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October 17, 2007

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Health insurance premiums rising faster than wages and inflation

Premiums for employer-sponsored health insurance rose an average of 6.1 percent in 2007, less than the 7.7 percent increase reported last year but still higher than the increase in workers' wages (3.7 percent) or the overall inflation rate (2.6 percent), according to the 2007 Employer Health Benefits Survey recently released by the Kaiser Family Foundation and Health Research and Educational Trust. Key findings from the survey were also published in the journal, Health Affairs.

The 6.1 percent average increase this year was the slowest rate of premium growth since 1999, when premiums rose 5.3 percent. Since 2001, premiums for family coverage have increased 78 percent, while wages have gone up 19 percent and inflation has gone up 17 percent.

The average premium for family coverage in 2007 is $12,106, and workers on average now pay $3,281 out of their paychecks to cover their share of the cost of a family policy.

"We're seeing some moderation in health-cost increases, but premiums for family coverage now top $12,000 annually," Kaiser President and CEO Drew E. Altman, Ph.D. said. "Every year health insurance becomes less affordable for families and businesses. Over the past six years, the amount families pay out of pocket for their share of premiums has increased by about $1,500."

"The number of options for low wage earners is limited and the greatest burden of all health care costs falls to this segment of the population," said Health Research and Educational Trust President Mary A. Pittman, Dr. P.H. "Although the economy seems to be strong, between 2005 and 2006 the total number of uninsured still rose by 5 percent, including a 9 percent increase in the number of uninsured children."

The annual Kaiser/HRET survey provides a detailed picture of how employer coverage is changing over time in terms of availability, costs, and coverage for the 158 million people nationally who rely on employer-sponsored health insurance. It was conducted between January and May of 2007 and included 3,078 randomly selected, non-federal public and private firms with three or more employees (1,997 of which responded to the full survey and 1,081 of which responded to a single question about offering coverage).

While premiums continue to rise faster than workers' wages, this year's gap of 2.4 percentage points is much smaller than the 10.9 percentage point gap recorded four years ago, when premiums rose 13.9 percent and wages grew just 3 percent.

However, "despite the comparatively low rate of increase in premiums and a strong labor market, the percentage of the workforce obtaining coverage from employer-sponsored plans remained unchanged since 2006," reports the Health Affairs article by Kaiser's Gary Claxton and coauthors. The 60 percent of firms offering health benefits to at least some of their workers is statistically unchanged from last year's offer rate (61 percent). The offer rate remains significantly lower than it was in 2000, when 69 percent of firms offered health benefits. Nearly all (99 percent) large businesses with at least 200 workers offer health benefits to their workers this year, but fewer than half (45 percent) of the smallest firms with three to nine workers do so.

Modest Enrollment in Employer-Sponsored Consumer-Driven Plans

In spite of the extensive attention paid to consumer-driven health plans, the survey finds that these relatively new types of arrangements have made only a small inroad into the employer market. Such plans cover about 5 percent of all covered workers, which is not statistically different from the 4 percent share recorded in 2006.

Overall, an estimated 3.8 million workers are enrolled in consumer-driven plans, about equally divided between high-deductible plans that qualify for a Health Saving Account (HSA) and plans with a Health Reimbursement Arrangement (HRA). These plans feature a high-deductible plan and a tax-preferred savings option, from which employees can pay for their out-of-pocket medical expenses. Such plans are often described as consumer-driven because people pay directly for a greater share of their health care and may have an incentive to minimize its cost. They also may offer tools to help consumers choose providers based on cost and quality.

This year, 10 percent of firms offered a consumer-driven plan to their workers, which is up from (but not statistically different than) the 7 percent of firms reporting this for 2006. Firms with at least 1,000 workers are more likely to offer such plans, with nearly one in five (18 percent) offering one. Looking toward 2008, few firms that don't already offer such plans report that they are very likely to add a HRA plan (3 percent) or a HSA-qualified plan (2 percent).

