Escalating health premiums considered likely next year

Insurers, analysts blame costlier care, HMOs' pursuit of higher profits

August 10, 2002|By M. William Salganik | M. William Salganik,SUN STAFF

Health premiums are likely to continue to escalate next year, locally and nationally, insurers and health analysts said yesterday.

The predictions were based on rising medical costs and a drive by health maintenance organizations for higher profits.

Experts predicted jumps in out-of-pocket costs to workers as employers seek to pass along some of the increased costs.

Mid Atlantic Medical Services Inc. (MAMSI) projected premium increases of 13 percent to 13.5 percent, spokeswoman Elizabeth Sammis said. Kaiser Permanente expects increases in "the low- to mid-teens" in the region, said spokeswoman Susan Whyte-Simon. Aetna U.S. Healthcare said premiums will vary, but it is projecting that health costs next year nationally will increase 15 percent to 16 percent, spokeswoman Wendy Morphew said.

Steven J. Trumble, health care practice leader in Baltimore for Aon Consultants, which advises employers on benefits, said his clients were seeing percentage increases for next year from the mid-teens into the 20s.

This week, CareFirst BlueCross BlueShield said its premium increases could be similar to those in a national survey by consultants Milliman USA. A Milliman survey of HMOs published last month predicted a 17 percent increase nationally and 19 percent in the South Atlantic region, which includes Maryland.

Price increases can vary considerably among products - tightly controlled HMOs compared with more loosely controlled preferred-provider organizations (PPOs) - and in different markets. Also, pricing depends on the claims experience of each employer group. For example, Whyte-Simon said Kaiser's rate increases could range from 4 percent to 30 percent, based largely on claims data.

Jeff D. Emerson, regional president for CIGNA Health Care, declined to specify a figure for CIGNA's price increases but said premiums were being pushed up by a trend toward increased costs for medical care.

"We're seeing trend rates we haven't seen for years in this region," he said.

MAMSI's earnings report for the second quarter, issued this week, showed health costs up 9.1 percent. CareFirst's report for the first quarter showed medical expenses 13.2 percent higher than they were a year earlier.

Emerson noted a study by PricewaterhouseCoopers attributing the largest share of the increase in medical costs, 22 percent, to new drugs and other medical advances. Other major factors listed in the study were inflation and government regulations. He blamed Maryland's required benefits and state-set hospital rates for contributing to cost increases in the state.

The Pricewaterhouse study also said demand for health services, in part because of an aging population, accounted for 15 percent of the cost increase.

Use of the health system has increased, some say, as a result of "managed care backlash" - consumers complaining that HMOs erected too many barriers to treatment. "Even tightly controlled managed care plans have backed off aggressive control of care," said Trumble. "They're afraid of lawsuits, and don't want to be accused of denying care."

Premiums are also increasing as insurers try to improve their bottom lines, said Paul D. Ginsburg, president of the Washington-based Center for Studying Health System Change. Health costs rose about 9 percent last year, and premiums went up 13 percent this year, Ginsburg said.

"I'm stunned at how much higher premium trends are than likely health trends," he said.

Eric L. Veiel, a managed care analyst for Deutsche Bank Securities in Baltimore, said insurers are "pricing for a worst-case scenario," making sure they are covered if hospital and doctor bills rise more quickly than expected. A few years ago, by contrast, insurers kept price increases low to attract business. According to the Kaiser Family Foundation, premiums went up less than 1 percent in 1996 and 11 percent last year.

"I wouldn't exactly say to blame Wall Street, but in the mid- '90s companies were being rewarded for enrollment growth," Veiel said. "Now, investors want to see consistency in earnings."

Trumble said premiums can outpace medical costs because insurers are attempting to project trends forward. For example, he said, a health plan seeing price increases of 1 percent a month, or 12 percent a year, has to set a price now that will cover costs through the end of next year, 18 months from now, and thus might seek an 18 percent increase.

Ginsburg warned that early price estimates, such as the Milliman survey, tend to be high because they represent "what the health plans are asking." He added, "There's a lot of guessing what costs will come in at."

In addition to higher co-payments and deductibles, Ginsburg said, some insurers are looking at plans that will charge patients more if they choose higher-cost hospitals.

Trumble said many of his employer clients are "pushing some costs back to the employee" and reopening bidding for their health coverage to see if they can find better rates with a different insurer.

He also reported employer interest in "consumer directed" health coverage, but not much use of it. Under these plans, an individual gets a "personal care account" of, say $1,000, and is given insurance coverage with, perhaps, a $2,000 deductible. If the employee spends less than $1,000, he can roll over the surplus to the next year. If he spends more, he must cover the next $1,000 out of pocket before insurance coverage kicks in.

Based on limited experience with such plans, Trumble said, they resulted in a "reduction in physician office visits" and "change in prescription drug habits." Little change was seen in hospitalization, perhaps because "with hospital, you blip through the deductible," he said.

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