'Perfect storm' brewing in health insurance: As premiums skyrocket, millions face losing coverage

Seattle Post Intelligencer ^ | May 20, 2002 | LARRY LIPMAN

[sarcasm]

WASHINGTON -- Health analysts call it "the perfect storm."

Like the deadly weather pattern that struck the Northeast in 1991, a confluence of skyrocketing insurance premiums, a shaky economy and rising unemployment is swamping American businesses.

As companies try to cope over the next several years, millions of workers and retirees will find themselves uninsured or paying a greater share of their health insurance costs.

For many, employer-provided health insurance will follow the path already taken by employer-provided pensions. As with 401(k) retirement plans, employees will assume more responsibility for their own health care by choosing what kind of insurance coverage and how much medical care they will receive.

Political analysts view the health insurance storm as a potent campaign issue, reminiscent of the early 1990s health care crisis that helped propel Bill Clinton into the White House.

But mindful of the disastrous Clinton health reform proposal, which many people say cost Democrats control of Congress in 1994, neither the Bush administration nor congressional leaders have shown any enthusiasm for tackling the health insurance crisis.

The storm winds are blowing from many directions.

Health insurance premiums this year are expected to increase an average of 13 percent to 15 percent, the steepest increase in a decade. That's on top of average increases last year of 11 percent.

And it's likely to get worse. Next year's increases will be at least as high as this year's and probably higher.

Some consumers already are being hammered.

The California Public Employees' Retirement System -- the nation's largest health insurance plan after the federal government's -- recently announced a premium increase of 25 percent. Other insurers have posted increases more than twice as large.

The size of the CalPERS increase set off alarm bells throughout the country.

"If the second-largest purchaser of health care in the nation... can't negotiate better than a 25 percent premium increase, what in the world is going to happen to the rest of the businesses?" said Pat Schoeni, director of public affairs for the bipartisan National Coalition on Health.

Other analysts say the CalPERS increase is not a bellwether for the industry.

Because the program was able to restrain premiums below national levels for several years, they say, the new rate merely represents a catching-up by insurance companies.

At least five factors are generally blamed for the steep increases in premium costs:

• Aging baby boomers. The first wave of the 77 million Americans born between 1946 and 1964 are already reaching their mid-50s and are requiring more care. Today's boomers are demanding expensive cutting-edge medical technology and are being influenced by consumer-oriented advertisements for prescription drugs.

• Decline of managed care. Hailed a decade ago as a controlling force in medical costs, health maintenance organizations have fallen on harder times.

  While managed care was able to hold premiums flat during much of the 1990s, it wasn't able to restrain the underlying growth in health care costs, particularly in prescription drugs and hospital costs.

• Rise of hospital providers. Managed care led to a consolidation of health care providers, which have turned the tables on managed care organizations in negotiating payments.

  Where HMOs once threatened to exclude individual hospitals that didn't meet their pricing demands, now hospital groups are threatening to exclude HMOs.

• Wall Street cycles. Managed care groups were a hot investment in the '90s because their enrollment growth drove up profits. But enrollments have been declining, so companies are now looking at higher prices to maintain profits.

• State and federal government mandates. Insurers and business groups blame premium increases on burgeoning state and federal mandates regarding which health conditions must be covered. The Bush administration's recent decision to treat mental illness on a parity with physical illness is seen by many groups as another good intention that will cost employers and employees more.

  

  But rising premiums are not the only element in the health insurance storm.

  The unemployed often lose their health insurance or are unable to afford temporary insurance plans. The most recent figures show unemployment at 6 percent nationwide, but higher for some groups.

  Families USA, an advocacy group for broader insurance coverage, recently estimated that the major corporate layoffs during 2001 resulted in 2.2 million more workers losing insurance coverage.

  That means there are about 41 million uninsured Americans, said the group's executive director, Ron Pollack.

  In a paper published in November, the National Coalition on Health Care predicted that the weakened economy, exacerbated by the impact of the Sept. 11 terrorist attacks, might result in 6 million more Americans losing health insurance by the end of this year. Over the three-year period of 2001 to 2003, 86 million Americans could temporarily lose their health insurance coverage, the coalition predicted.