Premiums for these high-deductible plans are generally lower than for other types of plans, though in addition to the premiums, employers may also contribute money to the savings accounts. The survey finds that firms on average pay a total of $7,815 toward the cost of family coverage for a HSA-qualified plan (including $714 for the account) and $10,179 toward the cost of family coverage for a high-deductible plan with a HRA (including $1,800 for the account). Compared to the $8,879 average firm contributions for other types of plans, employer contributions are lower for HSA-qualified plans and higher for plans with HRAs.

Businesses made no contribution at all to the savings account for roughly half of all workers enrolled in an HSA for family coverage, leaving workers to pay the generally higher out-of-pocket costs associated with their high-deductible plan.

"Consumer-driven plans have established a foothold in the employer market, but they haven't grown as much as one might think, given all the attention that they receive," said Kaiser Vice President Gary Claxton, co-author of the study and director of the Foundation's marketplace research.

"Despite the economic expansion that added 2 million new jobs from April 2006 to April 2007, the employer-based system can do no better than tread-water," said co-author Jon Gabel, senior fellow at the National Opinion Research Center at the University of Chicago. "It makes one ask, 'What will happen during the next economic downturn?'"

Worker Contributions and Cost-Sharing

Covered workers on average pay 16 percent of the overall premiums for single coverage and 28 percent for family coverage – shares that have remained relatively stable over the past years. However, workers in small firms (three to 199 workers) pay significantly more on average toward the cost of family coverage ($4,236 annually) compared to larger firms ($2,831 annually). For single coverage, the opposite is true, with workers at small firms annually contributing less on average than workers at large firms ($561 vs. $759).

Among firms that offer health benefits, 10 percent vary how much workers contribute based on the workers' earnings, about the same share as in 2005. About 6 percent of firms vary premium contributions based on employees' participation in wellness programs, up from 3 percent in 2005. In addition, 10 percent of firms offer financial incentives for workers to enroll in a spouse's health plan, which can reduce the firm's health care costs.

Other findings include:

Cost-sharing. In 2007, for firms with deductibles, the average general annual deductible for single coverage is $461 for PPOs, $401 for HMOs, $621 for POS plans and $1,729 for consumer-driven plans. For plans with three- or four-tiered drug cost-sharing, the average co-payments were $11 for generic drugs, $25 for preferred drugs, and $43 for non-preferred drugs. Co-payments for fourth-tier drugs, which may include costly biological agents and lifestyle drugs, averaged $71.

Domestic partner benefits. Nearly half (47 percent) of all firms that offer health benefits make them available to unmarried opposite-sex domestic partners, and nearly 37 percent offer such benefits to same-sex partners. Interestingly, large firms (with at least 200 workers) were less likely than small firms to offer domestic partner benefits to unmarried opposite-sex partners at 28 percent.

Market share of health plans. Preferred Provider Organizations continue to dominate the employer market, enrolling 57 percent of covered workers. Health Maintenance Organizations cover another 21 percent of workers, with 13 percent in Point-of-Service plans, 5 percent in consumer-driven plans, and 3 percent in conventional indemnity plans.

Other pre-tax benefits. Overall, 61 percent of firms that offer health benefits allow workers to use pre-tax dollars to pay for their share of their health premium costs. Fewer firms (22 percent) offer a Flexible Spending Account, in which workers can set aside pre-tax money to cover out-of-pocket health care spending. In both cases, large firms (200 or more workers) are far more likely to offer these benefits than smaller firms.

Future outlook. Many employers indicate that they expect to make significant changes to their health plans and benefits in 2008. Overall, 21 percent of firms say they are "very likely" to raise workers' premium contribution next year. Some firms also say they are "very likely" to increase office visit cost-sharing (13 percent), increase deductibles (12 percent) and increase prescription drug cost-sharing (11 percent). Very few firms say they are "very likely" to restrict eligibility for coverage or drop health coverage altogether.

Republican Viewpoint

THE YEAR WAS 1993. Israel and the PLO signed an agreement on the White House lawn that, we were told, would lead to a lasting peace. Islamic terrorists tried to blow up the World Trade Center. When they were finally convicted, the federal government claimed an important message had been sent to terrorists everywhere: Stay away from the U.S.A. The President also ordered the bombing of Iraq that year, to send another important signal that misbehavior in Mesopotamia would not be tolerated. On the home front, the President put his wife in charge of overhauling the health care system.

