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Employers blame health insurance increases on health care reform

health insurance accusing manHealth insurance plan costs are rising and employers around the country are feeling the pain -- and they're wondering how much to blame health care reform laws.

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Employers, both large and small, who have negotiated their contracts for next year are bracing for price hikes.

Kimberlee Ortiz, human resources director Anova, at a medium-sized California not-for-profit company, says her employer’s insurance broker said to "expect an increase next year, like we do every year."

Anova delivers special-education services to children in California schools. It also owns several private schools for autistic students. About three quarters of Anova's 200 employees are covered under a contract with Kaiser Permanente. Although the Consumer Price Index (inflation) rose just 1.1 percent this year, Anova's group health insurance premiums have been rising 15 percent or 20 percent annually.

Ortiz is bracing for more of the same, or worse, in 2011 and she blames health care reform laws. Health insurance plans, for example, must now cover adult children of policyholders until they are age 26 – even if they don’t live at home. Plans also can no longer impose lifetime coverage limits, and annual coverage limits are being phased out.

Health care reform bills already arriving

Employers are right to worry that health care reform is already costing them money, says David Hodges, owner of Hodges Insurance Services, an employee-benefits consulting firm in Northern California.

In 2014, when all provisions of the law kick in (including mandatory coverage), employer costs will become unmanageable and affordable health insurance will be a memory, he predicts. He ‘s also expecting many employers will drop their group health plans and choose to pay the $2,000-per-employee government penalty over providing health care coverage to workers.

"I'm for health care reform. Big-time. It needed to be done," Hodges says. "Elements of it are quite good. It isn't a coverage issue right now as much as it is a cost issue. You've got to make it affordable for employers."

Hodges says rates in California rose 8.5 percent for HMO plans and 14.3 percent for PPO plans this year. He says compliance with the new federal law accounts for 2 to 3 percent of the increases and, as time goes on, the cost of compliance will grow.

Size makes a difference. Big companies with fewer than 250 employees are seeing the smallest increases right now. Smaller firms, like Anova (a Hodges customer) face double-digit increases. That's because insurers are raising rates on high-deductible health insurance plans that small employers have been using in combination with health savings accounts to reduce costs, Hodges says.

Even non-profit insurers are raising rates by double digits, which tells him that these are increases to cover costs like new technology and increased claims, not rate hikes to grow corporate profits.

Buck Consultants, which helps companies manage human resources, predicts that premiums for the most widely used health insurance plans will grow by about 11 percent next year. Buck surveyed 123 health insurance companies and plan administrators in May. The survey attributes some of the rising costs to health care reform and predicts that insurers will have higher claim costs.

In addition, insurance companies have been known to increase rates to guard against the likelihood that layoffs will leave workplace insurance pools with a greater portion of senior employees who consume more services and are more costly to insure, according to Buck spokesperson Ed Gadowski.

Massachusetts provides a look into the health insurance future

Massachusetts is ahead of the curve, having passed a state health care reform law in 2006. Since then, members of the Retailers Association of Massachusetts have seen their premiums increase by a total of 73 percent. That doesn't include higher the co-pays and deductibles charged to members.

The association lobbies the state legislature on health insurance issues. It also finds brokers for its members, 3,400 small businesses,  says Jon B. Hurst, association president. The average association member has about 10 employees. Typical health insurance coverage includes a $2,000 deductible for individuals and $4,000 per family annually.

"My members really are oblivious to the national health care legislation until that really kicks in, in 2014," Hurst says. That's because Massachusetts already is instituting requirements for its plan, which became law in 2006. "At least from the small business perspective, costs have only escalated," Hurst says.

"It's been year after year of double-digit increases," Hurst says. He expects more increases in 2011.

Hurst believes that insurers have taken every opportunity to grow profits. "They haven't had the layoffs that non-health care industries have had in this economy. And they continue to have more and more money thrown at them, whether it's premiums or government reimbursements."

Prices could be lower, he says, if the Massachusetts law allowed more competition. He says that Massachusetts’ reform requires everyone to buy insurance but doesn’t allow small businesses to use group purchasing pools.

Health insurance increases hit big employers too

Big companies like Boeing, for example, also are finding that the rising cost of health insurance coverage is a problem. The aerospace manufacturer covers 156,000 employees largely through self-insurance (meaning it pays the claims itself), spending more than $2 billion annually on health care.

Premiums have been rising steadily at 7 to 8 percent, says spokesperson Karen Forte. She's expecting more of the same for 2011.

Next year, for the first time, non-union Boeing employees will be required to help cover cost increases. Individual deductibles in traditional PPO health insurance plans, for example, will go from $200 to $300 annually. And employees will have to pick up a new 10 percent co-insurance payment. As labor contracts expire, Boeing's dozen or so unions also will be asked to share more health care costs, Forte says.

But health care reform isn’t always to blame. "Without the health care legislation coming into play, would Boeing be making some of these changes? Yes, we would. It's just a business imperative," Forte says.

Still, she says, Boeing is making certain its benefits won't be subject to the 40 percent tax on so-called "Cadillac" health-insurance plans in 2018.

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