Premium Hikes, Cost Sharing Putting The Squeeze OnBenefit Buyers, Users

A stressed-out healthcare system hasprompted costs of employer-sponsored group medical insurance tocontinue their sharp upward spiral, with employees being forced topick up more of the tab, according to a survey by an insurancebroker group.

“We're seeing sizeable increases in premium across the board, aswell as substantial reductions in benefits in the sense ofincreasing deductibles, higher co-pays, and an incredible shiftaway from HMOs, back to PPOs,” said Ken A. Crerar, president of theCouncil of Insurance Agents & Brokers in Washington.

The CIAB's “Employee Benefits Fall Market Survey” found that 78percent of small accounts–defined as those with 50 or feweremployees–had healthcare premium hikes of between 10- and 30percent. An additional 14 percent reported premiums up between 30-and 50 percent.

For medium-size accounts (with 51-to-500 employees), 74 percentexperienced rate hikes of between 10- and 30 percent for theiremployer-sponsored health plans, while 12 percent saw a rise inpremiums by 30-to-50 percent.

Mr. Crerar said the market today has some of the samecharacteristics as back in the dark days, circa-1992, “when you sawhuge increases in premium, and the public policy experts were alldebating how to reduce the costs of the system. And I think thatswhen we saw healthcare reform as a big issue.”

Over the last 10 years, he said, there has been a shift inservice from health maintenance organizations toward preferredprovider organizations because “weve really squeezed most of thecosts out of the system. Now were at a point where the actualincreases are reflecting the costs that are still in thesystem–there is no more to squeeze.”

He explained that according to anecdotal information, HMOs tendto be a point or two more expensive than PPOs, “so now were movingback to PPOs because they tend to be network- and non-networkbased, where an HMO is a system, you walk into it.”

Future trends, Mr. Crerar said, include PPOs where employers aremaking the decision “that you either use the PPO network or theydont pay. So there is an incredible cost shift going on from theemployer to the employee.”

Employee benefits buyers are being required to make “some toughdecisions about how to keep costs down,” Mr. Crerar said. “Theyreshifting policies so there are much higher deductibles and highercopays. It is the only way they can contain some level of costsinternally.”

At the same time they are trying to keep costs down, employeebenefits buyers are also having to make sure their workers haveadequate coverage, he said.

“The other thing we picked up from the survey is how thecarriers are looking at group policies,” he added. “Were seeingmuch tighter underwriting. In the small-group marketthere wasessentially no underwriting going on; it was just a gatekeepersurvey. Now were seeing that theyre starting to underwrite at 50employees and under, so its a much tighter market.”

The survey found that a small but growing number of employersalso are considering a relatively new concept in healthinsurance–defined contribution or consumer-driven plans, which giveemployees a specific amount of money each year to pay for their ownhealthcare or coverage. However, some brokers say there isskepticism over this approach, according to CIAB.

More information about the survey can be found at the CIAB Website (atwww.ciab.com/resources/docs/fall02_eb_marketsurvey_all.doc).

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, January 6, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.