Next Years Health Insurance Market? A Lot Like This Years

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Political gridlock and employers commitment to providing comprehensive health benefits could make the 2004 U.S. health insurance market look like 2003s.

Plenty of lawmakers in Congress and on the presidential campaign trail have dramatic proposals for overhauling the U.S. health finance system.

Former Vermont Gov. Howard Dean, who at press time appeared to be the leading Democratic presidential candidate, wants to give all U.S. residents who are not eligible for other government health insurance programs a chance to buy affordable coverage through the Federal Employees Health Benefits Program.

Some Republican members of Congress want to attack high health insurance prices by letting big, multistate associations take over negotiations for small businesses and individual members.

Health insurance prices and health insurance company profits continue to increase at what Shellie Stoddard, a bond analyst at Standard & Poors Rating Services, New York, calls an unsustainable rate.

Initial rate increase demands for employer-sponsored health maintenance organization coverage are down from an average of 21% for 2003 coverage. But the average initial increase demand for 2004 is still 17.7%, according to Hewitt Associates Inc., Lincolnshire, Ill.

S&P found that total pretax profits for 12 large, publicly traded health insurers that it tracks increased to $7.6 billion on $114 billion in revenue for the first 3 quarters of 2003, up from $4 billion on $106 billion in revenue for the first 3 quarters of 2002. The 12 insurers pre-tax profit margin increased to 6.7%, from 3.8%.

Meanwhile, doctors, hospitals and drug manufacturers continue to pump up their prices. The average 2004 medical cost trend for PPOs has fallen slightly from the average 2003 trend. But the 2004 trend, which represents the underlying increase in medical costs, will still be 14.8% for medical care and 17.6% for prescription drugs, according to the Ridgefield Park, N.J.-based human resources unit of Mellon Financial Corp.

A similar survey by a unit of Aon Corp., Chicago, shows medical cost trends for preferred provider plans that include drug coverage have crept down to 15.7%, from 16%.

Despite increasing financial pressure on consumers and employers and increasing political pressure on health insurers, Stoddard laughs at the idea of the U.S. health finance system undergoing any sudden, dramatic changes in 2004.

The system “is going to take a long time to really change,” Stoddard says.

Lawmakers, business groups and insurance groups have not yet developed any widely supported proposals for bringing skyrocketing medical costs and health insurance rates under control.

Employers might be able to force change on the system by dropping coverage, but most employers that can afford to stay in business keep their health coverage. In California, for example, the Oakland-based California HealthCare Foundation found that fewer than 10% of employers with health benefits were considering dropping health benefits.

Employers keep coverage because of a fear of losing employees to companies with better benefits, a belief that access to good health care increases employee productivity and, in some cases, a sense that employers have a moral obligation, under current circumstances, to provide health coverage.

Policymakers are hoping that employers and insurers can wring savings out of the system by using financial incentives to remind patients that the cost of going to a doctor for a cold is more than a $5 HMO co-payment.

Various forms of defined contribution health plans that combine high-deductible health insurance with some type of employee-controlled personal care accounts gained momentum in 2003.

Before, most of the sellers were small startups that sold plans without provider networks or any coverage for preventive care other than what might be required by applicable state and federal laws.

DC plan organizers said plan members ought to be able to go out into the community and serve as an “Army of 1″ in the war against medical cost inflation, by negotiating rates for office visits and appendectomies themselves.

Now, companies with DC health plans that offer some preventive care benefits and access to conventional provider networks include big name insurers such as Aetna Inc., Hartford; Great-West Healthcare, Denver; Principal Financial Group Inc., Des Moines, Iowa; and UnitedHealth Group Inc., Minnetonka, Minn.

President Bush gave the DC plans a boost in December by signing H.R. 1, a bill that will let employers share the cost of “health savings accounts” with employees and encourage employees to contribute to HSAs by letting them roll over assets at the end of the year, rather than applying a “use it or lose it” rule.

Although DC health plans are getting most of the attention, insurers also are helping employers use an old-fashioned approach to sharing costs with employees: increasing co-payments and coinsurance levels.

