multinationals
While large multinational companies have some leverage to keep insurance increases slightly lower, the reality is that these costs still weigh heavily on the bottom line.

A clear example comes from the U.S. automotive industry. In a March 10, 2004 Wall Street Journal article, it was noted that health care is the single biggest cost General Motors faces each year. In 2002, the company paid $4.5 billion, which averages out to approximately $1,400 for each car that GM sold.

The major U.S.-based ink companies are also feeling the impact of these increases.

Flint Ink’s increases in medical costs have fluctuated dramatically in recent years, ranging from 38 percent in 2001 to 0.8 percent in 2003. Prescriptions have typically risen 15 percent, with a dramatic increase of 61 percent in 2001, vs. 9.4 percent in 2003.

“Our health insurance costs have gone up, but not as much as most other companies have seen,” said H. Howard Flint II, chairman and CEO of Flint Ink. “We have a plan that doesn’t emphasize first dollar coverage but completely covers catastrophic. There are high deductibles, but out of pocket coverage is relatively low.”

“Sun Chemical, like other large multinational corporations, has seen a significant increase in costs as a result of the spiraling escalation of health care costs over the past several years,” said Kenneth Sexton, vice president, compensation and benefits at Sun Chemical. “Sun Chemical is no different than other companies in seeing our health care costs follow the national averages. However, in the past few years this has been in the high single digits to low teens, alarming when you consider the significant amount of money a large multinational will spend on health care. While we make every attempt to shoulder these costs from the employees, these costs could not be ignored since they have such a significant impact on profitability and shareholder return.”

In the U.S., the ink industry has primarily been made up of privately-owned family businesses. For ink manufacturers, absorbing the costs for health care plans was a normal approach. The rapid increase in costs has changed that.

“Up until a few years ago, we were self-insuring without any employee contributions, and while we now have employee contributions that remain below industry standards, we no longer offer medical as a free benefit,” Mr. Rubin said.

Coping with Rising Health Care Costs
Essentially, prices in nearly all areas of health care are rising quickly. Ms. Lavia said that at CCI, the cost of office visits have been the fastest growing area, while Mr. Rubin noted that pharmaceuticals, dental costs, hospital and lab analysis have gone up tremendously.

Mr. Sexton said that the most significant cost increases he has seen are occurring in prescription drugs, particularly brand name drugs, outpatient procedures, in-patient and outpatient surgeries, physician charges as a result of the significant increase in malpractice insurance, hospital charges and changing technology.

One problem facing health care administrators is that the cost of health care fluctuates.

“Our plan feels the impact of large claims significantly – therefore, 1999 and 2001 would be considered ‘bad’ years in which we had several large claims,” said Anne Wolf, Flint Ink’s director, benefits and compensation. “These would typically include claims like heart transplants, premature babies and closed head injuries.

“We implemented several plan design changes in January 2003, including increased deductibles, increased out-of-pocket maximums, carved out the prescription plan and changed it, such as brand vs. generic and incenting the use of 90 day mail order,” said Ms. Wolf. “For plan year 2003, we see the impact of these design changes. In addition, we are committed to developing a Strategic Plan for Employee and Retiree Health Care in 2004.”

“The biggest driver is utilization,” said Dave Frescoln, president of Flint Ink. “We increased employee contributions last year, and this year our costs have abated.”

Odette Rossi, human resources administrator at Colorcon No/Tox Products, said that health care costs have had an impact at Colorcon, though not as great as on other companies.

“In the past few years, we have been able to keep our increases to a relatively low percentage, based on how we are rated,” Ms. Rossi said. “We’ve increased our employee contributions, although it’s still very low. We want to affect the least number of employees. For example, if a person is admitted to the hospital overnight, we cover everything over their co-pay.” Retiree medical costs are also rising. Towers Perrin, a benefits consulting firm, has reported that slightly more than 10 percent of private U.S. companies offer health care benefits to retirees, and that number is declining. Flint Ink is among that select group that provides health care benefits to retirees, but its costs rose 17 percent in 2002 and 19 percent in 2003. Further complicating matters is that the average age of ink industry employees also appears to be increasing. At Flint Ink, for example, the average age of its employees is approximately 48.

Companies want to provide the best possible health care benefits to its employees and families, and HR departments do all they can in that regard. For example, Flint Ink has increased services available through its EAP and mental health plan, added health care and dependent care accounts in 2002, and is looking at ways to leverage other benefits for employees.

“We are committed to providing a valuable benefit package to our employees,” Ms. Wolf said. “We continually review regional PPO options to provide savings options to employees. Our plan maintains a high level of choice for employees – we do not have a two-tier plan with in-network/out-of-network benefit differences, as is very typical today. In addition, we plan to add earlier case management support for the more serious or catastrophic claims and are reviewing a disease management program for assistance in the areas of chronic conditions and medical concerns related to obesity.”

Some companies are offering more program choices.

