When faced with an $800 million bill in 2003 for employee and retiree health care benefits, Alcoa Inc.'s management took action.

The result was a benefits transformation that's kept annual costs since 2004 flat, while improving employees' health.

Key to the benefits cost turnaround was getting Alcoa's 157,000 U.S. employees, retirees and affected families on board with what were tremendous changes.

"The two questions every employee asks are 'what's in it for me?' and 'what do I gotta do?'," said Scott Kovaloski, Alcoa's manager, Health & Welfare Benefits Consulting, in Pittsburgh. Kovaloski was a presenter to 300 attendees at the Pittsburgh Business Group on Health's annual health care symposium Thursday at the Marriott City Center, Uptown.

With a goal of getting health and wellness costs close to the median paid by Fortune 500 companies similar in size to Alcoa -- $10 billion or more in annual sales -- Kovaloski and his team initially instituted the usual changes most companies employ. Those included significant employee contribution increases, a shift to coinsurance from copays, plus multiple plans to help employees manage the jump in contribution costs.

"Between 2004 and 2007, we offered five medical plans and three prescription drug plans -- 15 different combinations," Kovaloski said.

Alcoa employees were offered 100 percent covered preventive care, and health lifestyle credits for completing a health risk appraisal and abstaining from using tobacco.

The company conducted an eligibility audit, to ensure that all dependants who were covered should have been covered. More than 4,000 ineligibles were uncovered between 2003 and 2007, Kovaloski said.

All of Alcoa's work to hold down its health and wellness costs has paid off. For the four years between 2004 and 2007, the national average for health and wellness employer-related costs was 9.5 percent. Alcoa's costs stayed flat, with little change.

"Flat costs are absolutely great," KovaIoski said.

Indeed, a survey released yesterday by Mercer Consulting forecasts health care costs on average for 2009 will increase 5.7 percent. The survey found that 59 percent of surveyed companies intend to keep costs down by raising employees' deductibles, co- pays or out-of-pocket spending limits.

The Mercer survey found that 47 percent of companies are encouraging employee enrollment in so-called high-deductible health plans, which feature lower premiums, but higher deductibles. Alcoa has offered such plans since 2004.

This year, Alcoa again revamped its health and wellness benefits packages, and offers four medical plans and one prescription plan, to make choices easier for employees.

"Generics ordered by mail are free to employees," Kovaloski said.

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