A few employers may be considering sharing all costs by dropping health coverage altogether.

“I have not seen that,” says Susan Rash, a vice president at BB&T Benefit Consultants of Virginia Inc., Richmond, Va., who holds the Certified Employee Benefit Specialist designation. “But you hear rumblings in the very small employer market.”

Early results at the DC health plans are mixed. Researchers at the University of Minnesota, for example, report that employees enrolled in one type of DC plan like it, but that, for now, the costs of the DC plan are comparable to the costs of conventional plans.

Paul Fronstin, a senior research associate at the Employee Benefit Research Institute, Washington, says the increasing use of conventional provider networks by DC health plans may reduce the likelihood that plan members will have chances to bargain for lower care prices.

When plan members go to in-network doctors and hospitals, “the reimbursement rates are already in place,” Fronstin points out.

He also is skeptical about forecasts that, for good or for bad, HSAs will transform the health insurance market.

Although the HSA tax deductions might be attractive, HSA assets probably will earn very low rates of return, he says. Even after a career of rolling over HSA assets, “youre not going to be able to accumulate a lot of money in these plans,” Fronstin says.

Rash says increases in co-payments are helping employers cut 2004 health coverage cost increases by as much as 7 percentage points. Employers with higher co-payments “definitely got some lower rate increases this year,” Rash says.

The health insurers themselves are trying to hold down rates and maintain profit margins by getting bigger.

UnitedHealth Group Inc., Minnetonka, Minn., is trying to acquire Mid Atlantic Medical Services Inc., Rockville, Md., and Golden Rule Financial Corp., Indianapolis.

WellPoint Health Networks Inc., Thousand Oaks, Calif., is being acquired by a smaller competitor, Anthem Inc., Indianapolis.

In some states, nonprofit plans are defending themselves against profit-envy by giving up some of their profits.

“We arent seeing many overt regulatory demands” for lower margins at nonprofits, Stoddard says.

But Blue Cross and Blue Shield of Massachusetts, Boston, recently announced that it will cut its 2004 operating profit margin target to 1%, from 2%, by holding down renewal rates for some small groups.

Blue Cross and Blue Shield of Tennessee, Chattanooga, Tenn., says it is returning $67 million to individual customers and fully insured groups because 2003 claims have been lower than originally expected.

And experts say there always is a small possibility lawmakers could find a way to make big changes.

California lawmakers attracted attention in 2003 by enacting S.B. 2, a new “pay or play” insurance law that could force employers with 200 or more employees to provide health coverage or pay the state for employee health coverage starting in 2006.

Opponents are trying to kill the law by saying it is a tax that was passed without the number of votes necessary to establish a new tax.

Opponents also are organizing a referendum against the law and preparing to go to court to argue that the law violates the provision of the Employee Retirement Income Security Act of 1974 that preempts state regulation of employee benefit plans.

“I just dont see it surviving,” Fronstin says.

Overall, despite the enactment of S.B. 2, 2003 was a good year for critics of health insurance mandates, according to Janice Kupiec, director of state government affairs at the National Association of Health Underwriters, Arlington, Va.

Several states enacted laws that will let health insurers offer low-cost, “mandate free” or “mandate lite” policies, and some relaxed restrictions on pricing and underwriting procedures for individuals and small groups, Kupiec says.

“People are really starting to wake up to rising health care costs,” she adds.

So far, health insurance groups have not released detailed analyses of Deans health finance proposals.

Dean is a medical doctor, and trade groups say Vermont places tight restrictions on health insurers there. But, although Dean calls for expanding some health insurance programs aimed at low-income and moderate-income children, and low-income adults, his main proposal for expanding coverage would be to let ordinary citizens buy into the federal employees health program.

Dean wants to set up a special reinsurance fund to keep adverse selection from pushing up the federal programs premiums.

Dean says the only health insurance mandate in his platform would be a requirement that employers continue to pay former employees health coverage costs for two months after employees leave their jobs.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 19, 2003. Copyright 2003 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.