Well, considering this boffo record of success, it seems only fitting that Sen. Hillary Clinton would head back to the health care well.

To paraphrase William Faulkner: History isn't dead; it's not even past. This time around, though, Clinton claims history isn't repeating itself with her new health care plan. Far from it: She has learned from her mistakes, and she's "got the scars to prove it." This time Clinton -- as well as several of her primary opponents -- proposes "flexible" reforms that would preserve consumer "choice." This is supposedly the grand lesson Clinton learned from her many political scars: People don't want government-run health care.

But she might want to study her mistakes a bit more closely because her alternative is to provide government-run health insurance, which ultimately is the same thing. Clinton's plan would yank insurance regulation from the states and impose a series of federal mandates on employers, individuals and insurance companies. Insurers would have to cover anybody who knocks on their door. Individuals would be required by law to have health coverage, just as drivers are required to have auto insurance. Clinton claims she would make her system affordable by regulating both premiums and benefits, offering tax breaks and subsidies to the poor and middle class, and by offering a fallback government-run plan that would compete with the private plans. The Democrats insist this doesn't amount to government-run health care, but it would be more honest to say that it doesn't amount to government-run health care right away.

First of all, forcing people to buy health insurance whether they want to or not is somewhat at odds with the idea that her plan champions "choice." More important, forcing companies to cover everybody means the risk pool for insurance companies gets riskier and, hence, more expensive. Costs would rise, and so young healthy people would rationally opt for as little coverage as possible, because presumably bare-bones coverage would be much cheaper.

Boosters of these plans claim that the healthy "competition" between the government and the private sector would drive prices lower. But how, exactly, can private companies compete against a government plan that cares nothing about making a profit? Because there's no free lunch, the government costs would have to be made up elsewhere -- through higher taxes and mandated higher premiums for people who can afford their own health insurance.

In states where such plans have been tried, such as Kentucky and Washington, the response by the private insurance companies has been a Monty Pythonesque "Run away! Run away!", leaving behind pretty much only single-payer systems and angry customers, patients and voters. This is the model Clinton et al want to impose at the national level. Indeed, John Edwards boasts that "over time," his plan "may evolve toward a single-payer approach." That single payer is you, Mr. Taxpayer.

Democrats may have invented new bells and whistles, but their thinking hasn't changed much since 1993. Back then, they believed there was a "health care crisis," and the solution required big-footed feds to stomp all over the existing system. What they didn't take into account is the fact that millions of Americans were satisfied with their health care. The Democrats' response now is to say, "but you can keep your doctor." That's nice, but it still misses the point.

Today, among the insured -- a group far larger and more likely to vote than the uninsured -- people actually like the status quo.

The GOP understands this. As Yuval Levin of the Ethics and Public Policy Center recently noted in the Weekly Standard, the Republican candidates as well as the White House have collectively pushed a number of reforms that would expand consumer choice without necessarily expanding government. By changing the way health care is taxed and using government purchasing power more efficiently, they aim toward decoupling the New Deal-era system of using big business to provide health care. None of these plans is perfect, but all recognize that the federal government cannot simply impose a solution without creating the sorts of problems that plague all other single-payer systems -- rationing, long lines and ever-higher taxes.

And that's the irony of Hillary Clinton's claim to have learned so much from her last failure, which cost Democrats the Congress and largely hobbled the liberal aspirations of the her husband's presidency. If the most famous champion of nationalized health care in U.S. history wins the nomination and voters start paying attention, they might easily conclude that Hillary and her party haven't learned anything at all.

contact the writer of this article: Jonah Goldberg's e-mail address is JonahsColumn@aol.com.

Shady Health Insurance Companies Dragging Feet in Payoff

Reports of insurance companies dragging their feet on payments, or declining coverage automatically are legion. Some of it is a byproduct of the bureaucracy that is part of the insurance industry. While they may pay out for the most determined customers who are willing to wade through the red tape, they certainly save some money when others go away after the first refusal.

The uninsured and underinsured in this country will be a top focus in the run-up to next year's presidential elections as competing candidates face off over who has the best plan to solve the burgeoning problem.

