National Journal Examines Rise in Health Costs

With the cost of health insurance increasing annually by double digits in recent years, many businesses may begin to "stop offering coverage," adding more Americans to the ranks of the uninsured, National Journal reports. Large companies have reported health insurance premium rate increases of 12% to 14%, and small businesses have seen hikes of 18% to 20%, Kate Sullivan, director of health care policy at the U.S. Chamber of Commerce, said. According to Paul Ginsburg, president of the Center for Studying Health System Change, concern about rising health care costs has begun to "escalate into alarm." In addition, the rise of managed care, which many employers predicted would "dramatically" reduce health care costs, "hasn't lived up to its billing in terms of savings." Ginsburg said, "We had some significant cost reductions in managed care -- and then we proceeded to dismantle it."

Paying the Piper
While health insurance costs have risen for several years, employers have "absorbed much of the increase" in a tight labor market. However, higher premiums and an economic downturn may prompt "anxious" employers to "share the burden" with employees, National Journal reports. Jon Gabel, vice president of the Health Research and Educational Trust, said, "What we need is a good stiff recession. At that point, employers can give employees some bitter medicine. We can get back to true managed care or higher patient cost-sharing." Some companies will also likely reduce or eliminate coverage for some services. In addition, some employers may use "outside vendors" to price health plan options, select and manage health plans, design plans and educate employees. Some also have considered "defined-contribution" systems, which would provide employees with a fixed amount of funding for a health plan. National Journal reports that while small businesses "typically get hit the hardest," large companies "are fretting as well." For example, the Federal Employees Health Benefits Program -- a "bellwether" for insurance prices -- saw a 10.5% increase in health insurance premiums in 2001, and the California Public Employees' Retirement System, the second-largest purchaser of health coverage behind the federal government, has received bids from health plans for next year that topped 2001 costs by 20%.

Who's to Blame?
National Journal reports that a "multitude of ... factors" -- such as prescription drug costs, hospital expenses, medical technology and provider costs -- will "keep forcing prices up." The "managed care backlash" also has forced employers to offer "more choice" of doctors and hospitals and "looser" management of covered services, which has raised the cost of health care. Expensive medical advances have "contributed dramatically" to health insurance premiums, dampening "any hope for restraining costs." In addition, doctors and hospitals, "claiming they have been held hostage" to low managed care reimbursement rates for six years, have begun "demanding payment increases" of up to 30%. Insurers also attribute the higher costs to new state laws that regulate cost increases in managed care, adding that federal patients' rights legislation will "make matters even worse."

Out with the Old
National Journal reports that the "future lies in consumer choice." Managed care plans have begun using new techniques -- including tiered prescription drug coverage -- to save money while allowing patients "more control" over their health care. "It's cost-sharing that a consumer can avoid much of if he's willing to constrain his choice," Ginsburg said. In addition, health plans have begun offering "a network [of providers] within a network," raising costs for patients who visit doctors in the "broader network." National Journal reports that with Democrats in control of the Senate, Congress may consider legislation this year to address the uninsured, but lawmakers "may be tied up with other health care priorities," such as Medicare reform and patients' rights legislation. However, "pressure for action will build" when members "begin to hear angry complaints from constituents" about increasing costs, National Journal reports (Serafini, National Journal, 6/16).