Dave Peters has been in the fitness club business a long time. He had socked away some of his earnings from his more than 40 years in the industry into a retirement plan. These days, however, that retirement plan is helping to keep his club afloat, thanks to personal medical expenses that have gone through the roof.

Peters, the solo owner of Summit City Fitness in Fort Wayne, IN, carried a health insurance plan of his own that did not include cancer coverage. Unfortunately, a couple of years ago when Peters received a hip replacement, doctors discovered that he had prostate cancer.

Peters has a clean bill of health today, but that bill is mighty steep. He says that the expenses related to his cancer treatment totaled $180,000.

“That's not something that a lot of people have just sitting around,” Peters says. “It's breaking my back right now. This is a small club. Most of my retirement — in fact all of it — is invested in this.”

Nationwide, more than 150 million people are covered by employer-sponsored health insurance. However, from 1998 to 2005, the percentage of families with workers that were offered health insurance through an employer fell three percentage points, from 80 percent to 77 percent, according to the National Health Interview Survey conducted by the Centers for Disease Control and Prevention (CDC). Rising health care costs — one analyst says they've been going up at least 10 percent a year for the last 10 years — are affecting companies in all industries throughout the United States, including fitness club companies.

Peters remembers when insurance companies covered everything for employees during the days when he ran clubs in New York, Chicago, North Carolina and Michigan. Those days are long gone.

“Health care costs are just abominable, for both employers and employees,” Peters says. “If you don't have any health care at all, it's even worse.”

Numbers Crunch

From 2005 to 2006, health insurance costs for health clubs rose by an average of 10.4 percent, according to the 2006 International Health, Racquet and Sportsclub Association (IHRSA) Compensation and Benefits Survey, which surveyed more than 150 for-profit health clubs.

Among benefits offered, the biggest cost to a company is medical insurance, often followed by retirement plan costs, says Shawn Six, principal of Industry Insights Inc., the company that produced the IHRSA survey. In the health club industry, medical insurance is far and away the highest cost for club owners, he says.

Club companies pay an average of 69 percent of employee health care premiums, and employees pay 31 percent, according to the survey. In terms of family health care premiums, the split is almost opposite. Companies pay an average of 33.5 percent of the premium and the employees pay 66.5 percent.

Since the health club industry has many part-time employees, Six estimates that a higher percentage of health clubs don't offer health insurance compared to the average company outside the industry.

“There's a big disparity between salaried and hourly [employees],” Six says. “If you have a lot of part-time people, you're not going to offer health insurance. That hurts the numbers more than anything. If you were just looking straight at their full-time employees, they're probably similar to other companies.”

According to the survey, bigger club companies are more likely to split the costs of health insurance with their employees as opposed to smaller, one-club companies. Smaller companies in many industries find it more difficult to split the cost of health insurance, but for larger companies with more employees, splitting the cost is worth the trouble, Six says. Depending on how small the club is, several employees might have an ownership stake in the club, Six says, and it wouldn't make sense to have them pay a portion of their own insurance.

Under the major medical-salaried employee category, only 5.9 percent of companies with eight or more clubs pay employees' insurance plans in full compared to 19.6 percent of one-club companies. However, more than 88 percent of the larger companies partially pay their plans compared to 57.6 percent of one-club companies. Only 5.9 percent of larger companies do not provide health insurance compared to 22.8 percent of one-club companies.

For hourly employees, none of the larger club companies surveyed paid for medical (hospital and surgical) or major medical insurance in full, but about two-thirds of them did provide partially paid insurance in those categories. Almost half of one-club companies partially paid medical (hospital and surgical), and almost half of one-club companies did not provide any major medical insurance. Among larger companies, 31.3 percent did not provide medical (hospital and surgical) and 37.5 percent did not provide major medical.

Hourly employees are often not provided short-term or long-term disability insurance. Of the larger club companies, almost 93 percent did not provide short-term disability, and almost 70 percent did not provide long-term disability. Regarding optical/vision insurance for hourly employees, almost 74 percent of one-club companies did not provide it compared to 40 percent of the larger club companies.

