Health premiums expected to keep rising nationwide

Advertiser Staff and News Services

Health insurance premiums nationwide 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 an era that will force employers and workers to make tough and costly choices.

And unlike the last time there were such dramatic increases, there aren't any easy, fast or good solutions to rising costs.

"This scares the hell out of us," said Richard Botti, president of the Legislative Information Service of Hawai'i, an umbrella group that negotiates health care coverage for more than 400 Hawai'i small businesses.

Botti's concerns echo those of employers and benefits managers nationwide, many of whom are getting their first look at their premiums for next year. And they don't like what they see.

Botti said health care premiums for his group are up 23 percent starting this month, to more than $800 a month for a family plan for each employee.

"This could put someone out of business," Botti said.

Next year's cost increases don't even take into account the patients' bill of rights now before Congress. That measure would create national rules for managed care plans and could raise insurance premiums an additional 4.2 percent over about five years, according to federal analysts.

The Hawaii Medical Service Association, the state's biggest medical insurer, is scheduled to raise rates an average 9 percent or more starting this year on 10,000 local businesses, primarily those with fewer than 100 employees. Larger employers negotiate their rates separately but will likely see similar increases. Kaiser Permanente, Hawai'i's largest HMO provider, is planning to announce its own rate increases in the next couple of weeks covering more than 200,000 Hawai'i residents.

The surging health care costs nationwide come as businesses also are wrestling with a slowing economy, falling corporate profits 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.

But such relatively easy fixes are gone and 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.

Mary Jo Gall, an employee benefits manager for S.E. Johnson Companies, a highway construction firm in Maumee, Ohio, says she'd be happy if her company gets "only" a 13 percent 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 three years, many employers have been reluctant to pass costs to workers. Next year, more are expected to raise the amount that workers pay. A survey of midsize employers by benefits consultant Marsh found that 49 percent plan to increase workers' share of insurance costs.

Botti said his group is looking at changing its coverage for prescription-drug costs after members ran up tens of thousands of dollars in expenses last year.

"Next year we will probably have to put a cap on it. I am already being accused of killing people," Botti said.

Even with such efforts to control costs, solving the 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, an 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 difficulty gaining access to 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 percent this year.

"We have tried very hard to keep our premiums as stable and predictable as possible, but that is getting harder and harder to do because our costs keep going up," said Jan Kagehiro, a spokeswoman for Kaiser Permanente in Hawai'i. "We know this makes it tough for employers and many of them are needing to have their employees share in the cost by paying higher co-pays."

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 percent this year, far steeper than last year's 3 percent 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.