Health Insurance Premiums Expected to ‘Surge’ 13% or More in 2002

Health insurance premiums will likely "surge" at double-digit rates next year, a sign that rising medical costs may represent the "beginning of a new era" that will force employers and employees to "make tough and costly choices," USA Today reports in a cover story. According to USA Today, increased costs for prescription drugs, hospital care and doctors will likely force health insurers to raise premiums next year by "13%, 20%, even 50% -- the highest in a decade" -- and "there aren't any easy, fast or good solutions to rising costs." In addition, the Congressional Budget Office reports that certain provisions of the patients' rights legislation could boost insurance premiums an additional 4.2% over the next five years. Businesses also face a slowing economy, falling corporate profits and a rising number of layoffs, and analysts predict that the "best employers can hope for is to hold the line" on rising medical costs. Over the last three years, many employers have "been reluctant" to pass health insurance costs to employees. However, in a survey conducted by Marsh Consulting Services, 49% of mid-size employers said that they plan to increase employees' share of insurance costs next year. Some businesses also may use "new approaches" to health insurance, such as medical savings accounts and tiered managed care plans that offer patients "financial incentives" to select lower-cost doctors and hospitals. In addition, some employers have emphasized preventive care to reduce costs. USA Today reports that the efforts mark the "next wave" in health insurance, pointing out that the new plans would "give consumers more flexibility but also more responsibility for the cost of their choices." Larry Atkins, president of Health Policy Analysts, said, "The theory is we will create a more price-sensitive consumer and create discipline in the marketplace. The danger is we're exposing people with health risks and problems to more costs."

No End in Sight?
In 2000, small and midsize employers faced average insurance premium rate increases of 8.1%, according to the Marsh study. The survey also found that employers expect increases averaging 12% next year but "would not be surprised" by premium hikes of 20% or more. Most analysts expect premium increases to average 13% next year, USA Today reports. In addition, USA Today reports that the problem "might be harder" to address than in the past -- with doctors and hospitals "successfully rebelling" against managed care cost controls, lawmakers forcing insurers to "loosen" restrictions and patients' "entitlement mentality" after a decade of lower out-of-pocket costs. "Unless the country wants to return to the very strict controls of HMOs, it's going to be a new cost inflation period," William McKeever, an analyst at UBS Warburg, said. New prescription drugs and medical technologies, increased hospital admissions and an aging population have also driven up health care costs (Appleby, USA Today, 8/27).