Health Insurance Inflation Slows

October 5, 2007
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The good news is that health insurance costs are not expected to see a double digit increase next year. The bad news is that it’s pretty darn close to double digits and those numbers are likely skewed by an increase in nontraditional plans — in addition to the fact that employers are shifting a greater financial burden to employees.

According to projections from global accounting firm PricewaterhouseCoopers, preferred provider organizations, health maintenance organizations, point of service plans and exclusive provider organizations will show a 9.9 percent price increase in 2008, down from an estimated 11.9 percent for PPOs and 11.8 percent for HMOs, POS plans and EPOs this year.

Consumer-driven health plans will see only a 7.4 percent increase in 2008, much less than the 10.7 percent increase estimated for 2007.

The Annual Benchmark Survey of United Benefit Advisors, an alliance of 142 independent benefit advisory firms, found that the average premium across all plans after adjustments increased 7.2 percent in 2007, a dip from 8.6 percent in 2006 and 9.6 percent in 2005. The average annual health plan cost per employee rose from $6,629 to $6,881.

In Michigan, the average annual cost per employee was significantly higher than the rest of the country at $8,520, according to The Campbell Group in Grand Rapids, a member of the United Benefit Advisors. The average premium increase, however, was significantly less at 5.7 percent.

“The costs to the employer are not as high as they were, but that doesn’t mean the cost of care is going down,” said Jon Smead, vice president of Aon Consulting. “Most of the impact is coming from plan design. Employers are looking for the most economic package available to them.”

Employers are insulating themselves against the higher prices by switching to plans with higher co-pays or deductibles, said Smead, including consumer-driven high-deductible plans and health saving accounts.

Plan design was a topic of concern this year for members of The Employers’ Association in Grand Rapids, but the group’s latest benefit survey did not reveal drastic changes in plan design, according to Maggie McPhee, TEA information services director. The group’s estimated premium average increase was in line with national and state estimates at 5 percent to 8 percent. The average monthly employee contribution among the 215 plans surveyed was $329, lower than the UBA national average for this year ($347) and last ($331).

“Employers in the West Michigan area have been looking at and focused on benefit levels for the last three to five years,” said David Smith, TEA executive director. “A lot of it has been driven by cost, yet they’re still very entrepreneurial and paternalistic. They’re trying to maximize the benefit while minimizing the cost.”

A number of TEA members are adopting or investigating wellness plans, a strategy that Blue Cross Blue Shield of Michigan attributes to lower cost for its members in West Michigan. It has signed up nearly 10,000 members to its Healthy Blue Living project, and launched a PPO version, Healthy Blue Incentives, this month.

“If we are acting in a greater health capacity, you will have less claims,” said Jeff Connolly, president of the organization’s West Michigan operations. “And we believe it will have a domino effect: The more of these products that are out there in the community, the more communities will tend to adopt these behaviors.”

Regardless of the positive influences of the wellness plan, Blue Cross Blue Shield is still projecting a nearly double-digit price increase for the coming year, in line with industry projections.

“At least West Michigan is still kind of lucky compared to the Southeast Michigan and Detroit area,” said Joseph Ekstrom, vice president of The Campbell Group. “Michigan employers tend to provide richer benefits than what they do in other parts of the country, but at least West Michigan is generally lower than the rest of the state on average.”

That is not necessarily a case of weaker benefit packages, Ekstrom said, as, in general, the cost of care is higher in other parts of the state, where providers tend to be somewhat less efficient. However, the higher concentration of negotiated benefit packages on the east side of the state does contribute to richer benefit packages and higher employer costs. A weakening position for organized labor across the state, particularly for the Michigan Education Association and UAW, should continue to drive changes in employers’ favor.

“When you’ve got groups that are traditionally hesitant to make those changes, willing to talk about them, that sends a message to employees about cost sharing,” said Aon Consulting’s Smead. “I think there is recognition that the very rich plan programs are just costing too much money and they are not as effective as they used to be.”

Randy Gildea, a commercial insurance specialist with Byron Insurance, said that, if used properly, health savings accounts have significant potential to reduce costs for employers and employees. When coupled with a high-deductible plan, an HSA should provide all the protection of a traditional plan, but possibly with no real cost to the employee. A healthy 30-year-old could expect to pay around $60 a month or $750 a year for high-deductible insurance. From the $2,800 of tax-deferred savings that can be put into the HSA, the worker could expect tax savings of around $750, negating the cost of the insurance. HQX 

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