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Health insurance prices to soar
By Julie Appleby, USA TODAY
Health insurance premiums are expected to surge at double-digit rates again
next year, a sign that rising medical inflation isn't just a temporary blip
but the beginning of a new era that will force employers and workers to
make tough and costly choices.
Spurred by increased costs for drugs, hospital care and doctors, health
insurers are seeking premium increases next year of 13%, 20%, even 50% -
the highest in a decade.
And unlike the last time there were such dramatic increases, there aren't
any easy, fast or good solutions to rising costs.
"It's making me pretty nervous," says Mary Jo Gall, employee benefits
manager for S.E. Johnson Companies, a highway construction firm in Maumee,
Ohio.
Gall's concern echoes that of benefit managers nationwide, many of whom
are getting their first look this month at premium bids for next year. And
they don't like what they see.
"It's becoming tougher and tougher for employers to provide these benefits,"
Gall says.
Next year's cost increases don't even take into account the patients' bill
of rights now before Congress. The measure would create national rules for
managed care plans and could raise insurance premiums an additional 4.2%
over about 5 years, according to federal analysts.
The surging health care costs come as businesses also are wrestling with
a slowing economy, falling corporate profit and a rising number of layoffs.
In the late 1980s, the last time insurance premiums were rising at double-digit
rates, employers turned to managed care. For a while, it worked. Workers
were switched into more tightly run managed care plans, and costs stabilized
so much that some economists credit part of the economic boom of the 1990s
to slowing health care costs.
Easy fixes are gone
Further cost reductions will be much more difficult. Some say the best employers
can hope for is to hold the line on rising medical inflation.
Gall says she'd be happy if her company gets "only" a 13% increase
for next year. Her firm spends more than $1 million a year offering health
insurance to about 450 employees. This year, workers were asked to pay more
toward insurance premiums.
"We hope not to hit them again with that," says Gall, who added
that the company might have to increase workers' annual out-of-pocket maximum,
which is $500 a year for single workers and $1,000 for those with family
coverage.
For the past 3 years, many employers have been reluctant to pass costs to
workers. Next year, more are expected to raise the amount workers pay. A
survey of midsize employers by benefits consultant Marsh found that 49%
plan to increase workers' share of insurance costs.
Some businesses might try new approaches to offering medical insurance,
from medical savings accounts to new managed care programs that give patients
financial incentives to choose lower-cost doctors and hospitals:
Next year, PacifiCare will roll out an HMO with a two-tier hospital network
for its customers in California. The plan will have a lower overall premium
than PacifiCare's regular HMOs. Employers will pay less, but patients might
pay more.
Under the plan, patients who choose a lower-cost group of hospitals will
have 100% coverage for hospitalization. Those who opt for the higher-cost
hospitals will face co-payments of $100 to $400 for hospital stays and bigger
co-payments for such things as CT and MRI diagnostic scans.
Premera Blue Cross in Washington State is building a tiered network of doctors.
Physicians who accept the insurer's standard payment rate, or have expenses
at or below a regional average, will be part of every insurance policy offered.
Doctors who opt for higher payments or whose expenses exceed the average
will be in another group. Those who don't sign any agreements for discounts
with Blue Cross would be in a third.
Those groups will be mixed and matched in a variety of insurance plans -
at varying prices - offered to employers sometime next year. While Premera
has not developed the specifics of the policies to be offered, patients
likely will be able to choose from the varying networks but would pay different
amounts for services based on their choices.
"We'll never solve the health care cost problem by restricting choice,"
says Scott Forslund, spokesman for Premera. "What we want to do is
change the game so physicians and consumers can make more informed choices
about the cost and quality of care."
Blue Cross of California this year switched all its individual policy members
into three types of plans: lowest priced, midpriced and most expensive.
(This did not affect patients covered under group policies.)
Within the price ranges, patients choose from a variety of plans based on
how much of an annual deductible they want to pay and the type of benefits
they want. Some plans, for example, cover drugs, maternity care and acupuncture,
while others do not. The lowest-cost plans range from $21 to $56 a month
for a healthy 25-year-old or $43 to $135 a month for a healthy 45-year-old.
Such efforts by insurers and the employers who eventually sign up for such
policies are likely the next wave of health insurance. The changes would
give consumers more flexibility but also more responsibility for the cost
of their choices. "The question is whether consumers are willing to
accept the tradeoff," says Larry Atkins, president of Health Policy
Analysts, a consulting firm in Washington, D.C. "The theory is we will
create a more price-sensitive consumer and create discipline in the marketplace.