In some cases, one-club and larger club companies had similar figures. About 80 percent of one-club companies and 80 percent of larger club companies did not provide maternity leave to hourly employees. None of the larger club companies surveyed paid for maternity leave in full, and only 4.6 percent of one-club companies fully paid for maternity leave for hourly employees.

Regardless of salaried or hourly employees, big or small club companies, there is a growing trend of sharing health care costs, Six says.

“Companies aren't baring the entire brunt of it,” he says. “They're either raising their deductibles, increasing their co-pays, increasing the out-of-pocket maximums or switching to health savings accounts. [Companies] can't absorb 10-15 percent increases every single year on their own.”

At YMCA organizations, benefits decisions are made locally among the nearly 1,000 incorporated nonprofit Ys in the United States, and the choices are based on local conditions and the direction of volunteer boards of directors, says Monica Elenbaas, senior vice president of the YMCA of the USA.

Jewish Community Centers generally offer benefits to full-time employees, and many JCCs also offer part-time and three-quarter-time benefits as well, says Robin Ballin, senior vice president of the JCC Association. However, the JCC Association, like the Ys, does not have national statistics regarding benefits offered.

Clubs vs. The Crisis

Clubs large and small handle health care costs in their own way, some with striking similarities.

Peters has only 20 employees at Summit City Fitness, a 26,000-square-foot facility. Although Peters carries coverage on himself, he does not pay coverage for his employees. He says he tried to implement health insurance coverage at the club, but many employees declined the offer because they were on their spouse's plan.

“I tried to come up with something that was fair,” Peters says, “but right now, in spite of what George W. [Bush] and our illustrious governor [Mitch Daniels] keep telling us about how wonderful our economy is, it's been a rough couple of years.”

Jeff Sauter is the owner of a one-club company called Unity Health & Fitness in Eau Claire, WI. Sauter has 43 employees at his 43,000-square-foot facility, but only five of them are full-time, and only one is on the company's health insurance plan, of which the company pays half the costs. Sauter began offering health insurance to his employees two years ago, but two of them told him that their share of his plan's premium cost more than the premium on another plan in which the employees paid the full premium.

Because most of his employees do not choose his health plan, Sauter can offer a higher hourly wage than he could if he partially paid for most of his employees' health insurance, he says.

Greg Maurer is the general manager of the three-story, 119,000-square-foot Hockessin Athletic Club in Hockessin, DE, a suburb of Wilmington. Maurer's club spends about $110,000 per year on health insurance, and that cost dipped slightly on a per head basis from the previous year, he says. Of the 350 staff members at Hockessin, 75 are full-time, and all of them are eligible for health and dental insurance after three months on the job. If full-time employees have family on the insurance plan, they must pay for the portion of the monthly premium out of their pay pre-tax, Maurer says.

Hockessin pays half of an employee's health insurance premium, or $150 per month per employee. Part-time employees are also offered health insurance, but they must pay the entire premium themselves, Maurer says.

“We believe you have to offer [health insurance] to get quality senior management, and [offering health insurance] is critical for staff retention,” Maurer says. “It is an advantage that sets us apart from some clubs who do not have it.”

Maryland Athletic Clubs (MAC) operate three clubs in the Baltimore area and have 250 employees, according to controller Chris Osgood. Of the company's 250 employees, 80 are either full-time or work 32 hours or more. Of those 80 employees, about 40 chose MAC's insurance plan. The company splits the costs of the premium with the employees.

MAC pays between $12,000 and $14,000 a month for health insurance, Osgood says. Looking at preliminary quotes for MAC's 2008 program, Osgood expects a 12 percent increase in cost next year.

“When we do our profit plan, that's obviously a very large expense,” Osgood says. “So we do look at options.”

One option that MAC chose to offer its eligible employees is a $1,000 health card that they can use for co-payments, pharmaceuticals or anything that relates to medical needs. The card is renewed every year with an additional $1,000.

