Health care crisis returns as costs rise in hard times

Insurance premiums hit workers and employers

August 11, 2002|By NEW YORK TIMES NEWS SERVICE

WASHINGTON - Ten years after a health care crisis threw U.S. politics into turmoil, many experts see another one on the horizon.

The cost of health care, which had stabilized in the mid-1990s with the advent of managed care, is climbing rapidly again, putting new strains on employers, workers and government health programs. In a struggling economy, many employers say they can no longer absorb these higher costs and must pass more of them on to employees.

It is not just a problem of rising costs. The troubled economy is expected to cause an increase in the number of Americans without insurance, which stood at 39 million even at the end of the booming 1990s. Families USA, a consumer advocacy group, has estimated that more than 2 million Americans lost their insurance last year because of layoffs.

If the cost of coverage keeps rising, experts warn, even more Americans will join the ranks of the uninsured because they will be priced out of the market. Many health care analysts, their faith shaken in managed care, see no easy fixes.

Politicians in both parties are beginning to respond, but they are profoundly divided on the issue, a deadlock underscored last month by the Senate's inability to pass a prescription drug benefit for Medicare. The issue is expected to permeate the fall elections.

Behind the numbers are people such as Paul McGonnigal, 36, of Portsmouth, N.H., who lost a six-figure salary and his health benefits when his dot-com start-up faltered. "I look at this situation as extraordinarily high risk," said McGonnigal, now trying to start a consulting business with his wife, Shelley. "We would be financially wiped out if either one of us got seriously ill."

The soaring costs are driven, in part, by the biomedical revolution of the past decade, which has produced an array of expensive treatments for an aging population, from drugs to fight osteoporosis to high-tech heart pumps. What results is a health care system filled with great promise and inequity, symbolized by wonder drugs that many of the elderly can barely afford.

Managed care foiled

After the failure of President Bill Clinton's effort to create universal health insurance in 1994, many experts thought that the private sector - health maintenance organizations and other forms of managed care - would deliver cost-efficient, high-quality medical care. But managed care's success in controlling costs proved short-lived, in part because patients and doctors bristled against its hard bargaining and restrictions on care.

Now, many experts agree with Drew Altman, president of the Kaiser Family Foundation, a health research group, who said: "No one has a big new answer on what to do about health care costs. And it's all made worse because health costs are rising in bad economic times."

The strains in the system are increasingly apparent.

Spending on health care rose 6.9 percent in 2000, the largest one-year percentage increase since 1993, federal researchers reported this year. Spending on prescription drugs and hospital care grew particularly fast, largely because of advances in technology.

Health insurance premiums rose an average of 11 percent last year and are expected to rise an additional 13 percent this year after several years of very modest growth. Premiums for many small businesses will rise even higher, many experts say. The California Public Employees' Retirement System reported that its premiums would rise an average of 25 percent next year.

Employers are beginning to pass on those higher costs to their workers, in the form of higher co-payments and deductibles. According to new studies by the Kaiser Foundation, the amounts that employees pay for deductibles in typical health plans rose by more than 30 percent this year after little or no growth in recent years.

"Employers are really trying to get back on track in the current economy," said Kate Sullivan, director of health policy at the U.S. Chamber of Commerce. "But they are seeing their costs just explode."

States are struggling with soaring costs in their Medicaid programs, which cover more than 40 million low-income Americans. Governors, squeezed by declining tax revenues, are pleading for more money from Washington. State legislatures are coping by reducing benefits, such as dental coverage for adults, capping enrollments and requiring poor people to pay more for their care.

The picture is not entirely grim. Unemployment is still well below the level it was in the aftermath of the 1991 recession, when middle-class people, frightened that they would lose their health insurance, pushed the issue to the top of the political agenda and helped defeat the first President Bush.

Nor are health care costs rising as rapidly as they did a decade ago. Moreover, the number of uninsured children has dropped by more than 2 million since Congress began the Children's Health Insurance Program in 1997. The program helped reduce the percentage of children without insurance to 10.8 percent from 13.9 percent.

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