Next Years Health Insurance Market? A Lot Like This Year's

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.”