Health insurance outpaces wages

September 27, 2006|By M. William Salganik | M. William Salganik,Sun reporter

WASHINGTON -- The cost of employer-paid health insurance rose 7.7 percent this year - the slowest pace since 1999, but still about double the rate of wage increases and general inflation, according to a national survey released yesterday.

It was the second straight year of a single-digit increase, following last year's 9.2 percent and four straight years of double-digit increases before that.

"It's better news than we've been getting lately," said John Miller, executive director of the Maryland-based Midatlantic Business Group on Health, a coalition of employers. "But it's still a big number on top of a big number on top of a big number."

The overall inflation rate is 3.5 percent this year, and workers' earnings are up 3.8 percent, the report said. Since 2000, the survey reported, premiums have jumped 87 percent, more than four times the 20 percent increase in workers' earnings.

"The cumulative impact over a number of years - that's how employers experience it and how workers experience it," Drew E. Altman, president and chief executive of the Kaiser Family Foundation, which conducted the survey with the Health Research and Educational Trust, said at a news conference yesterday.

Karen Ignagni, president and CEO of America's Health Insurance Plans, a trade association for insurers, said the smaller increases of the past few years showed that insurers are developing new and better ways to control costs.

"The tools are beginning to take hold, and they're going to be expanded," she said. She predicted continued moderation as health plans expand efforts to encourage patients to take generic drugs, to reward doctors and hospitals who perform well, and to manage chronic diseases to keep patients healthier and require less expensive care.

Looking at history

Others, however, said history is not on the side of the optimists.

"For 30 years, we've seen [the rate of increase] rise and fall, we've seen these peaks and valleys," Altman said. "There is nothing to suggest health care costs won't continue to rise at rates that exceed inflation, and will probably return to double-digit levels."

Jonathan Weiner, professor of health policy and management at the Johns Hopkins School of Public Health, said there's no trend in health care now, equivalent to the widespread shift to managed care in the 1990s, that could produce strong and lasting cost moderation. Does he expect several more years of deceleration, pushing the rate of increase into the low single digits? "Not for a moment."

One of the 2,122 employers surveyed for the report was MedStar Health of Columbia, a nonprofit that operates seven hospitals. Wendy Marshall, assistant vice president for corporate benefits, said the company is spending $126 million this year on medical and prescription plans to cover about 15,500 employees and their families.

She said the costs for MedStar's most popular plan, a PPO, are up about 6 percent this year, compared with 10 percent last year. "I'm happy," she said. Some employees, she explained, would see larger or smaller increases - and some would actually see decreases - because MedStar is folding one plan into another and moving to standardize the premium share paid by different groups of employees.

Altman, too, cautioned that many employers and individuals will see costs different from the average, depending on the size of the company, age of work force, local market conditions and other variables.

"Almost one-third of firms told us they're still in double-digit land," Altman said.

Marshall said MedStar had moved to moderate its own increase with cost-control efforts including early identification of "pre-diabetics" and others in danger of developing chronic and expensive-to-treat conditions. Those identified are offered advice and preventive care.

Also, to encourage employees to stay healthier, she said, MedStar is waiving co-payments for prenatal care and for diagnostic screenings such as mammograms and colonoscopies, and offering six sessions of free nutritional counseling.

Reducing some out-of-pocket costs may be the beginning of a trend, said Miller, of the business group. His organization will hear today from a representative of Pitney Bowes Inc., which reported savings in overall costs after removing co-payments for drugs for chronic conditions such as diabetes.

Kathleen Strukoff, a senior vice president in the Baltimore office of Aon Consulting, a company that advises employers on benefits, said many local companies are launching such programs. However, she said, most are so new that it's impossible to measure the long-term payoff, and it's unlikely they are contributing significantly to the slowing of price increases this year.

Causes of moderation

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