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Will 2003 be the year the U.S. health finance system changes forever or just another year when everybody grumbles about how expensive health insurance is?

No one knows what the future holds, but experts do agree on this: Health insurance costs are climbing at double-digit rates for the fourth straight year.

The cost of covering a single employee at a large employer will rise an average of 15% in 2003, to $3,192, says Towers Perrin, New York.

Agents in the field say the picture looks worse to them.

Anne Sperling, employee benefits manager at Daniels Insurance Inc., Santa Fe, N.M., and president of the New Mexico State Association of Health Underwriters, sees increases in her area ranging from 7%, for employers with great claims experience, to more than 50%, for employers with bad claims experience and bad demographics.

Prices “are going to keep going up,” Sperling says.

David Prewitt, an independent agent in Bedford, Texas, reports seeing increases of 24% to 34% in the Dallas area for all group sizes.

Years ago, insurers could hold costs for normal small groups down by refusing to sell health coverage to bad risks. These days, because of laws and regulations limiting insurers ability to deny coverage for small groups, “theres not a question of getting insurance,” Prewitt says. “Theres a question of affording insurance.”

Regulators are likely to use their authority to scrutinize rate increases more carefully, according to Robert Booz, an analyst at Conning Research & Consulting Inc., Hartford.

Getting complete data for 2002 and 2003 will take time, but the Employee Benefit Research Institute, Washington, has detected signs that the rate increases are undermining the commercial health insurance market.

The percentage of U.S. workers receiving health insurance benefits from their employers rose throughout most of the past 10 years, thanks to stable rates in the mid-1990s and a tight labor market in the late 1990s. But the percentage fell to 63% in 2001, from 64% the year before. It is the first such drop since 1993, EBRI says.

“The decline in the percentage of workers with employment-based health benefits occurred primarily within small firms,” EBRI observes.

The health insurers that survived the 1990s are starting to generate somewhat higher profits, according to Weiss Ratings Inc., Palm Beach Gardens, Fla. But many of the surviving insurers have taken drastic steps to stay in business. Insurers that have closed major divisions and furloughed workers to get through the bad times are not in a mood to treat agents with elaborate courtesy.

“I get the impression that, if the insurance companies could get rid of the agents, they would,” Sperling says. “They really dont like the brokers.”

But agents say insurers are somewhat more polite than they were in the mid-1990s, when insurance executives were bragging that Web sites would soon replace brokers.

Congress and state lawmakers could try to strengthen the health insurance market in 2003 by eliminating mandated benefits or creating incentives.

Prewitt, for example, hopes Congress will give young, healthy, uninsured people a financial incentive to support the system by buying individual coverage. “Hopefully, well get federal legislation that creates tax credits for the purchase of insurance.”

However, other experts fear lawmakers and insurance regulators could impose even more restrictions.

The idea of universal health coverage still has its advocates despite Republicans now controlling both chambers of Congress, and Oregon voters killing a universal health initiative in the November elections.

Bruce Bodaken, chairman of Blue Shield of California, San Francisco, proposed in December by proposing that California develop a universal health coverage plan.

Meanwhile, another factor that will put pressure on health care costs begins in April 2003 when the federal government starts enforcing the health privacy provisions of the Health Insurance Portability and Accountability Act of 1996.

“Its going to have an unbelievable effect,” Sperling says.

Health insurance agencies will have to comply by taking steps such as buying more facsimile machines to protect personal health information, but health care providers will have to take far more elaborate, more expensive steps, and they will try to pass those costs on to patients and health insurers, Sperling says.

Health care consultants are hoping the new “defined contribution” or “consumer-driven” health plans will apply free-market discipline to the health finance system by giving patients incentives to hold down the cost of care.

Most employer-sponsored defined-contribution plans combine high-deductible, catastrophic health insurance coverage with employer-funded accounts employees can use to pay for routine medical expenses.

The Internal Revenue Service gave the program organizers a boost in June by ruling that employees can keep unused cash in the accounts after the end of the year without having to treat the cash as taxable income.

Most employers that are offering defined-contribution programs are including them in a menu with other, traditional health coverage options, and some skepticism about the programs began to surface in 2002.

EBRI, for example, published a report questioning whether many employers will want to put employees in charge of holding down health care costs, and some large, traditional insurers are watering down the concept by including extra benefits for routine preventive care along with their defined-contribution programs.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 30, 2002. Copyright 2002 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.