  "We think the perfect storm is upon us and may be getting even worse," Schoeni said. "If this was not a bad recession -- if this was a small blip and we're doing this badly -- I don't know what a big blip would do to us."

  Many workers will pay more

  Businesses are responding to the premium increases in a variety of ways, but the bottom line is likely to be higher costs and more choices for workers and retirees.

  Employers generally refrained last year from asking workers to assume a greater share of the premium costs, deductibles or co-payments, said Paul Fronstin, director of health research costs for the Employee Benefits Research Institute.

  But he noted growing indications that employers are forcing workers to carry a greater share of the costs.

  A survey of employers conducted by Hewitt Associates, a global management consulting firm, found that employers are expecting an average annual premium increase over the next few years of about 13 percent, but they're only willing to pay 8 percent of that increase.

  "You look at that kind of gap and ask who is going to pay for it, and the answer is the employee," said Ken Sperling, Hewitt's health care practice leader.

  A Hewitt report last October predicted that many companies this year will pass on at least 25 percent to 30 percent of their premium increases to employees, which means increases ranging from $186 to $463.

  Businesses also are considering passing along higher deductibles and co-payments to make employees aware that prescription drugs and doctor visits cost far more than the $5 or $10 that many workers pay.

  Dave Romans, a senior consultant with the consulting firm Watson Wyatt Worldwide, noted that "63 percent of employees underestimate the total cost of health care, and 69 percent overestimate how much of a share of health care they are paying."

  One way of making employers realize the cost is to shift from co-payments to co-insurance, says Jamie Robinson, a professor of health economics at the University of California, Berkeley.

  A co-payment is a fixed fee, such as $10 for a doctor visit. Co-insurance requires the patient to pay a fixed percentage of a medical service's cost. That puts the burden of selecting services based on price more squarely on the patient.

  Writing in the March edition of the health policy journal Health Affairs, Robinson said the shift to consumer-driven spending is designed to promote the view that "health care is a scarce resource in need of priorities rather than an unlimited entitlement for which someone else can be forced to pay."

  Choosing coverage

  An even broader shift may be coming regarding the way workers choose health care coverage.

  Instead of "defined benefit" plans in which employers buy a health insurance policy and employees pay a share of the premiums, there is a growing movement toward "defined contribution" plans.

  Under such plans, the employer puts up a certain amount of money, and workers buy health coverage and services from a menu of options.

  One consumer-directed model is a medical spending account.

  Under this model, an employer contributes a fixed amount into a worker's accounts. During the year, the worker pays all medical bills out of this account. When the account is exhausted, the employee is responsible for all subsequent expenses up to some "catastrophic" level, above which insurance takes over.

  Workers who do not exhaust their account in one year roll the remaining money into next year's account.

  "I would estimate we're going to see 5 to 10 percent of the Fortune 500 companies implement" such plans next year, said Romans of Watson Wyatt.

  "It's gaining a lot of traction just because of what is happening in the health care world. Employers are looking for a solution, and this is one of the solutions that is floating out there."

  Another model allows workers to buy "multi-tiered" coverage under which the amount of their co-payments depends on the cost of hospital treatment and drug treatments they receive. High-cost hospitals and name-brand drugs require a higher co-payment.

  Sperling, of Hewitt, said "employers are interested in the new models, but they're not interested in throwing away" their managed care and other insurance plans. Instead, they're offering the new plans to workers as an additional option.

  He noted that "the market is not convinced yet that these models will be effective in lowering costs."

[sarcasm]

St. Hillary will be along shortly with a new plan.

[bybybill]

Get the lawyers out of medicine and costs drop big time...this is all part of a P/R compaign for gov. health insurance. Don`t be fooled, the insurance and RX companies want more gov. involvment cause they know that it is easier to deal with them than a public that is using its own money

[Timesink]

The mega-multi-millionaire trial lawyer that just bought the RAT primary in one of the congressional districts here in West Virginia, Jim Humphries, did so by preaching pure socialism. He has only two issues: prescriptions drugs for seniors, and total nationalization of medicine. He's really quite terrifying.

