Group Health Rates Still Rocketing
Employers are expecting 2003 to bring the fifth straight year of double-digit group health cost increases.
The California Public Employee Retirement Systems, a giant benefits purchasing group, warns that the rates for its preferred provider organization plans will be going up an average of 20% in 2003, and the rates for its health maintenance organization plans will be going up about 26%.
Employers “are angry that these costs keep rising,” says Neil Williamson, president of Group Health Plans of Louisiana, a New Orleans benefits broker.
But the only big new idea for fighting the cost increases seems to be the rise of the “defined-contribution” or “consumer-driven” health plan, which is supposed to encourage consumers to bargain with doctors and hospitals for lower prices.
For now, few experts interviewed are willing to predict the defined-contribution plan or any other innovation will have much of an effect on overall prices in the next five years.
Consumers have a hard time getting basic price information from doctors and hospitals, let alone bargaining, says Richard Stover, a consulting actuary in the Secaucus, N.J., office of Buck Consultants.
Economists have been worrying about the modern U.S. health insurance industry since 1943, when the federal government exempted group health benefits from the federal income tax. Even in the 1940s, forecasters said poorly structured indemnity insurance plans would eliminate the market forces holding health care costs in check.
The predictions came true with a vengeance in the 1970s, and employers soon responded by flocking to PPOs and HMOs.
Then, in the mid-1990s, HMOs ran into trouble with provider price negotiations because of the financial problems of the weak providers and the improved bargaining skills of the strong providers. The surviving HMOs have coped by emphasizing “disciplined pricing.”
The result: big, 1980s-style rate increases are back.
Hewitt Associates L.L.C., Lincolnshire, Ill., estimates employers are now paying an average of 13% more for comparable PPO coverage and 18% more for comparable HMO coverage than they were paying a year ago.
When Barry Barnett, a principal in the New York office of PricewaterhouseCoopers L.L.P., met human resources executives at a recent employee benefits conference, “all they talked about was getting rid of HMOs.”
PPOs and self-funded plans of all types are more popular right now, but rates for those plans are also going up far faster than the general inflation rate.
Health care experts blame the increases on the usual ups and downs in health insurance rates; burdensome government laws and regulations; advances in medical technology; the aging of the U.S. population; and the fundamental difficulty of managing an industry that has been all but cut off from ordinary market forces.
Some employers say they want to make radical changes.
When the Los Angeles office of Deloitte & Touche L.L.P. surveyed human resources executives in late 2001, 32% of the respondents at employers with fewer than 1,000 employees said their employers were considering “dramatic changes” in health benefits, compared with only 12% of the respondents at employers with more than 10,000 employees.
But 52% of the Deloitte survey respondents admitted their companies current strategy was simply to increase deductibles, co-payments and coinsurance levels.
Corporate human resources executives still dream of curbing costs with disease management programs.
“Two-thirds of our costs are driven by chronic diseases, such as asthma, diabetes, heart disease and arthritis,” says CalPERS spokesman Clark McKinley. “We hope to develop better ways of managing care for the treatment of members with those diseases early on.”
This year, defined-contribution programs are also getting a real test.
Defined-contribution programs usually combine catastrophic health insurance with employer-funded health reimbursement accounts. Program members use the HRAs to pay for routine medical expenses.
Managed care companies are spending heavily to develop the programs, according to Brad Kimler, a health care consultant in Hewitt Associates Boston office.