HMO: Premium Hikes Prompt Employers to Change Plans

      For the third consecutive year, many companies are facing a 10%- 30% hike in health insurance premiums across the United States, according to employers, insurers and business analysts, the New York Times reports. Sparked mainly by rising drug costs and prescription volumes, the premium increases are also attributed to a greater demand for medical services, escalating hospital and physician fees and uncertainty about new health care regulations. Few areas of the country are spared from the escalating costs: HMO premiums are rising 9.2% in the California Public Employees Retirement System; small employers in the Northwest face premiums 15-30% higher next year; Texas employers anticipate premium increases of 18-20%; St. Louis will see a 10-15% increase; New York premiums will jump nearly 10%; and state employees in Massachusetts will see a 14.5% increase. For employers, the profit-cutting, skyrocketing premiums indicate that "managed care is no longer keeping medical costs down," and as a result, companies are beginning to lean away from HMOs and shift workers into preferred-provider plans or other traditional fee-for-service insurance that does not incur the high administrative costs of managed care. Smaller companies may begin to force employees to pay the cost difference themselves, or cease offering health benefits altogether. According to a National Blue Cross and Blue Shield Association and Employee Benefits Research Institute survey released yesterday, of 506 small businesses, 10% would change health coverage and 3% would drop coverage if the cost of insurance rose only 1%; 33% would change and 5% would drop coverage if costs rose 5%; and 46% would change and 14% would drop coverage if costs increased 10% (Freudenheim, 9/6).

Coverage Confusion
      The EBRI survey also found, however, that many small firms do not offer health benefits to their employees because they are uninformed about tax credits and insurance access protections that make coverage more affordable. The "extraordinary" gaps of knowledge among small firms owners include:

• 57% were unaware that employee health insurance contributions are 100% tax deductible, while 48% did not realize that employees would not have the same tax privileges if they purchased insurance on their own.
• More than two-thirds did not know that insurance companies cannot deny coverage to a firm based on employee health status, and 80% did not know that states require insurers to "spread the cost of insuring small employers with a lot of sick employees across a larger pool of workers."
• 65% were unaware that limits exist on how much insurers can charge employers for sick workers.
• Most employers who did not offer health benefits felt health insurance did not significantly affect worker recruitment, retention, performance or absenteeism, while most employers who did offer such benefits felt they did have "at least some impact."