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Health insurance bad news is just around the corner, says survey

There is no good news for employers or their workers in the Kaiser Family Foundation's latest survey of 2,734 public and private companies. According to the foundation, premiums for group health insurance jumped an average of 11 percent in 2001 — the largest increase in nine years — and employee enrollment in HMOs is at its lowest level since 1993.

"Workers should expect health insurance to be less available, less comprehensive, and more expensive."

The study also notes that a brief period of increasing employer health insurance coverage seems to be nearing an end. After two years of growth (in 1999 and 2000), the percentage of companies that offer health insurance to their workers in 2001 (65 percent) remains statistically unchanged from last year (67 percent).

"Recent growth in employer coverage helped to lower the number of uninsured Americans, but that may now be changing," says Larry Levitt, vice president of the Kaiser Family Foundation and co-author of the study. "As the economy cools off and premiums shoot up, workers should expect health insurance to be less available, less comprehensive, and more expensive."

And the gloom doesn't end there. The survey says employer-sponsored health benefits for retirees are also on the decline. Thirty-four percent of large firms (200 or more employees) offered retiree health coverage in 2001, down from 37 percent last year, 41 percent two years ago, and 66 percent in 1988.

"With managed care in retreat, and premiums and claims expenses accelerating, the situation today is the polar opposite of five years ago," says Jon R. Gabel, vice president for Health Systems Studies, Health Research and Educational Trust. "For employers and employees, this means that more bad news is just around the corner."

The news contained in the study was certainly not unexpected, according to the Health Insurance Association of America (HIAA). "But it's never good news to have rising health insurance premiums," says HIAA spokesperson Joe Luchok. "People are priced out of the market and then a small employer says, 'I just can't afford to offer that plan anymore.'" Luchok says HIAA's biggest concerns are the drivers that are pushing up health insurance premiums: rising prescription drug costs, expensive new medical technologies, and state-mandated health benefits.

Shift to managed care "light"

The survey also shows a dramatic shift in HMO enrollment from "managed care heavy to managed care light." Preferred provider organizations (PPOs) now enroll 48 percent of employees, up from 41 percent in 2000, and 28 percent in 1996. PPOs have the reputation for being less restrictive than HMOs that employ primary care physicians to be "gatekeepers" to the health plan's benefits. PPOs allow members to see out-of-network doctors, although members usually have to pay out of their own pockets the difference between what the network doctors vs. out-of-network doctors charge. HMOs do not pay anything for members to see out-of-network doctors unless it is medically necessary for them to do so.

According to the survey, HMOs now enroll just 23 percent of employees who are in group health plans, down from 29 percent in 2000, and 31 percent in 1996, and traditional fee-for-service (or indemnity) insurance has all but disappeared. Indemnity insurance now enrolls just 7 percent of employees, down from 73 percent in 1988. Point-of-service (POS) plans enroll 22 percent of employees, about the same as in traditional HMOs. POS plans are similar to HMOs, but allow a patient to use non-network doctors.

"The foxes are still in charge of the henhouse."

But many employers and their workers who are switching to PPOs because these plans tout more choice and flexibility are being deceived, according to some health care industry experts. Some say the new PPOs are simply HMO fronts. "Health plans use the PPO idea to give the patient the feeling of wide entry level provider choice," says Dr. Chuck Phillips, author of HMOs — Licensed to Kill. "But the testing, referrals, and hospitalizations are caught up in the same HMO utilizations rules. [PPOs] are the replacement for the slipping popularity of HMOs, but the foxes are still in charge of the henhouse."

According to Luchok, HIAA doesn't engage in debate about the validity of one type of health insurance product over another, but he did say there has been a great deal of blurring between the different types of plans. "HMOs are now much less restrictive than they once were," he says.

It's all in the numbers

The survey, which randomly polled selected public and private firms, was conducted between January and May of this year. It shows that:

  • The average annual health insurance premiums shared by employers and employees is $2,650 for single coverage and $7,053 for family coverage. Last year's premium increase averaged 8.3 percent nationally, up from 4.8 percent in 1999.
  • The smallest businesses (those with three to nine workers) saw the largest average increase in premiums: 16 percent.
  • Employers that cover prescription drugs in a separate health plan saw the cost of that coverage rise by an average of 15.5 percent in 2001.
Factors blamed by employers for rising health insurance premiums
  • Higher spending for hospital care (57 percent)
  • Higher spending for physician care (45 percent)
  • Higher insurance profits (31 percent)
  • Better medical technology (29 percent)
  • Richer benefit packages (14 percent)
  • Workers on average contributed $30 a month for single coverage ($28 in 2000) and $150 for family coverage ($138 in 2000).
  • In 2001, 75 percent of large firms and 42 percent of small firms (44 percent overall) are "very likely" or "somewhat likely" to increase employee premium costs.
  • On average, co-payments for prescription drugs increased to $20 for nonpreferred brandname drugs, up from $16 in 2000.
  • Despite many analysts' predictions, interest in shifting coverage to plans that provide workers with a defined amount of money to buy their own insurance remains low. Only 13 percent of large firms and 24 percent of small firms say they are "very likely" or "somewhat likely" to change to a defined contribution plain within the next five years.

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