Rate of increase in health costs at 6-year low for small employers

Experts believe slowdown is unique to state market

May 14, 2004|By M. William Salganik | M. William Salganik,SUN STAFF

Health insurance costs for small employers in Maryland rose 5.5 percent last year -- the smallest increase since 1997 -- according to a state report released yesterday.

"We were pleasantly surprised," Enrique Martinez-Vidal, deputy director of the Maryland Health Care Commission, said in presenting the report to the commission.

Several experts said the deceleration reflects moderating hospital and pharmacy costs, as well as more competitive pricing by insurers after several years of fattened profits.

There was disagreement, however, about whether there is likely to be a clear and lasting downward trend from premium increases that have reached or approached double digits in recent years.

The smaller increase is a product of the particulars of Maryland's small-employer market as well as national trends, according to people in the industry.

"More competition in the state of Maryland, and small group in particular, is helping to drive that number down," said Ralph Borzillo, regional head of small employer and individual sales for Aetna Inc. Borzillo said Aetna has moved aggressively in the market to offer lower-cost benefit packages.

And CareFirst BlueCross BlueShield, the state's largest health insurer, decided after a highly profitable year to forgo its usual July boost in small-employer premiums. "We noted a slowing in the rise in health care spending, and said we would pass it along" by "holding the line or moderating" price increases, said Jeffery W. Valentine, a CareFirst spokesman.

While inflation of health care does seem to be slowing somewhat, many of those involved in buying coverage were no happier than, say, a motorist who found the price of unleaded was only up a penny or two this week.

"The rate of increase is coming down, but we're still looking at a rate two to three times that of inflation," said Francis X. Kelly III, president of Kelly & Associates Insurance Group in Hunt Valley.

"It doesn't seem like it's slowing down to us," said Beth Braid, a broker at Velco Insurance Agency in Randallstown. "I'm still seeing gigantic rate increases." For example, she said, one client was recently quoted a price of about $1,900 a month for family coverage, up from $1,500, an increase of more than 25 percent.

Gary Becker, a broker with Becker Benefit Group in Owings Mills, said he had a client this week who was quoted a $438-a-month premium for individual coverage, an increase of more than 20 percent. He said an increasing number of his clients are looking to insure themselves, allowing them to "cherry pick" by covering a healthy group of workers at a lower cost.

Employers such as Braid's and Becker's clients may be seeing larger-than-average increases if their work force is aging. Rates for small-employer policies in Maryland can be adjusted for geography and age but can't take into account the health history of the people covered.

Also, the state report, which tracks average cost for each employee covered, doesn't measure premiums precisely, Martinez-Vidal noted.

The small-employer policies provide health coverage for about 450,000 Marylanders. Any business with 50 or fewer employees that chooses to offer health insurance (more than 50,000 employers, an estimated 43 percent of small businesses in the state) must select one of the standard benefit packages set by the commission.

There's "a pretty pronounced moderation" in premiums nationally, although not to the mid-single-digit level seen in Maryland's small-employer market, said Paul Ginsburg, president of the Center for Studying Health System Change in Washington and author of numerous articles on health care costs, including one to be published next month.

Ginsburg said that the costs insurers have to pay -- the country's collective hospital, doctor and prescription bills -- rose at an annual rate of only 8.5 percent in the first half of last year, compared with 10 percent in 2002, and that he expects continued moderation.

CareFirst's Valentine said that while unit costs (the price of a day in the hospital, for example) are still going up, there has been a pronounced slowing in the trend by members to use more services.

Also, Ginsburg theorized, another factor contributing to less aggressive pricing is pressure by regulators over whether surpluses are excessive at nonprofit Blue Cross plans, such as CareFirst.

While Ginsburg expects the moderating trend to continue, others don't.

Peter Cole, a senior vice president at the Baltimore office of Aon Consulting, a company that advises employers on benefits, said an Aon survey of insurers this spring generated predictions of premium increases of about 14 percent nationally, about the same as last year. And in Central Maryland, the survey predicted increases of 15.5 percent for the popular PPO policies.

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