One doesn't have to wait until the primaries are held, though, to know that whatever candidate -- and his or her plan -- is nominated, the government, contrary to bogeyman fear-mongering in some quarters, will not be taking over healthcare insurance any time soon. In short, consumers will still be dealing with the private sector.

To cut the best deal possible, though, consumers need far more information than they currently have about insurance companies and the cost of medical procedures. Pricing about the latter is surprisingly opaque: comparison shopping among hospitals and doctors for say, open heart surgery or breast cancer treatment, is simply not done. To be sure, some insurance companies have started providing this information to consumers who participate in high deductible plans to better help them make the purchase decision.

As more consumers fall off the corporate health insurance rolls, such information is sure to become increasingly commoditized.

The other dark spot, though, in this equation -- the insurance company and its underwriting policies -- is unlikely to ever be addressed by a heavily lobbied Congress or the industry itself.

Yet this piece of puzzle -- which insurance companies pay up for which tests and procedures, how difficult they can be in making those payments (an important factor when you are battling cancer, for instance) and other such minutia -- is just as important as the cost of the healthcare service itself.

Dragging Feet, Other Dirty Tricks

Reports of insurance companies dragging their feet on payments, or declining coverage automatically for certain procedures, are legion. Some of it is a byproduct of the bureaucracy and regulations that are part of the insurance industry. And some of it is a de facto cost control process. While they may pay out for the most determined customers who are willing to wade through the red tape, they certainly save some money when others go away after the first refusal.

The only way to get this information -- some of it, admittedly anecdotal -- is from consumers themselves.

Web 2.0 technology -- such as a forum or a wiki -- could be the answer.

With such a site, someone buying private health insurance on their own -- or even small businesses seeking the best deal for their employees -- could log onto the site to see which carriers are most responsive in claims paying, for instance. On a more granular level, a policyholder diagnosed with a certain disease could log on to see the criteria that his particular carrier uses to approve treatment. In both cases, this information has been provided by other policyholders.

Other Models

There are a few models already available to copy. Salary sharing sites, for instance, are becoming popular. If someone wants to find out what a certain salary for a particular job is in, say, New York City, all she has to do is provide her current salary and job information to be entered into the database. In return, she gets access to the information that other people have already provided.

It could work for the healthcare industry as well, some experts say.

"There is a lot of good technology out there within the open source community that can build this type of structure," Bernard Golden, CEO of Navica and author of Succeeding with Open Source told CRM Buyer.

"I wouldn't necessarily recommend a wiki though. With forum software people can start topics, chime in on subjects they know about."

This could then be incorporated into a larger Web site, he continued.

Policies and Procedures

The technology piece would be relatively easy, agreed Michael R. Overly, an attorney with Foley & Lardner. It is the policies supporting how the site would be run that will be the rub, he told CRM Buyer.

"First off, the information that the insured provides might be confidential under an insurance health policy. So you have to make sure you can reveal it. It is possible an insurer would take the position that its underwriting policies are confidential," Overly said.

Also, people contributing to the project would need assurances that their identities would remain confidential, he noted.

"Much of this information will be extremely sensitive so you want to be very careful about what information is provided -- and more importantly that that information cannot be linked up with a particular name," he said.

The entity running the database would have to be careful that respondents couldn't be identified in other ways, Overly continued.

"For instance, if the site aggregated trends on a regional or age basis, it could be easy to figure out who a participant is in a small town," he said. "Craft the questions very carefully and with a lawyer looking over the shoulder."

For all the potential wrinkles, Overly likes the idea. "Sure, it would be interesting to find out that XYZ company routinely requires people to submit claims four times before a payment is made. In many instances, people don't have a choice of carriers but this could also influence employers as well," he added.

The use of open source technology would be appropriate in such a project for reasons beyond cost and convenience, Overly said.

"One of the founding reasons for the open source movement was that source code was completely closed. People wanted to know what was in that black box," he added.

To be sure, getting such a project off the ground -- beginning with identifying a suitable sponsoring entity and then convincing people to participate -- would be very difficult. Then again, when it first started, very few people thought the open source software movement would ever gain traction, Overly noted.

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