Media Examine KFF Study Finding 11% Increase in Premiums This Year

As reported in the Sept. 6 Kaiser Daily Health Policy Report, this year's health care cost inflation for employer-based health plans "broke into double digits" for the first time since 1992, increasing 11%, "a sure sign that consumers would soon pay more for medical coverage," a survey by the Kaiser Family Foundation and the Health Research and Educational Trust says. In 2000, employers' health costs increased 8.3% and in 1999, they increased 4.8% (Rosenblatt, Los Angeles Times, 9/7). The survey, the third annual report on employers' health costs, includes responses from 1,907 public and private employers, as well as information from KPMG Peat Marwick surveys between 1991 and 1998 and the Health Insurance Association of America-sponsored survey of employers conducted from 1987 to 1991 (Gabel et al., "Job-Based Health Insurance In 2001: Inflation Hits Double Digits, Managed Care Retreats," Health Affairs, September/October 2001). Smaller businesses, with three to nine workers, experienced the largest cost increases in 2001, about 17%. Larger businesses, with more than 200 employees, saw a 10% increase (Wall Street Journal, 9/7). "It's bad news for workers because it means that insurance will cost more, benefits will be less comprehensive and fewer employers will offer health benefits at all," KFF's Larry Levitt, a study co-author, said (Groeller, Orlando Sentinel, 9/7). He added, "Less than a year ago, you were hearing about employers jumping through hoops to attract and retain employees. You certainly don't hear about that now" (Colliver, San Francisco Chronicle, 9/7). Robert Blendon of the Harvard School of Public Health said that employers would have to pass on costs to employees "because there's nothing on the horizon to figure out how to slow these costs" (Marks, Christian Science Monitor, 9/7). According to the survey, 75% of large companies and 42% of smaller firms said they were "likely" to increase employees' share of health costs in the coming year (Brubaker, Washington Post, 9/7). In 2001, workers paid 15% of the cost for single coverage, compared with 21% in 1996, and 27% for family coverage in 2001, compared with 28% in 1996 (Snider, Bloomberg News/Arkansas Democrat-Gazette, 9/7). Slightly fewer employers offered their workers health coverage this year (65%) compared with last year (67%). Between 1998 and 2000, the percentage of companies offering health benefits had increased from 55% to 67% (Chandler, Miami Herald, 9/7).

Shift from HMOs to PPOs
Many workers switched from HMO plans to less restrictive PPO plans between spring 2000 and spring 2001, the survey says. This year, 48% of employees are enrolled in PPOs, compared with 28% in 1996; 23% of employees this year are HMO beneficiaries, compared with 31% in 1996 (Washington Post, 9/7). Jon Gabel, vice president of the Health Research and Educational Trust, said, "We'd been hearing anecdotally about the retreat of managed care. But it finally showed up on our statistical screen" (Hundley, St. Petersburg Times, 9/7). He added that managed care is "particularly unpopular with upper-class Americans who are not used to seeing their care rationed and who think HMOs too often prevent them from seeing medical specialists." In PPOs, however, it is "harder" to control costs, which could lead to a situation where employers will have to "hol[d] down health care inflation without angering their workers," the Los Angeles Times reports (Los Angeles Times, 9/7).

Reason for the Increase
Sixty-four percent of employers said prescription drug costs contributed "a lot" to the increase in health plan premium costs, while 57% cited high hospital costs and 45% said physician care costs (Washington Post, 9/7). Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured, added, "You've got pressure from all fronts, but a lot of it is reacting to the squeeze-down that resulted from implementation of managed care. Now we're going through a readjustment back to more historical patterns in terms of rising health care costs" (Christian Science Monitor, 9/7). Karen Ignagni, president and CEO of the American Association of Health Plans, said that cost increases can be linked to increased state coverage mandates, increased provider fees and litigation costs. Because of the health cost increases, businesses could be "more resistant" to a patients' rights bill, which estimates say could add a four percentage point increase to premiums, CongressDaily reports. But KFF President Drew Altman said that compared to the addition of a Medicare prescription drug benefit or a health coverage expansion, patients' rights could "look like low-hanging fruit" to lawmakers because a bill would "not cost the government anything" (Rovner, CongressDaily, 9/6). Additional information about the survey is available online. The report about the survey appears in the September/October 2001 issue of Health Affairs. Additionally, a HealthCast of the Sept. 6 press briefing on the study is available online.