Get Used To The Pain, Another round of double-digit hikes in health-care costs

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http://www.businessweek.com/magazine/content/03_42/b3854052.htm

 

OCTOBER 20, 2003

 

NEWS: ANALYSIS & COMMENTARY

 

Get Used To The Pain Another round of double-digit hikes in health-care costs is

in the mail.

 

During the bear market, many investors allowed their mutual-fund statements to

pile up unopened rather than face the music. These days, as the season for

enrolling in employer health plans kicks into high gear, millions of Americans

are feeling equally queasy about another ominous envelope: the one bearing the

bad news about their company's health plan.

 

With good reason. On average, health insurance costs for employers are expected

to soar 16% this year. Although next year the surge will slow a bit, to 12%,

according to a study released on Sept. 29 by benefits consultants Towers Perrin,

it will mark the fifth straight year of double-digit increases. As a result,

businesses are increasingly opting to share the burden with their employees in

ways that make them more aware of the true cost of health care. " One reason that

health-care costs are out of control is that employees regard health care as

free, " says George David, chief executive of United Technologies Corp. To break

that perception, UTC requires workers to pick up 30% of the cost of using

in-network services, and 40% for out-of-network, until costs reach caps as high

as $10,000.

 

Even for workers at companies taking more conventional approaches, costs are

skyrocketing. Although most large companies still pay the same share of health

insurance premiums as they did several years ago, the average premium workers

shell out for family coverage has jumped nearly 50% over three years, to $201 a

month, according to the Kaiser Family Foundation. Deductibles and copayments for

buying drugs are up far more sharply, while more companies are tacking on nasty

new charges, like separate deductibles for hospital admissions. And many small

businesses are instituting far more draconian cuts, or dropping coverage

altogether -- one reason why the number of uninsured Americans reached a record

43.6 million last year, up 2.4 million in just one year.

 

REFORM BATTLE AHEAD?

All that, in an era when wages and incomes are barely rising, has left many a

worker increasingly squeezed. The extent and duration of escalating health-care

costs have many experts predicting that a new battle over reforming the

health-care system is on the horizon. It will almost certainly emerge as a major

theme of the Presidential campaign. " This system is simply not sustainable, "

warns Sean Harrigan, president of the California Public Employees Retirement

System, which provides health benefits to more than 1.4 million people, making

it the nation's third-largest purchaser of health care.

 

And double-digit increases in health care likely will continue through much of

this decade. Blame that partly on graying boomers. The average age of employees

covered by health-care plans is now 41, up from 38 in 2000. Because older

workers use more health care, this pushes up costs a full four percentage points

a year. Increased use of prescription drugs is another big culprit. So is

greater demand for expensive tests and specialists.

 

Just as important, insurers also are flexing their muscles. After a brutal price

war in the late '90s, many have become more focused on the bottom line. They are

tightening guidelines, shunning unprofitable markets, and, yes, raising prices.

Health-care costs for fully self-insured companies are up just 12.4% this year,

according to Kaiser. In contrast, premiums for companies buying insurance are up

15.6%. " It's a fabulous time to be an insurer, " says Joe France, an analyst at

Banc of America Securities (BAC ). Take Aetna Inc. (AET ), which suffered an

operating loss of $266 million in 2001. With rates rising at a 16% annual clip,

it expects to earn $900 million in operating profits this year.

 

No surprise then that employers are trying to regain some bargaining power.

After receiving initial bids for a 31% hike next year, CalPERS negotiated a

multiyear contract with Blue Shield and stepped up efforts to manage costly

chronic diseases. The payoff: Premiums will rise 18%. Kaiser reports a stunning

62% of companies looked for a new provider last year. That shopping could begin

to pay off, predicts France, since insurers " want to gain members after years of

losing them. "

 

For now, many big companies are resisting the urge to burden workers with a

larger share of premiums. This year, Kaiser figures, the average worker will

shell out $2,412 in premiums for family coverage. Although up 49% since 2000,

that still represents just 27% of the total $9,068 bill, the same share as in

recent years. " Companies recognize this is a very sensitive issue, " says Richard

Ostuw, a principal at Towers Perrin.

 

Maybe so, but workers' out-of-pocket costs for using the health-care system are

rising far more steeply than premiums. Since 2000, the average deductible for

workers using in-network services in preferred-provider organization plans has

jumped 57%, to $275, Kaiser says, while the hit for using out-of-network

services has soared 65%, to $561. And 44% of companies now levy a separate

deductible, averaging $200, for each hospital admission, reports Kaiser.

 

Of course, much depends on where one works. Although Ford Motor Co. has trimmed

health benefits for its white-collar workers twice since it launched its

turnaround efforts in early 2002, it still picks up 90% of the total tab for its

active and retired workforce. By contrast, hotelier Wyndham International Inc.

(WBR ) scrapped a health maintenance organization plan that required no

copayment, in favor of plans that require employees to pay 15% to 40% of the

full cost, up to a maximum of $2,500 or more. " We needed to make [sure] people

who use the plan really think about what service they are purchasing, " says

Dixie C. Sweeney, vice-president of compensation and benefits.

 

SMALL-BIZ SQUEEZE

Small businesses have less wiggle room than their larger counterparts. Sandra

Hord, vice-president of Premier Insurance Brokerage Ltd. in Itasca, Ill., says

she's seeing the most dramatic overhaul of health benefit planning in 30 years

among her small-business clients. When it comes to covering workers, she says,

" it's getting dangerously close to the time for companies to say, " I just can't

do it anymore. " Just 65% of companies with 3 to 199 workers offered health

coverage this year, down from 71% in 1999, even as 98% of those firms with more

than 200 workers continue to provide coverage.

 

As companies large and small wrestle with rising health-care premiums, some

insurers are stepping into the breach -- offering cut-price plans. To help

hard-pressed small businesses keep coverage, Wellpoint Health Networks (WLP )

has rolled out a broader range of plans, starting as low as about $100 a month.

For that, workers get insurance that covers 80% of the cost of catastrophic care

and prescription- drug coverage -- but nothing toward office visits. Some 18

major employers, including Wells Fargo & Co. (WFC ) and Lockheed Martin Corp.

(LMT ), have signed up for PacifiCare Health Systems Inc.'s (PHS ) new Value

Network, which encourages employees to use high-quality but less expensive

doctors and hospitals. The savings: 8% to 14%.

 

Still, many doubt such initiatives will solve the problem. That's why the 2004

Presidential election could echo 1992, at least on the issue of health care.

That was the last time there was a spate of double-digit increases in health

costs. Back then, the debate over health care helped Bill Clinton win the White

House. The way costs are rising, the issue could be as potent in '04.

 

By William C. Symonds in Boston, with Brian Grow in Chicago, Carol Marie Cropper

in Atlanta, Diane Brady in New York, and bureau reports

 

 

 

Copyright 2000-2003, by The McGraw-Hill Companies Inc. All rights reserved.

 

 

 

 

 

 

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