PREMIUM INCREASES: Many Health Insurers ‘Bleeding Red’

      The front page of today's New York Times details the coming rise in health insurance premiums employers will be facing as insurers seek increases for next year's rates. Health insurance rates could rise by double-digits -- "the highest inflation rate since the majority of employees moved into managed care." These increases, the Times reports, could leave "many Americans covered by employee-sponsored health plans" with a reduction in coverage or with a larger portion of their paychecks going to health insurance.

Tit For Tat
      Critics of managed care say these large increases undermine the basic premise of managed care: lower costs for consumers through savings. But the well of "easy savings" is drying up for managed care, and it must now "prove" that it can "produce high-quality care at reasonable prices," say the critics. "The low-hanging fruit has been plucked in terms of getting savings by eliminating fat that was in the system," said Margaret Stanley of the California Public Employees Retirement System. But supporters of managed care contend it "still offer[s] the best chance" for curtailing costs because it can "monitor the health histories of millions of members" thus "enabling doctors to provide the most cost-effective and highest quality care." Besides, even with the coming premium increases, managed care is still a better deal than traditional fee-for-service plans, which are expected to experience even greater increases than managed care, advocates say.

Bad Moon On The Rise
      Nationwide, benefits consultants estimate premiums will increase 7% (five times the current consumer inflation rate of 1.4%). But in states such as New York, California, Minnesota, New Jersey and Illinois, increases could be 10% or higher, the Times reports. "In perhaps the most dramatic case," the country's largest HMO, California-based Kaiser Permanente, is seeking increases of 12% from the state's largest employers. William Mercer benefits consultant Blaine Bos said "big employers were likely to see rate increases of 9% to 14% in most parts of the country." But, according to the Times, small businesses and individuals could face "even bigger increases." According to Little Falls, MN, small business owner Kurt Owen, his insurance agent "warned him to prepare for an increase of at least 15% after three years of 6.5% raises." And in New Jersey, Aetna U.S. Healthcare told one small law firm "that monthly premiums would rise 19% for single employees and 28% for families with children." In New York, Empire Blue Cross and Blue Shield and Oxford Health Plans are seeking increases as high as 59% for individual policies. Policies for large employers will rise between 6% and 10%, depending on location, said Empire.

Going Up
      Managed care companies point to a number of factors for their need to increase premiums. They cite growing consumer demand for "more services and fewer restrictions," such as greater coverage of prescription drugs and greater choice of doctors. Increasing government mandates, direct to consumer advertising for drugs, new medical technologies, rising doctor incomes and larger numbers of older people with chronic illnesses are all factors driving up health costs. "Many health insurers didn't do a good job of managing care, and now they are bleeding red ink," said Bos. Ken Reifert, global benefits director for Merrill Lynch, said after seeking to curb costs by "negotiating discounts and curbing access to higher-priced specialists ... [n]ow the health care companies have to come up with the next rabbit and get serious about managing costs and managing quality of care." The rise in health insurance premiums "could ripple through the economy," according to economists. Some employees said they might have to ask employees to forego annual raises or pay larger shares of monthly premiums (Freudenheim, 4/24).