Companies Getting Aggressive in Putting Lid on Insurance Hikes

Largely by assessing steadily rising co-pays for employees, companies have been able to ratchet down next year's increases in healthcare premiums to the lowest level in five years, says employee benefits consultant Hewitt Associates. But with average premiums still shooting up an average of 12.4 percent, the march of double-digit rate hikes continues and greatly outpaces inflation. In addition, a new survey by the nonprofit Kaiser Family Foundation found that rising premiums are forcing a growing number of small businesses out of the market altogether, with the percentage of such companies offering group coverage sliding from 69 percent in 2000 to 60 percent this year. Employers in the Southeast may do better than their counterparts elsewhere in the United States, says Hewitt. Price hikes are likely to play out in different ways in different regions, with the East and the Southwest bearing the brunt of higher costs. Preliminary analysis shows 15.8 percent premium increases for the East in 2006 compared with 14.6 percent at this time last year, and 13.5 percent for the Southwest compared with 13.4 percent last year. That would leave lower increases for most Southeastern states. Companies have been steadily reigning in the rate of annual increases since healthcare costs soared five years ago. And the one tool that has worked the best, says Hewitt, is cost sharing. Co-pays for drugs, office visits and other services have been steadily rising. For example, says Hewitt, the number of companies requiring a $50 or higher co-pay for an emergency room visit has increased 26 percent in the past five years. "The positive impact of employee cost sharing on utilization rates, stabilization in the frequency of hospital visits and the increased focus of companies on health management programs are playing a major role in ongoing cost moderation," says Paul Harris, senior health care strategist, Hewitt Associates. "While this is good news, it's important to remember that growth in healthcare costs continues to well outpace inflation. The longer-term challenge for employers and health plans is to bring cost increases down closer to the rate of salary increases." Bigger companies with the most aggressive healthcare strategies are faring the best. "While HMO rate increases have trended downward for the past several years, 2005 marked a turning point in that employers who managed their healthcare spending through plan design adjustments and aggressive negotiations were able to realize HMO rate increases of less than 10 percent for the first time in five years," notes Harris. "In 2006, we expect to see even lower increases, perhaps in the 8 percent to 9 percent range, after negotiations are complete." There are a variety of factors that are adding to healthcare inflation, though. Families USA has estimated that the average premiums for employer-provided health insurance included an extra $922 this year to cover the cost of the uninsured. For many healthcare providers, the only way to care for the uninsured is to boost rates for those who can pay. And that adds $1 for every $12 of insured cost. That pressure can only grow worse as the number of uninsured grows. In a new report, the Kaiser Family Foundation concluded that the number of small businesses offering insurance has been dropping steadily for the last five years. The survey found that three in five firms (60 percent) offered coverage to workers in 2005, down significantly from 69 percent in 2000 and 66 percent in 2003. The drop stems almost entirely from fewer small businesses offering health benefits, as nearly all businesses (98 percent) with 200 or more workers offer such benefits. "It is low-wage workers who are being hurt the most by the steady drip, drip, drip of coverage draining out of the employer-based health insurance system," Kaiser Family Foundation President and CEO Drew E. Altman, Ph.D. said.