Luckily, he has little chance of winning. After spending untold millions two years ago, he lost, just barely, to the GOP candidate, Shelly Moore Capito. This time he barely won the PRIMARY, and did it in a way that, thankfully, is becoming a typical RAT tactic: completely dividing the party through mudslinging and lies (throw in some racism and you have the reason Mike Bloomberg won the NYC mayor's race). Practically everyone that supported his opponent in the primary now DESPISES him, so Capito will probably win reelection easily, while Humphries will become a lot poorer.

But make no mistake: This is a RAT planted story. They're going to try every scare tactic in the book this year, because they have nothing to offer but fear and hate.

[this_ol_patriot]

This is because more than 20 years ago the insurance companies violated the cardinal rule of group health insurance.
The good health of the many pays for the sickness of the few.
Instead now the good health of the many pays for the fattening of the wallets of the few.
The hospitals follow suit by overcharging the covered to pay for the under and uninsured and on top of that the countless needless procedures done to CYA against the shark malpractice lawyers.

[cva66snipe]

St. Hillary will be along shortly with a new plan.

Believe it or not Republicans are shills for it too. St. Taxquist of Tennessee will be looking for work this January. Will Washington, DC {federal position} be on his top 10 possible employers? I can think of nothing worse but it won't suprise me if he is not appointed over something in doings with health care.

[cva66snipe]

Don`t be fooled, the insurance and RX companies want more gov. involvment cause they know that it is easier to deal with them than a public that is using its own money

Their ultimate goal is National Universal Health Care with them being the overseer of the program.

[liberallarry]

I'm a member of a citizens Board trying to save a small rural hospital.

Don't kid yourselves. The crisis is real. Modern medicine is much more costly than what was practiced in the '50s; expensive machines and the specialists needed to use and maintain them, high expectations that result in lawsuits, doctors who want to live well, hospitals which must meet more stringent building codes, patients who demand the best regardless of what they can afford, immigrants who use emergency rooms as if they were free medical services.

Now it's all breaking down and nobody knows how to fix it. Ultimately, if we are to avoid socialized medicine, people are going to have to accept more responsibility for taking care of themselves (preventative medicine) and realize that medicine is a scarce resource - with the best going to the brightest, the luckiest, and the wealthiest.

That's going to be a really hard sell.

[cgbg]

realize that medicine is a scarce resource - with the best going to the brightest, the luckiest, and the wealthiest

Yup, it is called the market--and it is the only health care system that works. Actually socialized medicine has a market as well--the black market!

The government has turned this industry into a cookie monster that eats up GNP because the people who get the services aren't paying for them.

Given the sheeple's view that "health care is a right" we are heading almost inevitably to fully socialized medicine.

At that point there will be a two-tiered system--a black market (perhaps off-shore) for the rich, and a queue for everyone else. "Free" medical care increases the demand for medical care which in turn will cause longer queues.

Another byproduct of socialized medicine is that the next generation will view the medical profession with disdain and the best and the brightest will stay away. A generation later and you are waiting days, weeks, and months for lousy medical care, the worst of both worlds.

There is a solution--it is called pay as you go and if you cannot afford then do without. That is the only way that scarce medical resources can be allocated properly. It is not fair, the liberals will whine. And the only answer is--life is not fair, but all attempts to hide that fact will only lead to a disaster many times worse.

[dawn53]

They didn't mention this new little twist to insurance.

My husband works for a large city government. Our plan when renewed this year by Humana (it's the best plan offered by the city and costs us plenty) does not include coverage of injuries received as a result of a war, declared or UNDECLARED.

What that translates to is that it will not cover any injuries received as a result of terrorism.

Called the insurance commissioner for our state and was informed that most insurance coverage will have this as part of renewal policies in the very small print (that's where I found it by reading through all the small print.)

Alot of homeowners policies will include this cause too. So far, State Farm doesn't, but many others do.

[liberallarry]

If the government has a role to play in this, I think it is in encouraging research into cheaper technological solutions and education in preventative medicine. It might be better and cheaper for everyone if all employers provided 30 minutes of mandatory exercise every other day rather than subsidizing pill-pushers and butchers.

