Rising Premiums Impact Businesses, Employees
Companies Advised to ‘Shop Around’ For Health Benefits
BY PAM LEGGE
Special to the Business Journal
Last year, employers saw their health insurance premiums rise by as much as 25 percent , the highest rate hikes implemented by insurers since 1992.
Unfortunately, double-digit increases are expected again this year, making it increasingly difficult for employers to offer the same level of benefits they have in the past.
How this affects employees is a key concern for many companies torn between rising premium costs and the desire to provide employees with adequate, affordable coverage.
One national health-benefits research firm projects that over the next two years, health insurers will seek premium increases by as little as 13 percent to as much as 50 percent. On average, companies can now expect to pay an additional $485 per employee per year for health care coverage.
Many companies cannot afford the higher premium costs and are passing them on to employees through higher deductibles and co-pays. While many employers continue to pay 80 percent of their employees’ health care premiums, an increasing number are reducing their contribution to the required minimum of 50 percent.
These projected increases do not factor in the Patients’ Bill of Rights, now before Congress. The measure would create national rules for managed care plans and could raise insurance premiums an additional 4.2 percent over five years.
– Reasons for Rate Increases
A number of factors are contributing to today’s rising insurance costs including:
– More consumers are requesting the newest and most expensive prescriptions as a result of increased advertising by pharmaceutical companies. The higher costs of these brand name drugs, vs. generic products, is being passed back down to the consumer via higher premium costs.
– Prescription drug costs have risen on average 19 percent over the past three years. The University of Maryland projects that prescription drug expenditures will increase by 18 percent annually over the next two years, reaching $212 billion in 2004.
Two pieces of new legislation , S812 and HR1862 , seek to lower drug costs by closing many of the federal regulatory loopholes that prevent or impede generic pharmacy products from entering the market.
– While state and federal efforts try to make health care more accessible and affordable, government restrictions can make it difficult to properly price coverage. Record-keeping needed to comply with new regulations adds to the expense. On average, each new piece of legislation can impact rates from 1 to 5 percent.
– Malpractice suits against physicians and hospitals are occurring more often and with larger settlements. The result is expensive malpractice insurance, and a tendency to overtreat patients to avoid potential liability.
– America has an aging population , for the first time in history there are more Americans over 50 than school-age children.
– New technology also adds to the cost of medical care. Organ transplants are now performed routinely and require expensive technology.
Where employers and employees are concerned, the double-whammy of rising premium costs and a slowing economy means that they must make tough choices where health care coverage is concerned.
While there is no fast fix solution to the causes of today’s rising rates, there are ways that employers can minimize their rate increases and still provide their employees with the health insurance coverage they need. A knowledgeable health insurance professional should be able to direct your company in a number of strategies including:
– Rate comparison and negotiation. Just like anything else, it is important to shop the market for the best coverage at the best price.
Health insurance coverage varies by carrier and by program; an experienced insurance professional will be able to direct you to the best carriers and programs to meet your specific company requirements. Remember: all companies are not created equal in terms of their health care needs.
– Re-evaluate existing plans. By reviewing your company’s existing health care plan, it may be possible to eliminate some optional or unneeded coverage whose omission will not impact the overall integrity of the program. Your health insurance professional can help you understand the various coverage of your current policy so that you can make an informed decision in the best interest of your employees.
– The managed care option. Many companies still have Preferred Provider Organizations (PPOs), Point of Service (POS), or open access to Health Maintenance Organizations (HMOs). By implementing a more managed care plan, for example moving from a PPO to a POS system, the employer can often realize lower premiums. A defined contribution plan gives employees the option of “buying up” to a PPO or POS at their expense. Again, with the help of a qualified professional, your company will be able to select the program that best meet your needs and that of your employees.
Where life insurance is concerned, the news is actually quite good. Life insurance rates are stable or even decreasing.
Coverage in many cases has become broader, with some policies allowing riders for long-term care benefits as well. Today’s low inflation increases the purchasing power of life insurance proceeds, allowing for a greater standard of living. Policy underwriting is so aggressive that today most individuals can find coverage even with pre-existing conditions.
– Future Changes in Insurance Coverage
Looking to the future, several new pieces of legislation that will impact the health care industry bear watching. HR-2563 would allow small businesses to form their own insurance companies , called Association Health Plans (AHPs) , that would be exempt from state consumer protection laws. Congress is also considering the implementation of tax credits to help employers offer coverage (this will be one of the topics for this year’s National Association of Health Underwriters Capitol Conference).
Long-term care bill HR-831 would increase the current deductibility of long-term care insurance to an “above the line” deduction. It would also make long-term care policies eligible for inclusion in cafeteria plans, and provide a tax credit for family members who care for eligible individuals at home.
Given our country’s aging population, and the exorbitant costs associated with long-term care, this is an issue that concerns us all.
Finally, S357 would ensure the long-term solvency of Medicare, which has seen its participating members rise from 19 million people in 1966, to 40 million people today. This bill would update the Medicare benefit package, and beneficiaries would be able to choose from a variety of private health plans or choose to remain in the traditional, government-run program.
Legge is a vice president at John Burnham Insurance Services.