Health insurance getting ever costlier

Premiums rising

some carriers boosting medicine copayments

HMO profitability a factor

August 22, 1999|By M. William Salganik | M. William Salganik,SUN STAFF

Health insurance premiums, nearly flat in the mid-1990s, continue to accelerate, with some surveys and benefits consultants projecting price boosts for next year approaching 10 percent.

As many employers set their plans for next year, a number of insurers are redesigning prescription benefits, with higher patient co-payments for some types of drugs, in an effort to rein in the most rapidly growing cost factor. In addition, prices are going up as HMOs seek to improve profitability.

According to the federal Health Care Financing Administration (HCFA) -- which is projecting a 9 percent increase for next year in premiums for private health insurance -- there hasn't been a double-digit increase in rates since 1990. The rapid growth of HMOs and other managed-care plans moderated price boosts, with increases in the range of 2 percent to 4 percent in the mid-1990s.

Surveys by the benefits consulting firm William M. Mercer Inc. found increases last year of 6.1 percent nationally and 4.3 percent in the Baltimore-Washington area. The year before, Mercer reported a 0.9 percent increase in the country and a 2.3 percent decrease in Baltimore-Washington.

Not everybody is facing double-digit increases, but everyone agrees that the trend is for accelerating increases. "The wave is increasing as we're going along," said Chris Mathews, leader of the health-benefits practice at the Washington-Baltimore office of consultant Watson Wyatt Worldwide.

Critics of managed care say the new round of increases, as many employers set their plans for next year, shows that the HMOs can no longer control costs after having achieved some one-time savings by cutting rates to doctors and hospitals and pushing care to less expensive settings. "Last year, they started raising rates because they had squeezed out all the costs they could," said Melissa Gannon, vice president of Weiss Ratings Inc., a Florida company that monitors the finances of HMOs and other insurers. "They probably have pretty much used up all their tricks. They've denied as much coverage as they can deny."

Others, including the health plans themselves, say the increases are justified by an aging population and by the need to provide expensive new technologies. "Any plan wants to provide the newest and best treatments," said Cary Badger, vice president of sales and marketing for Kaiser Permanante of the Mid-Atlantic States.

Also adding to the cost of care, some say, are patient demands and government mandates to remove some HMO restrictions. "We will be seeing, if anything, a rollback to some of the constraints we've seen in the past few years," said Sheila Smith, an economist with the National Health Statistics Group at HCFA. "There is little appetite for more constraints on access to care."

But there is consensus that prescription drugs are the largest contributor to cost increases, the demand driven in part by marketing direct to the consumer.

For example, at CareFirst BlueCross BlueShield, Maryland's largest health insurer, the cost of prescriptions is running 18 percent to 20 percent ahead of last year, said Winston Wong, director of pharmacy management.

The cost of an average prescription per member has gone from about $30 two years ago to about $40 now, Wong said, and CareFirst's Medicare members are getting about 22 prescriptions a year, up from 20 last year.

CareFirst is among the plans switching some members to three-tier drug coverage. Wong said the most common plan for next year will include copayments of $8 for generic drugs, $15 for brand name on CareFirst's approved list, or "formulary," and $30 for drugs not on the formulary. Currently, Wong said, the common plan is $8 for generic and formulary drugs and $15 for nonformulary.

He expects the change to save $3 million in 2000 -- the current CareFirst pharmacy bill is $288 million a year -- and more in subsequent years, as it is extended to more subscribers.

Deanna Mojarrad, compensation and benefits manager at Legg Mason Inc., said the Baltimore brokerage and money manager is raising the prescription copayment for its employees, and switched to two new insurers after getting price quotations for increases of nearly 20 percent from the four previous carriers. Legg Mason has about 4,000 employees at about 120 locations, including some 1,400 at its headquarters here.

While changes in pharmacy copayments shift some of the costs to the patient, there is little indication that employers are shifting other costs to the employees. Paul Fronstin, an economist at the Employee Benefits Research Institute in Washington, said employee share of health premiums, on average about 25 percent, has been steady throughout the decade.

Other than making changes in drug benefits, plans are counting on better medical management to moderate cost increases in the future. While costs of care are going up more than in recent years, premium boosts are expected to rise even faster.

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