[bimbo]

The only solution I can see is a Market Oriented Solution: ELIMINATE THE 3RD PARTY PAYERS. As long as “someone else” is paying, users demand “more of everything,”and providers raise costs without being scrutinized. The exact same situation exists with tuition for higher education.

[RichardW]

This is a problem that will have to be handled at the political level and is getting worse daily. Bush should present his own plan and include tort reform. Otherwise the dems will hammer him next election and make it their issue.

[SteamshipTime]

Virtually every problem in health insurance can be traced to government mandates. Any time risk is socialized, costs will rise.

By way of illustration, Joe Whiney Butt wrenches his back while moving the recliner to get a better angle on the WWF cage match. Since Joe is maxed out on his credit cards and the payments on the big screen TV, he can't cover what would otherwise be a $100 office visit, a chart of home exercises, and a handful of muscle relaxants left with the doctor by a drug company rep.

Joe screams, "There oughta be a law!" and sure enough, Congress passes the HMO Act. Joe pays S10 for an office visit and $5 for the latest from Pfizer. Cheap, right? Joe has five office visits, three prescription refills, and free physical therapy.

People wrench their backs all the time; it is a risk which amounts to a virtual certainty. Unfortunately, Joe, descendant of Revolutionary War guerillas and frontiersmen, is too stupid to realize that the only way to profitably insure against a certainty is to, in effect, post a surety bond. Thus, Joe thinks he is getting "free" health care while paying over $4,000 - $5,000 in premiums. When the premiums hit $6,000 a year as the doctors, drug companies and medical device makers charge more to take advantage of all the third-party dollars floating around, Joe calls his Congressman again....

[SteamshipTime]

This is a problem that will have to be handled at the political level.

You could not be more wrong. Medicine is a scarce commodity like any other commodity. Unless it is distributed via rational pricing, we will pay more and more for less and less. The only role for government in medical insurance is to punish fraud.

[liberallarry]

If you think you know a way to properly educate Joe Whiney Butt - and it works - I'll be the first to nominate you for the Nobel prize. :)

Good to hear from you again.

[liberallarry]

came hores of 18K a year clerks to treat you rudely and lose your file - in the insurance company, doctors offices and hospitals

I know about that but I didn't realize it was so common. I'll put my own interpretation on that misspelled word.

[liberallarry]

Reread your post. I think you've missed an essential point. Most people simply cannot afford modern medicine. Not because of government interference but because it's really expensive. Like a Rolls or a Ferrari.

But it's hard to convince people that a good society - a rich society - cannot afford to subsidize them. That the society is good even though it allows them - or their children - to die miserably because the can't afford medical care while others drive around in luxury cars and live in palaces.

It's the truth but convincing them is another matter.

[Hacksaw]

The mega-multi-millionaire trial lawyer that just bought the RAT primary in one of the congressional districts here in West Virginia, Jim Humphries, did so by preaching pure socialism. He has only two issues: prescriptions drugs for seniors, and total nationalization of medicine. He's really quite terrifying.

Doesn't Rockhead have a primary opponent as well? I heard he is also a trial lawyer, but I think this is a rare case where the lawyer can't be any worse that his opponent. The only thing Rockhead has accomplished is putting coal miners out of business through his evrinomentalism.

[Billy_bob_bob]

Howcum you make so much sense with a name like LiberalLarry?

BTW - the way to get people to understand the limitations of health care is to educate them as to the way the marketplace works to provide goods and services, and to educate them as to how socialized medicine (and socialism in general) has worked out in other countries. Free markets do a better job of providing what was formerly unattainable to the masses. Just look at cars, which were once a rich mans toy. Computers were once owned by only the biggest businesses and governments.

What we need is to educate people as to the fact that there are basically two kinds of health care technologies out there. The first kind is the technologies that have become commonly accepted and widely used. The second kind are the rarely used and the experimental. People have to understand that the second kind are not going to be available to every Joe Sixpack out there, but if they allow the free market to do what it does best those cures may be available to their children someday. In the meantime they themselves can take advantage of better care than their parents had.

It's a mindset that is in favor of free enterprise and that is willing to embrace hard reality. It will be a tough sell to the general public, but it is better to at least try promoting this viewpoint than to just sit back and allow socialized medicine to take over.