Health Premiums Hitting The Wall
With health insurance premiums now in the third year of double-digit increases, Dana Somers has few alternatives left available for clients seeking to adjust their employee health plans to mitigate rising costs.
“After you’ve done that so many years in a row, you start thinking you’ve done everything you can,” said Somers, president of Grotenhuis, a Grand Rapids firm that represents Blue Cross Blue Shield of Michigan to independent agents serving the small business market.
Those businesses have been the hardest hit by rising health care costs and the corresponding increases in health premiums. Increases for small businesses who buy Blues coverage for employees are running in the 20 percent to 30 percent range for 2003, triggering yet another round of major alterations to health plans via higher co-pays, deductibles and the curtailing of benefits by employers who are now finding they can only make so many changes in their plans and still offer decent coverage to employees.
“At some point, you just say ‘I can’t do it anymore,” Somers said. “You’re running out of options to what you can do to meet those needs.”
By all accounts, more options are in dire need in the years ahead as health care costs continue to escalate, although evidence suggests some moderation in high spending levels is on the horizon, and employers accelerate the shifting of costs to employees, who are picking up a larger share the cost of health insurance than ever before.
And that’s for those who will continue to receive health benefits.
New Census Bureau data shows the number uninsured Americans on the rise from 2000 to 2001, from 39.8 million to 41.2 million.
As health care costs rise rapidly, many fear that the number of uninsured persons will only grow, as employers and employees drop benefits because they can’t afford the cost.
“As consumers are asked to shoulder increased costs, more people will decide they can’t afford health insurance and some businesses, especially small firms, will drop coverage,” said Paul Ginsburg, president of The Center for Studying Health System Change, a nonpartisan health care policy research group.
“I’ve become convinced that short of a major public investment, either through subsidies to purchase private health insurance, or public coverage expansions, we’re going to see more and more uninsured Americans in the years ahead,” Ginsburg said.
The Center for Studying Health System Change late last month issued its annual report on health care spending. The report showed that increased health spending triggered a national average 15 percent rise in heath premiums in 2002.
Alterations in plans generated some cost mitigations, resulting in an overall 12.7 percent average premium increase, according to research data published in September by the Henry J. Kaiser Family Foundation, a nonpartisan health care philanthropy.
With health care spending growing at seven times faster than the U.S. economy, cost-shifting by employers is accelerating for 2003 even beyond the pace of 2002, continuing a trend that began in 2001 with the soft economy that eased a tight labor market.
Blue Cross Blue Shield of Michigan has seen many employers making “wholesale changes” in plans for 2003, said Jeff Rubleski, sales team manager for West Michigan.
“Everything now is on the table. Nothing is sacred anymore,” Rubleski said. “You have companies making very dramatic changes.”
And there’s little hope for any significant relief in the near future, with similar premium increases to those of the last few years on the way for 2003.
One national benefits and consulting firm, The Segal Co., projects that premiums for HMO health plans that offer pharmacy will rise 14.4 percent in 2003. Point-of-service (POS) plans will rise 14.7 percent and preferred-provide organizations (PPOs) will go up 14.4 percent, according to The Segal Co’s. recent outlook.
In West Michigan, some 357,000 subscribers of Grand Rapids-based Priority Health are looking at premium increases averaging 15 percent to 17 percent for 2003. That’s before any plan alterations and across all health plans, said Rob Pocock, Priority Health’s associate vice president of marketing and corporate communications.
Increases for Priority Health’s small employee groups will come in “a little bit higher,” Pocock said.
Driving health premiums higher is the rapidly rising level of spending on health care. Overall spending on health care in the U.S. rose 10 percent in 2001, the first double-digit increase in more than a decade, according to The Center for Studying Health System Change.
Spending on inpatient and outpatient hospital care, driven by higher utilization and increase rates, rose 12 percent – up from 2.5 percent a year earlier - and accounted for a little more than half of the overall increase. That compares with a 7 percent increase in hospital spending in 2000.
The center attributed the 12 percent rise to the growing use of hospital services and rising rates charged by hospitals, which have gained the upper hand in recent years in negotiating payments from health insurers as consumers backed away from the restrictions of managed-care plans that were designed to control costs.
“People are getting more tests and treatments and being hospitalized more often,” Ginsburg said.
Part of the increase rates for hospitals went to cover rising labor costs.
Hospitals nationwide saw payroll expenses – typically the largest cost a hospitals has - rise 8.6 percent in 2001, more than double the 3.7 percent of 2001. Hourly hospital wages grew 6.1 percent last year, nearly twice that of 2001 and a reflection of the chronic shortage of nurses and other skilled hospital workers that has forced hospitals to raise pay scales in order to attract and retain staff.
Outpatient spending alone grew 16.3 percent. Increased spending for medications grew 13.8 percent, contributing 21 percent of the overall rise, according to The Center for Studying Health System Change report.
While the data paints a glum picture of the situation, Ginsburg points out that 2001 was an extraordinary year for rising premiums for two reasons: Employers didn’t begin to shift the cost to employees until the economy worsened; and managed-care plans began easing access restrictions. The combinations resulted in an environment with a “rich benefit structure” with modest co-pays and fewer constraints that are meant to control costs.’
“In many ways, 2001 was the year where all of the stars aligned in the worst possible way from health care cost containment,” Ginsburg said.
There is a glimmer of hope for the future, however.
An examination of data by The Center for Studying Health System Change for the first half of 2002 shows that “health care spending trends may have peaked in 2001” Ginsburg said.
Through June, per-capita spending nationally was up 8.8 percent, compared to 10 percent for the same period in 2001. Part of the reasons may be the massive shifting of costs to employees that’s slowing the demand for care, Ginsburg said.
While still large, the smaller increase “could signal that annual increases in health spending could continue to fall through the rest of the year and into 2003,” said Brad Strunk, an analyst with The Center for Studying Health System Change.
As costs and premiums rise, Grotenhuis' Somers expects to see defined-contribution health plans gain in popularity locally. Defined contributions allow an employer to set an amount they will pay to provide benefits to an employee, who can then use that money to buy through the company the benefits they want and need - health, dental and prescription coverage, for instance.
Defined-contribution plans are beneficial because it enables an employer to better control the costs of health benefits for the year by setting an amount pick up for benefits, while allowing employees to tailor their coverage. As with cost-shifting, such plans also force consumers to take more responsibility for their health care and for the behavior that affects their own health.
Many people don’t consider how their behavior — such as good eating habits and exercise— affect their health-care costs until “it impacts our pocketbook,” Somers said.
“The way our health care system is designed right now, with employers picking up most of the cost, sometimes it’s not enough to get our attention,” Somers said.