The danger is we're exposing people with health risks and problems to more
costs."
Employers seek solutions
In 2000, small and midsize employers saw rate increases of 9.2%, according
to the Marsh benefits study. Among companies of all sizes, the average increase
was 8.1%. Employers say they expect to see increases averaging 12% next
year but would not be surprised by premium hikes of 20% or more, the Marsh
study says.
Initial reports from benefit firms like Marsh, William Mercer and Hewitt
Associates say their clients are being offered premiums next year that are
13%, 20%, even 50% higher than this year. But after negotiations and some
benefit tinkering, most analysts expect the premium increases to average
13%.
After getting a 40% premium increase 2 years ago, the owners of Camp Shamineau,
a year-round Bible camp in Motley, Minn., tried something new. They switched
their nearly two dozen workers to a medical savings account plan. The savings?
About $30,000 a year.
Under the plan, the camp's owners put $2,400 a year into each worker's family
account, says Jessie Raustadt, the camp's financial administrator. Workers
toward an annual $3,100-per-family deductible use that money. The employees
pay nothing toward insurance.
Families that don't use up the $2,400 toward the deductible can roll it
over to the next year. If their medical spending exceeds the $2,400, families
must pay the $700 difference. Once the $3,100 deductible is hit, medical
expenses are covered 100% by the health plan.
"It's working well for us," Raustadt says. "The premiums
are lower, and the employees are happy."
Other employers are embracing prevention to lower costs.
At Enterasys, a hardware and software company in Rochester, N.H., benefit
managers are hoping to cut costs by getting workers to quit smoking, lose
weight and take care of themselves.
The self-insured company is anticipating a 15% to 25% increase in total
health costs next year for its 1,600 employees. That includes the direct
cost of medical care and the money it pays a health insurer to act as a
plan administrator.
Weight Watchers programs are in place - and the company plans to hold stop-smoking
classes on-site. An annual health fair will be expanded, with more information
on the importance of lowering cholesterol, improving diet and increasing
exercise. A mobile mammography machine will be available for women who want
the breast-cancer-screening exam.
"We're going to control costs by helping people be healthier,"
says Michael Newman, manager of compensation and benefits.
A new inflation era
Even with such efforts, solving the cost problem might be harder than it
was a decade ago, before managed care temporarily slowed medical inflation.
"Unless the country wants to return to the very strict controls of
HMOs, it's going to be a new cost inflation period," says William McKeever,
analyst at UBS Warburg.
For many reasons, the climate is different than it was 10 years ago:
Doctors and hospitals are successfully rebelling against the managed care
cure: restrictive cost controls that slowed hospital admissions, reduced
payments to medical providers and required patients to ask insurers for
approval before certain expensive tests or procedures. With increased payments
to doctors and hospitals come increased costs and premiums.
In response to patients' horror stories, state and federal lawmakers forced
insurers to loosen some of their most restrictive cost controls, such as
requiring patients to call ahead before going to emergency rooms or sending
women home within 24 hours of giving birth. Insurers voluntarily relaxed
other rules, such as roadblocks to seeing specialists.
Patients have an entitlement mentality after a decade of $10 office visits
and lower out-of-pocket costs.
"That was the Achilles' heel of managed care," says Steve McDermott,
chief executive of Hill Physicians Medical Group, an association of doctors
that contracts with managed care insurers in California.
"The HMO became largely free to the user, and then the patient walks
into the doctor's office with the idea that 'everything I want should be
provided to me.' "
That has helped increase costs.
So have the new drugs and technologies entering the market. Spending on
drugs is rising at three times or more the rate of inflation. The population
is 10 years older. Hospital admissions are on their way back up after years
of stability.
All of that is combining to drive up medical spending - the money paid by
insurers, the government and others to provide care - by about 11% this
year.
Even retail giant Wal-Mart reported that second-quarter earnings were hurt
because costs for labor, utilities and health care increased at a faster
rate than sales. Medicare, the federal health program for the elderly, might
see costs rise 10% this year, far steeper than last year's 3% rise. The
program cites increased payments to doctors as the cause.
In turn, insurers are boosting premiums.
"The scariest thing about this rising cost is, nobody has an idea of
when it's going to end," McDermott says.
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