Health Care and Insurance and Technology

Premiums continue to climb: Rate increases may dip, but not by very much

October 17, 2005

After four years of double-digit rate hikes, average health care insurance premiums rose less than 10 percent in 2005. And they're expected to rise less than 10 percent again in 2006, according to several national surveys.

But excuse employers if they don't get excited about the trend. They are still faced with having to pay much higher prices or trimming benefits-or both.

Health care insurance premiums this year increased 9.2 percent, a 2-percent drop in the average increase from the year before, according to a report recently released by Kaiser Family Foundation. The increase was still more than three times that of the average worker's wage growth and 2-1/2 times the rate of inflation.

"Just because it's dipped below 10 percent, that's not enough to offer much hope," said Leslie Zwirn, an independent health care policy analyst in Indianapolis.

Going forward, average premiums are projected to increase just under 10 percent in 2006-if employers do nothing to their benefit plans-according to a national survey of nearly 2,000 companies conducted by Mercer Human Resource Consulting and Marsh Benefits.

Another study by national benefits firm Hewitt Associates projected companies will pay an average 9.9 percent more for health insurance next year-almost doubling the average employee cost of five years ago.

Employers' average medical expense for each worker will be $8,046 next year, Hewitt's survey said.

Employers are cutting benefits and counting on employees to pay more for their insurance.

According to Kaiser, 60 percent of U.S. businesses offered employee-sponsored health care insurance to workers in 2005, down from 69 percent in 2000.

The Mercer survey found two-thirds of large employers (500 or more employees) were planning to shift costs to employees by raising deductibles, co-payments or out-of-pocket maximums.

Zwirn, who spent 15 years on the health care delivery side as vice president for strategy at Methodist Hospital, said the forces driving rising costs-technology, an aging population and greater intensity of care-are overwhelming employers' attempts to offer affordable insurance.

"The outcome is not changing," Zwirn said. "We're just not getting enough back for the huge incremental dollars we're putting into health care."

And while studies show annual increases starting to drop nationally, the Midwest and Indiana might not experience as significant a drop.

"The danger of reporting on a national level is that it's not really applicable to the Midwest," said Bryan Brenner, CEO of locally based Benefit Associates Inc., a health care advisory firm.

"Overall, the Midwest, and Indiana in particular, has higher incremental increases than the rest of the country," Brenner said. "And it's mostly due to lifestyle choices."

It's no secret Indiana ranks high among states for obesity, sedentary behavior and the percentage of smokers.

Indianapolis ranks second behind Milwaukee as the most expensive city for combined employer and employee perfamily annual health insurance premiums, according to an October 2004 Hewitt Associates survey.

An Indiana employer with fewer than 2,000 employees is likely to be happy if it can manage to hold down health care benefit costs to an 8-percent increase for 2006, Brenner predicted. That's after starting from a premium-rate increase of as much as 15 percent and making as many changes as necessary to cut or shift costs.

And if companies are running hot, meaning their claims are significantly higher than last year, they could be looking at a 25-percent jump, Brenner said.

While costs are increasing less drastically for small companies because they are more likely to be insured than selffunded, even their rates are likely to increase nearly 6 percent-after trimming benefits.

And Indiana might be running hotter even by Midwest standards.

Amounts paid by Sagamore Health Network Inc., a preferred provider organ ization used by various insurance carriers, show fairly significant disparities for services provided here vs. Chicago, said Roger Aleksa, vice president of business development for locally based Nyhart.

Sagamore reimburses $8 less for an office visit here than in Chicago, $50 less for an emergency room visit, and $85 less for an MRI.

Amounts reimbursed are partly due to a market's health insurance claims experience as a whole, which is a reflection of lifestyle choices, Aleksa said.

So employers here, and elsewhere, will be making another round of cuts, industry insiders predict.

The two most common tactics employed by companies in the coming year will be increasing the percentage of the premium paid by the employee and raising deductibles, co-payments, coinsurance and/or out-of-pocket maximums.

Employers will chip away at what they can afford to offer their employees, but many are getting close to going as low as they can go.

"We've reached the point of diminishing returns," Zwirn said.

So, benefit advisers are having a different conversation with their clients during annual plan-evaluation meetings.

"I'm advising clients to tear up their current benefit plans and start from scratch," Brenner said. "They've got to stop trying to make these incremental changes and look at things differently."

Tearing up and starting over often means offering high-deductible plans with health spending accounts, or HSAs, for starters, Brenner said.
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