Employers are again seeing double-digit increases in their health insurance costs, increases that will most likely get passed on at least in part to employees.

For the third year in a row, industry analysts say employers can expect to pay a minimum of 12 percent more for the health plans they offer to employees. In some cases, increases could be 25 percent or more. The California Public Employees' Retirement System (CalPERS), for example, will pay a 25.1 percent increase for its HMOs and about 20 percent more for its Preferred Provider Organizations (PPO) plans. CalPERS is the nation's second-largest purchaser of public employee health insurance.

Reducing Costs

Companies will consider either increasing employee contributions or excluding or limiting coverage.

Dr. William Crist, president of the CalPERS administrative board, says the federal government has to get serious about the crisis in health care costs. Susan Pisano of the American Association of Health Plans agrees. "We have to get serious about what we are willing to pay for and what we're not," she says, pointing at the 2004 presidential election as a prime forum for discussion. "I think this is very much on the minds of Americans right now."

Employers are beginning to look at ways to reduce their costs, which in turn will affect coverage for enrollees, according to the study "Temporary Fix? Implications of the Move Away From Comprehensive Health Benefits" released by the Employee Benefit Research Institute (EBRI). Businesses will consider either implementing or increasing enrollee cost-sharing, or excluding or limiting coverage for certain types of procedures, conditions, and providers.

In the 1990s, HMOs were focused on garnering a large market share of enrollees and were willing and able to offer lower rates to attract new business. Now, HMOs have exhausted ways to cut costs and are focusing on their profit margins. That means they're willing to lose customers in order to refrain from reducing or maintaining rates. And employers are finding they may not be able to afford the more comprehensive packages.

According to EBRI's study, "instead of reimbursing patients for care 'after the fact,' managed care exerted influence over care 'before the fact' by stressing prevention, early intervention, and care coordination. As a result, many consumers now think of their health insurance policy as a promise to provide all necessary care with 'first dollar' (no deductible) coverage, not merely a promise to reimburse them for large, unexpected expenses. However, with health care costs and premiums again on the rise, many employers and individuals are finding that comprehensive first-dollar coverage is becoming unaffordable."

Some industry observers believe there is increasing demand in the market for more traditional indemnity products that were commonplace in the 1970s. For example, Blue Cross of California offers individual and small-group health plans that provide coverage only for preventive and catastrophic care, while you pay for all other care out of pocket. Providence Health Plan, Oregon's second-largest HMO, offers plans that feature co-pays for primary care but require coinsurance of 20 percent to 30 percent on specialist visits. There is also no primary care gatekeeper for specialist care. Employers can choose to offer these plans with deductibles ranging from $250 to $1,000.

"Some health policy experts advocate the proliferation of less-comprehensive coverage as the only hope of ensuring access to health care for all Americans, or, at the very least, preventing further increases in the uninsured population," according to EBRI.

One way to lower premiums that employers may take advantage of is to exclude coverage of new drugs and technologies that are deemed lifestyle-enhancing rather than life-saving.

Health insurance analysts across the board agree that increased costs for hospital stays and prescription drugs are driving factors in rising health care costs. Another factor is state and federal mandates. As Randy Clerihue of the Health Insurance Association of America says, "every time a state or federal government requires insurers and health plans to cover a particular benefit, it drives up the cost." That may make excluding those life-enhancement drugs and technologies all the more appealing to employers and health insurers.