“They have control over how they're going to spend it,” Osgood says. “If they have to go into the hospital for emergency care and their insurance only covers X percent, they can elect to either pay it themselves or debit it off the card. When we added the debit health card, we did reduce the amount that we were contributing on the benefits as far as what we paid. That's why we added the card.”

Beacon Hill Athletic Clubs, which operates six clubs in the Boston area, phases in its payment of medical insurance for full-time employees, who start off with a two-month probation period before paying half the premium during the next four months. After six months of employment, Beacon Hill Athletic Clubs pays 100 percent of an employee's premium. However, that's only for medical insurance. Dental, vision and life insurance are not offered.

Beacon Hill Athletic Clubs pays about $280 per month per full-time employee for medical insurance, says manager Rokia Madore.

“How we operate our club as a whole, it's very different than most health clubs,” Madore says. “We try to offer [staff] more than they'd get somewhere else.”

Spectrum Athletic Clubs, Los Angeles, the ninth-largest revenue-producing company in the industry, partnered with a rewards company and began offering rewards to employees who exercised. Matthew Stevens, CEO of Spectrum, approached several health insurers about providing health insurance for his employees. By having the rewards program in place, Stevens could track employee health improvements, which led to a savings of $250,000 on his health insurance premium.

Millennium Partners Sports Club Management, Boston, the seventh-largest revenue-producing company in the industry, operates six The Sports Club LA clubs throughout the country. Millennium Partners spends about $4 million per year on benefits for its more than 1,600 employees, says CEO Art Curtis.

Millennium Partners offers a variety of plans for both full-time and part-time employees. It even has a plan for employees who work five hours a week.

“We've made a conscious decision over the course of the last year where we've actually increased our benefits cost pretty substantially,” Curtis says. “We look at the benefits as being a very important component of our overall compensation programs for our employees. If we want to attract the best employees, it's important for us to have very, very strong, very, very competitive benefits, not only with other competitors in our industry but also with other competitors for high-quality employees.”

2006 IHRSA Compensation and Benefits Survey Results
Employee Benefits Offered to Salaried Employees Employee Benefits Offered to Hourly Employees
All Responding Companies Number of Clubs (owned or managed) All Responding Companies Number of Clubs (owned or managed)
One 2 to 7 8 or more One 2 to 7 8 or more
Medical (hospital and surgical)-Employee
Responses 153 95 36 18 144 91 34 16
Fully paid by company 20.9% 24.2% 19.4% 5.6% 8.3% 11.0% 5.9% 0%
Partially paid by company 70.6% 64.2% 77.8% 94.4% 51.4% 47.3% 52.9% 68.8%
Not provided 8.5% 11.6% 2.8% 0% 40.3% 41.8% 41.2% 31.3%
Major Medical-Employee
Responses 146 92 34 17 140 89 32 16
Fully paid by company 17.1% 19.6% 17.7% 5.9% 6.4% 7.9% 6.3% 0%
Partially paid by company 65.8% 57.6% 76.5% 88.2% 46.4% 42.7% 46.9% 62.5%
Not provided 17.1% 22.8% 5.9% 5.9% 47.1% 49.4% 46.9% 37.5%
Dental Insurance-Employee
Responses 144 91 33 17 138 89 31 15
Fully paid by company 11.8% 13.2% 6.1% 17.7% 6.5% 6.7% 6.5% 6.7%
Partially paid by company 48.6% 41.8% 54.6% 82.4% 30.4% 24.7% 35.5% 60.0%
Not provided 39.6% 45.1% 39.4% 0% 63.0% 68.5% 58.1% 33.3%
Optical/Vision-Employee
Responses 140 90 32 15 137 88 31 15
Fully paid by company 9.3% 10.0% 9.4% 6.7% 5.1% 4.6% 6.5% 6.7%
Partially paid by company 41.4% 34.4% 46.9% 80.0% 28.5% 21.6% 38.7% 53.3%
Not provided 49.3% 55.6% 43.8% 13.3% 66.4% 73.9% 54.8% 40.0%
Short-Term Disability Insurance
Responses 133 86 31 13 132 85 30 14
Fully paid by company 17.3% 15.1% 25.8% 15.4% 10.6% 9.4% 20.0% 0%
Partially paid by company 13.5% 10.5% 19.4% 7.7% 9.1% 7.1% 13.3% 7.1%
Not provided 69.2% 74.4% 54.8% 76.9% 80.3% 83.5% 66.7% 92.9%
Long-Term Disability Insurance
Responses 135 86 31 15 134 85 30 16
Fully paid by company 17.8% 12.8% 25.8% 33.3% 11.2% 7.1% 20.0% 18.8%
Partially paid by company 11.9% 10.5% 9.7% 13.3% 6.7% 5.9% 3.3% 12.5%
Not provided 70.4% 76.7% 64.5% 53.3% 82.1% 87.1% 76.7% 68.8%
Maternity Leave
Responses 138 87 33 16 132 87 28 15
Fully paid by company 10.9% 10.3% 18.2% 0% 5.3% 4.6% 10.7% 0%
Partially paid by company 21.0% 18.4% 15.2% 43.8% 13.6% 14.9% 3.6% 20.0%
Not provided 68.1% 71.3% 66.7% 56.3% 81.1% 80.5% 85.7% 80.0%
Source: International Health, Racquet and Sportsclub Association

