Friendly's slashes health benefits for 454 workers

Friendly's Ice Cream Corp., the 500-restaurant chain based in Wilbraham, has dramatically cut healthcare benefits for 454 of its full-time employees.

The new plan provides a maximum annual benefit of $2,000 for outpatient care, and covers only a small portion of the costs associated with major illnesses. Under the plan, employees could be liable for thousands of dollars in bills after a short hospital stay, leading some to seek free care from the state. Until last fall, the company offered them comprehensive healthcare insurance.

The change went into effect quietly, while state lawmakers were debating proposals to extend health coverage to Massachusetts residents without insurance. Action on the measures is expected soon.

Health insurance plans like Friendly's new policy -- known as a limited-benefit or mini-medical plan -- are woefully inadequate, some state officials said.

''This is coverage in name only," said Secretary of State William F. Galvin.

Gary Claxton, director of the healthcare marketplace project at the Kaiser Family Foundation, which says it provides nonpartisan analysis of health issues, said limited-benefit plans have widespread financial impact.

''When people on these plans get sick, they're going to go to the hospital and they're not going to be able to pay -- or they will pay and they'll lose their homes," Claxton said. ''Ultimately, it will hurt the families and the healthcare institutions."

For more than two months, Friendly's officials repeatedly declined to answer questions from the Globe about details of the new health plan and how it would affect employees. The company issued a written statement saying the change was necessary to control expenses. ''As healthcare costs across Massachusetts, as well as the rest of the nation, continue to dramatically increase, Friendly's has made some adjustments to the healthcare benefits for a very small percentage of our workforce," it said. ''We are confident that our current offerings are in line with the vast majority of businesses in the restaurant industry both in the Commonwealth and nationwide."

Limited plans have become controversial in recent years as the debate over providing adequate health coverage has intensified and companies search for ways to control costs. They are favored by large chains that offer low-wage jobs, including Wal-Mart Stores, McDonald's Corp., and Lowe's Cos. About 1 million Americans are covered by such policies, according to a recent Kaiser study.

The change at Friendly's also affects an unspecified number of restaurant workers who had not signed up for health coverage, but no longer have the option of choosing a comprehensive plan.

Some Friendly's employees say the reduction in coverage undercuts the company's claim to be a family-friendly organization. It was founded in 1935 by two brothers in Springfield, serving moderately priced food and ice cream. The company employs between 14,000 and 17,000 workers, depending on the season, and operates restaurants in 17 states, mostly along the East Coast.

''This is like going from a Cadillac to a Volkswagen," said an employee who asked not to be named because Friendly's instructs workers not to speak to the news media. ''I have rheumatoid arthritis, and this insurance is not going to help me at all. I'm not going to be able to see my neurologist."

The change has also angered S. Prestley Blake, 91, who cofounded the chain. Blake is still a shareholder, but does not have any official connection to the company.

''I think it's a shame," he said in an interview. ''However, I can't do anything about it."

Perry D. Odak, a member of Friendly's board of directors, said he was unaware of the change in healthcare benefits and would look into the matter if it comes before the board.

''For me, whether you're a cashier or you're the CEO of the company, you ought to have the same benefits," said Odak, the former chief executive of Vermont ice cream maker Ben & Jerry's Homemade Inc. and now chief executive of natural foods grocers Wild Oats Markets Inc. of Boulder, Colo. ''As one member of the [Friendly's] board, I'd take the position that treating employees well is the right thing to do."

Health insurance premiums are expected to increase by more than 10 percent this year in Massachusetts, the sixth consecutive year of double-digit increases. Nationally, healthcare costs have increased because of new treatments, higher drug prices, expensive high-tech equipment, and the expansion of healthcare choices during the 1990s.

To offset the rising cost of covering employees, many companies now offer health plans with higher deductibles and copayments. An increasing number are discontinuing healthcare coverage altogether or are switching to limited-benefit plans.

The new Friendly's health plan is provided by Star HRG, of Phoenix. According to enrollment materials, employees can choose from three tiers of ''Starbridge" coverage, with weekly premiums for an individual ranging from $7.95 to $22.30. The lowest-priced plan pays a maximum annual benefit for outpatient care of $1,000, and the highest pays a maximum of $2,000. The most expensive plan pays $600 a year toward prescription drugs, but that amount counts toward the $2,000 limit.

Both the lowest- and highest-priced tiers offer some coverage for hospital stays, but it is severely restricted. For instance, the lowest-priced option pays up to $10,000 a year for inpatient hospital care, but payments are capped at $100 a day. The average hospital stay in Massachusetts costs more than $1,600 a day, according to a 2003 study by American Hospital Association. That means that even a short hospital stay will leave employees in the new plan with enormous out-of-pocket expenses. The most expensive option pays up to $50,000 a year for hospital care, but payments are limited to $500 per day.

Another longtime Friendly's employee, who also asked not to be identified, said her health insurance premiums will decrease from about $36 a week to $22.30. But she's not happy. ''Is it cheaper? Yes, but that's because they don't cover anything. I will be paying much more out of pocket," she said.

The employee said her manager told her the new plan was ''comparable" to the comprehensive plan that was terminated in October. Employees at the assistant-manager level and higher can still choose comprehensive coverage, employees said.

Even before the switch to mini-medical, Friendly's benefits were not particularly generous, according to employees. Non-management restaurant workers had to work a minimum of 35 hours weekly to qualify for health coverage. If holidays cut into that minimum in a given week, they had to use vacation time to meet the 35-hour requirement.

Many Friendly's employees do not qualify for coverage through the company and rely on MassHealth, the state Medicaid program for low-income residents, or free care that hospitals are required to provide. According to a state study, Friendly's had the 14th-highest number of such employees in the state. The top of the list is dominated by other food-service companies, including McDonald's, Dunkin' Donuts, Burger King, and several supermarket chains.

The switch to a limited-benefit plan could hurt local healthcare providers. Studies show that people without adequate health coverage receive less preventive care and are more likely to go to hospital emergency rooms for routine care. Hospitals in Massachusetts are required to provide care for everyone. They are paid for treating the uninsured from a pool funded by taxes on hospitals, insurance companies, and some large employers.

The impact of the Friendly's benefit reduction is already rippling through communities where its employees live, the head of one hospital said.

''Friendly's is asking the hospitals and other employers to foot the bill for treating its employees, said Hank J. Porten, chief executive of Holyoke Medical Center, a 202-bed community hospital. ''We end up charging more, and other companies who provide insurance pick up more of the tab for those that offer limited insurance in the community. More companies are walking away from their responsibility."

Jeffrey Krasner can be reached at krasner@globe.com.