Rising Rates Put The Squeeze On
The Health Insurance Industry
Big health insurers with the cash to buy new computers may overpower smaller insurers in 2002.
Big plans “are making significant investments in systems capabilities to give them a competitive edge,” according to Standard & Poors Ratings Services, New York. “These plans have the critical mass and the financial wherewithal to make these significant investments. Smaller plans do not and will become progressively less competitive.”
Health insurers once equated “increasing efficiency” with “cutting broker commissions,” but they now say brokers can help customers sort through the changes. Brokers “are in a great spot,” says Michael McCallister, president of Humana Inc., Louisville, Ky. “Theyre the representative of an employer on a lot of different issues.”
Today, brokers are helping employers absorb the fact that major medical prices have increased at double-digit rates for the third straight year.
Towers Perrin Inc., New York, estimates the average of cost of individual coverage at big companies will increase 13% in 2002, to $2,736.
That compares with an increase of just 4.5% in the federal medical care cost index, and an increase of 6% in the cost of Towers Perrin customers dental coverage.
“Employers simply cannot afford to continue to absorb double-digit health care cost increases,” warns Jack Bruner, a health care consultant at another benefits consulting firm, Hewitt Associates LLC, Lincolnshire, Ill. “Some smaller and midsize companies may not be able to afford to provide health care coverage if rate increases continue at this pace.”
A few years ago, employers could escape increases in the insured market by setting up self-insured plans.
Today, the health reinsurers that protect self-insured plans against the cost of heart-lung transplants and massive flu outbreaks are skittish. Because reinsurance claims costs have been so high, the market for reinsurance for managed care companies is hard.
The market for protection for self-funded plans “is even harder than the managed care market,” says Ward Humphreys, a health reinsurance broker in the Blue Bell, Pa., office of Evergreen Re.
Humphreys described a self-funded plan with 1,000 members that exceeded a claim limit in its stop-loss agreement by $11,000.
When the company tried to renew the agreement, the rates went up 70%.
Benefits brokers see signs that many customers are still willing to pay extra for what they believe to be better, more flexible coverage.
Towers Perrin, for example, found that only 22% of the workers at the big employers it surveyed will belong to health maintenance organizations in 2002, down from 32% in 2001.
PacifiCare Health Systems Inc., Santa Ana, Calif., an HMO company, has been setting up preferred provider organization plans.
Humana, best known for HMOs, has introduced Emphesys, a Web-friendly program that helps employers offer PPOs along with HMOs.
Karl Hansen, president of The Vita Companies, a benefits brokerage in Menlo Park, Calif., scoffs at the idea of employers in his area skimping on health benefits.
Even in Silicon Valley, the land of the dot-com meltdown, “the employment market is still strong in many sectors,” Hansen says. “Employee benefits are still a critical issue.”
But “a lot of employers are in preservation mode right now,” says Peter Knoll, a benefits broker at Odin Financial Strategies, Minneapolis.
“Employers are looking for solutions,” McCallister says. “Theyre looking for whatever can be cost-effective.”
Meanwhile, opponents of the private health finance system are rooting for it to collapse: a universal health care referendum nearly won in Massachusetts last spring, and the Maine legislature came two votes short of approving a universal health care bill last summer.
Some insurers are trying to help customers hold down premium costs by offering plans with higher deductibles, or smaller provider networks.
CaliforniaChoice, Orange, Calif., has introduced the Salud con Health Net HMO, a Los Angeles-area HMO that has only 340 doctors in its network but offers rates as low as $82 per month.
Insurers are also hoping that 2002 will be the year when the adoption of health data communications standards weans doctors away from paper claims. The new Health Insurance Portability and Accountability Act electronic claims standards are supposed to take effect Oct. 16, 2002.
The HIPAA standards could favor bigger insurers, because compliance can be expensive.
A few start-ups and benefits consulting firms want to use technology in a dramatically different way: to unleash consumer shopping skills.
Companies like Definity Health, Minneapolis, and MyHealthBank Inc., Portland, Ore., are marketing “defined contribution” health plansprograms that combine high-deductible health coverage with cash accounts that employers can use to pay for routine medical expenses.
Many of the defined contribution programs also offer access to some kind of provider price guide, so that members can tell what doctors in the network really charge for blood tests and tonsillectomies. Employees who bargain well and avoid unnecessary care may get to keep the unused cash.
Definity alone says U.S. employers will be offering its programs to 100,000 employees for the 2002 benefits year.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 24, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.