Fewer Employees Receiving Health Care Coverage in California

Much like the rest of the nation, residents in California are feeling the brunt of the health care crisis.

According to a study released by the UCLA Center for Health Policy Research, the percentage of Californians with employer-sponsored health care coverage declined from 56.4 percent in 2001 to 54.3 percent in 2005.

Also, the study found that 80 percent of uninsured employees either worked for employers who did not offer health coverage or were ineligible to receive health benefits. Twenty percent of uninsured workers did not enroll in available employer-sponsored health plans, mostly because of the high costs of the coverage. Premiums increased by 66 percent from 2001 to 2005 for family coverage through employer-sponsored plans, according to the study.

Massachusetts Health Care Model Faces Changes, Scrutiny

Health care costs have always been on the agenda of politicians, and that's certainly the case among today's presidential candidates. Democratic hopefuls, including Sens. Barack Obama (IL) and Hillary Rodham Clinton (NY) and former Sen. John Edwards (NC), support health care reform ideals that borrow from a model in Massachusetts, a plan that was enacted in 2006 by a Democratic legislature and signed by former Gov. Mitt Romney, a Republican who is running for president.

The Massachusetts plan has already been revised since its passage. Last summer, the Division of Health Care Finance and Policy reduced from 50 percent to 33 percent the minimum amount that companies with 50 or fewer employees must contribute to the cost of workers' health coverage. Employers that do not contribute to employees' health plans must pay an annual $295-per-employee surcharge to a state fund.

Some Massachusetts lawmakers are concerned that the change could result in employers shifting more of the cost of health care to employees, leading to fewer workers being able to afford coverage.

A recent Washington Post editorial states that although the Massachusetts law requires all state residents to obtain health insurance, early signs of the plan are not encouraging. The state plans to exempt 60,000 residents because they cannot afford any of the offered health plans, according to the editorial.

“With skyrocketing health care costs devouring the federal budget and undermining the competitiveness of many U.S. industries, the success or failure of the Massachusetts law could have far-reaching implications, especially for business,” the editorial adds.

The Sports Club LA's Boston club has more than 300 employees, so that club is not affected by the Massachusetts policy. But Art Curtis, CEO of Millennium Partners Sports Club Management, Boston, is still concerned about the impact of reducing the minimum amount of health insurance offered by companies in that state.

“I find laws like this to be symptomatic of broader problems in the whole area of health care,” Curtis says. “We focus on only one dimension of it at a time, like it's a simple one-dimensional problem. All the law does in Massachusetts is it seems to really just focus on who pays. When states pass legislation, they should not only be thinking about who pays, but they should also be thinking about prevention and cost controls and how the various people are going to pay. [The Massachusetts law is] a noble concept, but it's not necessarily been very well thought out.”