Advisers face soaring health coverage costs

Escalating medical costs and increased expenses associated with the health care reform law are driving double-digit increases in health insurance premiums at many financial advisory firms.

For some, a projected increase of 20% or more poses a significant financial hardship — one that jeopardizes their ability to offer quality health care to employees.

“Whether we can afford insurance is a serious question I have to ask myself,” said David Frisch, a financial adviser who has already seen per employee premiums at his firm, Frisch Financial Group, jump to $706 a month, from just $442 three years ago.

“The costs are only going to get worse. It’s not going to get any better,” said Mr. Frisch, whose firm has $225 million in assets under management.

Advisory firms aren’t alone in the battle against rising health care costs.

Next year, the national average for total health care insurance premiums per employee for large companies will be $9,821, up 8.8% from $9,028 this year, according to a recent report from AonHewitt.

But that projected rate hike will fall disproportionately on the self-employed and small businesses, a population that encompasses the overwhelming majority of advisory firms. That is because large employers tend to self-insure and the premiums associated with self-insurance typically don’t rise as much or as quickly as those associated with insurance companies.

Many smaller advisory firms — those with fewer than 25 employees — can expect to see their per-employee insurance premiums rise about 20% next year, said Bonnie Evelyn, a national practice leader for CBIZ, a benefits consulting firm that works with 5,000 employers.

“Smaller employers are seeing larger increases,” she said. “I think they are going to be looking at high-deductible health care plans to be able to pay the premiums.”

Stephen Wedel, founder of Four Seasons Wealth Management, which manages $450 million, pays $4,200 a month for eight employees, or about 65% of the total premium costs.

He is bracing for an increase of at least 20% but said that his health carrier has delayed fee announcements because of the new law.

“We are going to have to make decisions pertaining to what direction we go in,” Mr. Wedel said.

Some advisory firms are already getting hit with significant rate increases.

“Insurance firms are jacking up rates now,” said Stephanie Bogan, president of Quantuvis Consulting Inc. “It’s almost like a landlord is being told rent control is happening in two years, and insurance companies are raising costs now.”

Health care reform is partly behind the increase. The legislation, which was signed into law by President Barack Obama on March 23, eliminates lifetime and annual limits on medical care.

In addition, under the new law, this is the last year that insurance companies can raise rates without making public their justification for doing so.

“Advisers are seeing increases now,” Dr. Carolyn McClanahan, a physician and certified financial planner with Life Planning Partners Inc., said two weeks ago at the Financial Planning Association’s annual conference in Denver. “This was a free-for-all for the insurance companies because next year, they have to explain their premium costs.”

In the FPA’s 2010-11 salary survey, 96% of the responding advisory firms said that they provide health insurance to employees. Firms that want to keep offering this benefit must either absorb the increased costs or reduce the plan coverage to employees.

To renew its existing coverage, McLean Asset Management Corp. would have had to pay up to 34% more, starting Sept. 1. The firm, which has 11 of its 24 employees on the plan, opted for higher-deductible plans, which cushioned the costs, said managing director Pat Ward.

McLean has $420 million in assets under management.

The cost of insuring a single employee in an HMO was set to rise to $443 a month, from $329, a 34% increase. By adding a $1,200 deductible, the cost is $380 a month.

It was a similar situation for workers in a PPO plan.

The cost of insuring an individual employee was going to rise to $696 a month, from $524, a 32% increase. Adding the $1,200 deductible reduced the cost to $540 a month.

“This is an experimental year for us. We want to see how the costs shake out,” Ms. Ward said.

“We’re sharing in the deductible and the premium,” she said. “We feel it’s important, and we don’t want to slam people.”

When Albion Financial Group renewed its health insurance policy in the summer, human-resources director Zenfira Holm was informed that the firm’s costs would rise about 15% — to nearly $12,000 a month, from $10,400.

HIGHER DEDUCTIBLES

To reduce its out-of-pocket costs, the firm negotiated a plan for its 19 employees that had a higher deductible and more upfront costs for employees. The firm now pays $10,500 a month for health coverage.

“We had to cut the benefits, and it’s meant higher costs for employees,” Ms. Holm said.

Other advisory firms have kept similar health packages despite the added fees. McKinley Carter Wealth Services this month saw its health insurance costs rise from nearly $9,000 a month to $10,000, said Zachary T. Abraham, director of human resources for the 25-employee firm, which manages $480 million.

He tried to shop around but couldn’t find any plan less expensive.

“We had no negotiation room,” Mr. Abraham said.

Matheson Financial Services Inc. also had to absorb higher health insurance costs. The firm’s costs to insure two employees rose to $2,700 a month, from $2,200, a 22% increase, said adviser Robert Matheson.

Matheson Financial Services manages about $55 million in assets.

“At this point, the company is paying it,” Mr. Matheson said. “But I don’t know what the future will be, because they keep raising it.”

E-mail Lisa Shidler at [email protected].