“Since our company and employees share in the cost of health insurance, it has impacted our company’s operating expenses as well as our employees’ portion of the premium,” said Ms. Lavia. “In response, we have taken measures to minimize the financial impact for everyone. For example, we have offered greater choice in our plan offerings to meet the coverage and financial concerns of employees. “We have not had to compromise service offerings,” Ms. Lavia added. “Instead, we have offered a greater choice of offerings, which has led many employees to willingly choose less costly plans.”

“Sun Chemical has always provided employees with choices in regards to retirement and health care plans,” Mr. Sexton said. “With respect to choices, employees have the option to use in-network and out-of-network providers. However, the out-of-network providers require a greater employee contribution recognizing the higher costs and lack of a network discount.”

Prescription Drugs
In particular, prescription drug costs are rising rapidly. For many companies, the costs for prescriptions for an individual employee can run into the tens of thousands of dollars.

Ink companies are working to try to manage these increases, and one approach is to offer incentives for using generics.

“The pharmaceutical portion is increasing the fastest,” Ms. Rossi said. “For pharmaceuticals, our co-pay is doubled for brand names compared to generics, although you can get a three-month supply for maintenance medications for a two-month co-pay.”

“In terms of prescriptions, if our employees use generic drugs, our plan pays more,” Mr. Frescoln said.

Ms. Wolf said that the movement of prescription drugs such as Claritin and Prilosec to over-the-counter status will help. Still, the challenge is how to focus on the high cost population in the prescription plan, where the smallest population is the highest user of the benefits. At Flint Ink, fewer than 15 percent of the company’s active employees and retirees utilize more than 75 percent of the company’s Rx claims.

There are some bright signs, at least in terms of prescriptions for retirees. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MPDIMA) will provide prescription benefits for retirees.

“Employers are required to set aside a certain amount of money every year to cover future retiree benefits they have promised,” Ms. Wolf said. “When Medicare starts paying for prescriptions, we will have fewer costs on our plan.”

Consumer-Driven Health Care Solutions
One area where change may be coming is in the design of flexible plans such as Health Savings Accounts (HSA) and Consumer Driven Health Care Plans (CDHCP). With an HSA, employers with a high deductible plan provide employees the ability to put money into a spending account; the problem is that when the money runs out, the employee will be liable for any remaining medical expenses. With CDHCP, the goal is to encourage consumers to shop for the best prices.

A recent study conducted by the National Business Group on Health and Watson Wyatt Worldwide showed that enrollment in consumer-directed health plans will continue to grow in 2004, with nearly 32 percent of large companies expected to offer a consumer-directed health plan to workers in 2004, up from 21 percent that currently offer such a plan.

Ms. Wolf said that CDHCP offers opportunities, as long as employees understand health care coverage.

“A CDHCP runs on the principle of consumerism,” Ms. Wolf said. “Employees will need to get quotes for services. The key is to educate employees to become better health care consumers and make the best decisions for themselves.”

Mr. Sexton said that education is an important role for companies.

“Sun Chemical, like other employers, has an obligation to educate employees in regards to the continuing costs of health care, and that they need to play a greater role in delivery, costs and quality of care,” Mr. Sexton said. “We have spent a considerable amount of time educating employees in regards to their taking a more active role as a consumer in the health care arena. In many cases, we have focused employees’ awareness in regards to the value they should receive for the care provided, as well as ensuring the services provided are necessary and appropriate given each health care circumstance.”

No Relief in Sight
While companies focus on education and providing the best health care options they can afford, it does not appear that any relief from double digit cost increases is coming soon.

“I am forecasting an 11 percent increase in our medical plan expenses for 2004, slightly below the most common estimate of 13 percent,” Ms. Wolf said.

“We expect a continued trend of double-digit inflation,” Ms. Lavia said. “Considering the projections, in terms of how our population is aging, the demand for health care will continue to increase. In response, the medical and pharmaceutical companies continue to develop new treatments to meet the demand. However, these new treatments often contribute to the escalating cost of health care. The insurance industry estimates an overall 12 percent increase for next year.”

There seems to be little agreement on how to handle the increasing health care coverage costs, and it may be a major issue come November’s presidential election. Industry leaders are in agreement that something must be done.

“The reality is that without some sort of government control, health costs will continue to skyrocket,” Mr. Rubin said.

“I don’t think that government should regulate it, but there should be some guidelines,” said Pat Carlisle, president of Joules Angstrom U.V. Printing Inks.

Mr. Sexton said that health care costs seem to be cyclical in nature, and time will show if this cycle is running its course.

“Health care costs seem to run in cycles,” Mr. Sexton said. “In the 1980s, health care costs were in the double digits until managed care came into place, particularly HMOs, resulting in tighter controls and utilization management. The result into the mid-1990s was low single digit health care increases, predominantly due to a large number of employees moving into the managed care networks. Since this time period a number of factors have come together such as liability insurance, technology, aging population, prescription costs and lack of competition that have driven the cost of health care into double digits. Time will tell if increased focus, legislative changes, medical options, more competition and technology will have a positive impact on health care quality and costs.”