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Premium Hikes Filtering Down To Employees
GRAND RAPIDS — Employers trying to cope with yet another significant yearly increase in their health premiums are increasingly looking to shift more of the financial burden to employees.
Recent surveys conducted nationally and in Michigan show double-digit premium increases as once again the norm for 2002. That, in turn, survey results show, has a growing number of employers considering a reduction in employee health benefits or an increase in co-pays, deductibles or employee premiums — or possibly a combination of all three — when they renew their health plans for next year.
The findings represent a growing shift in the attitude of employers, who in the past few years have largely shown a willingness to absorb the rising costs of their health plans. That’s no longer the case, according to survey results, with the shift driven not only by double-digit premium increases but a soft economy that makes the higher costs harder to swallow and easier to pass on to employees.
“That (the economy) is certainly a factor, but it’s also that you can only pay so much,” said Barry Cargill, vice president for government affairs for the Small Business Association of Michigan, which represents more than 8,000 small businesses statewide.
“Employers are simply just not able to pay the astronomical increases that are occurring each year,” Cargill said
In addition to higher employee premiums, co-pays and deductibles, Cargill expects that more employers will opt for percentage-based prescription plans — where a person pays a set percentage of a medication’s cost, rather than a flat fee — or those that favor lower-cost generic medications.
After several years of moderation, health premiums began rising significantly in the late 1990s.
Respondents to a survey the association conducted in late August and early September reported an average increase of 25 percent in the health premiums for 2001. That’s on top of an average 19.4 percent increase in 2000.
Grand Rapids-area employers saw their health premiums increase an average of 14 percent from mid-2000 to mid-2001, according to the annual Health Care Cost Survey conducted by the Alliance for Health and The Employers’ Association.
With sizable increases expected for the coming year, 22 percent of the respondents in the Small Business Association survey planned to shift more of the cost of health coverage onto employees. Another 15 percent said they would decrease health benefits.
While greater cost-shifting may sour some workers, it is a viable way for employers to respond to rapidly escalating heath costs, Cargill said. Making employees feel those costs will force them to become more responsible for their health and the personal choices that affect it, as well as how they utilize the health care system.
“Individual responsibility will help contain health care costs,” Cargill said. “That’s part of the solution here, because we’re never going to see a solution in the crisis until we see individual responsibility in the people who receive health care. They regard it as a part of their employment.”
With renewal notices on the way or going into the mail soon for many companies, employers nationwide can expect an average 18.2 percent increase in their health premiums for 2002, according to a prediction from the financial services firm UBS Warburg.
In Michigan, subscribers of Blue Cross Blue Shield of Michigan are facing an average premium increase of 14.8 percent for 2002, said Paula Brawdy, the Blues’ regional sales director for western Michigan. That average increase covers all product categories, Brawdy said.
Brawdy doesn’t see the trend easing anytime soon.
“There’s no magic bullet,” she said. “I think you’re going to continue to see the same things we’re seeing.”
Blue Cross Blue Shield is the state’s largest health insurer, with 1.2 million members at 35,000 companies alone in a 41-county region that covers the western half and northeastern portions of the Lower Peninsula.
Clients of Priority Health, a Grand Rapids-based HMO with 309,500 members in 27 counties, will see average increases of 13 percent to 15 percent in their health plan for 2002. Those increases are for the same plan from one year to the next, before any changes in coverage are made.
Priority Health has seen a steady number of customers altering their health plan in the last two years as a way to mitigate large premium increases, said Jodie Southwell, the HMO’s associate vice president of sales. Southwell expects the trend to continue this year, particularly with the weakened economy.
To accommodate those customers, Priority Health has sought to develop new products and programs, Southwell said.
“It’s an incredible increase for employers and they’re looking for options and answers. ‘What can we do?’ They’re saying, ‘We need more options, we can’t afford these kinds of increases going forward,’” Southwell said.
Eliminating health coverage remains an option that only a handful of small companies statewide (5.3 percent) are weighing, according to the Small Business Association of Michigan survey. But that’s up from 4.5 percent a year earlier and makes Cargill worry that it could become a growing option in subsequent years, leading the erosion of employer-sponsored health plans and an increase in the number of people without group health coverage or any insurance at all.
“Ultimately, the employer is going to have less and less responsibility for health care and that’s a concern because there is savings on pooling that coverage,” Cargill said.
The association’s survey results mirror that of national polls that show a greater number of companies planning to transfer more of the financial burden for health coverage to employees.
A Harris Interactive poll of 304 human resource directors and 100 health plan managers finds that 70 percent of the respondents were planning to increase employee cost-sharing through higher co-pays and deductibles over the next two years. Seventy-five percent planned to increase employees’ premiums.
In return for employees sharing a greater burden, employers are more apt to fashion health plans with a wider variety of options, Harris Interactive said.
The 2001 Employer Health Benefits Survey conducted by the Kaiser Family Foundation, a Menlo Park, Calif.-based health care philanthropy, found similar results, with 75 percent of large companies and 42 percent of small firms either “very likely” or “somewhat likely” to increase employee premiums in the next year.
The foundation’s annual survey in 2000 found employee health costs holding steady over 1999, with no mention of cost-shifting, as employers were willing to absorb higher costs.
Increased utilization, driven by what some see as an insatiable consumer appetite for health care, is one of the primary factors behind the rapidly growing cost of health coverage. Other factors that insurers and health maintenance organizations cite is an aging population that requires more health care and at a greater degree, new technological advancements that come with a hefty price tag, increased state and federal coverage mandates and escalating costs to develop advanced pharmaceuticals and the increased use of high-cost medications.
Hospital spending accounted for the largest share of health care costs in the U.S. in 2000, according to a study released in September by the Center for Studying Health System Change, a bi-partisan think thank supported by the Robert Wood Johnson Foundation. Overall health care costs grew 7.2 percent last year, the largest increase in a decade, with inpatient and outpatient hospital care accounting for nearly half of the increase, according to the center’s report.
The rising costs in 2000, the center concluded, fueled an average premium increase of 11 percent in employer-sponsored health coverage for 2001.
Partly to blame for the rising costs is a retreat in recent years from tightly managed care, resulting in higher demands for hospital services, the Center for Health System Change determined. The center’s report, like many others that have come out in recent weeks, warns that employees will feel the resulting financial sting, with employers struggling to cope in a tough economy unwilling to absorb the entire cost of higher health premiums.
Forcing consumers to personally feel the high cost of health care will ultimately affect utilization, potentially helping to stem rising costs in the future, and force changes in how health care is delivered, said Steve Heacock, vice president for development at Priority Health.
Of particular concern is a growing push in Congress and state legislature to mandate more areas that insurers and HMOs must cover, Heacock said.
“We need to think long and hard about how we use care and that what we are doing makes sense,” Heacock said.
Many in the health care industry say the continuation of double-digit annual premium increases will also drive employers, particularly large companies with self-funded health plans, to become more aggressive in their demands for data that offers an insight on which care providers offer the best value.
To Ron Palmer, president of Grand Valley Health Plan, a Grand Rapids-based HMO with about 22,000 members in Kent, Ottawa and Allegan counties, that means doing more to weigh the cost of care at a given provider against the medical outcome for a patient with a specific ailment or illness.
“We need to take a look at all of the approaches we’re taking and find a more effective way of delivering care to those people with these conditions,” Palmer said. “We need innovation in this field and we need innovation that leads us to more positive outcomes.”