Daniel Morano has been happily using the same health insurance plan from Independent Health Association for 12 years. But the 59-year-old retired postal worker from Grand Island was stunned when he opened his mail the other day.
His monthly payment of $226.72 will soar next year to $348.86 a month, or $4,186.32 a year. That’s a whopping 54 percent increase, all at once.
In fact, the full monthly premium, including what his employer pays, actually went up 17.1 percent, to $1,062.34, still a hefty hike for someone on fixed income. But to keep its own costs under control, the Postal Service isn’t picking up most of that total increase — Morano and his fellow retirees are.
“This is kind of scary. That’s quite an increase in one year,” he said. “At this point in time, I can afford it. But if it’s going to go up this much, I don’t know. I might have to go back to work and get a part-time job just to pay for my health insurance premium. It makes you think.”
Welcome to the 2008 health insurance enrollment season, when the majority of employers and employees sign up for their family or individual health coverage through Independent Health, Blue Cross Blue Shield of Western New York and Univera Healthcare. It’s also the time when everyone fearfully awaits what has become an inevitable price increase far in excess of inflation, currently at just 2.76 percent.
Morano’s case is rather extreme because of the enormous surge in what he pays. But the overall 17 percent increase for his employer is very typical. In fact, while rates aren’t finalized, Independent Health said it is projecting percentage increases in the upper teens, on average.
“It’s a little bit worse than last year,” said Thomas J. Flynn, principal and Upstate Practice Leader for Mercer Health & Benefits LLC in Rochester.
The two other insurers declined to comment, and none of the three has released exact rates and increases for small-group “community-rated” plans, although those now represent a much smaller and shrinking portion of the population anyway. Rates for large “experience-rated” employers can range across the board because they’re based on the actual past claims of each employer.
But local brokers have gotten enough hints from the insurers to know what to predict, based both on conversations with the companies and on the renewals that have already been processed for the fourth quarter.
Overall, brokers say most companies and workers can expect rate hikes ranging from a low of about 10 percent to a high of 25 percent. Some may see more.
“Most people are going to be surprised,” said Thomas J. Revelas, managing partner of Lawley Benefits. “They’re thinking they’re going to get 10 or 15 percent, and they’re in [for] 20 or 25 percent. That’s sticker shock.”
“We’re hoping the premium increases are only going to be in the 10 percent range, but that is probably more hope than reality,” said Jim Bedard III, president of Buffalo Hotel Supply Co. in Amherst, which now uses United Healthcare, and is anxiously awaiting its new rates.
It’s even tougher for the individual, direct-pay market, where consumers sign up directly with insurers and not through employers. “That’s just been skyrocketing. It’s just crazy,” said Jo Ann Sorce, project coordinator at Lawley.
Health insurance costs have been soaring year after year for more than a decade, including more than six years of doubledigit rate hikes that peaked at nearly 14 percent nationally in 2003, according to the Kaiser Family Foundation. The increases slowed in the past few years, to 9.2 percent and 7.7 percent in 2005 and 2006, but medical costs borne by the insurers continue to go up 9 percent to 11 percent each year.
“While we all would prefer no increases, the reality is as medical expenses go up, so too must premiums,” said Independent Health’s Frank Sava.
A big item: Drugs
In particular, health insurers blame the high costs of prescription drugs, new medical procedures, technology and hospitalization. Drug spending, for example, rose 11.5 percent in 2006 to $250 billion, according to the National Association of Chain Drug Stores. And it’s doubled as a proportion of total U.S. health care spending.
State mandates have also added costs, Revelas said. For example, Timothy’s Law, which requires more mental health coverage, went into effect this year.
Also, premiums in community-rated plans are rising faster because many employers with more than 50 workers have pulled out of the “community pool,” where rates are set based on the general population’s experience. But since the ones who pull out have younger and healthier workers, that leaves the community pool with older and sicker workers who use expensive health care more often.
Many consumers and critics complain that insurers are pocketing the profits. But even with the hikes, the rising medical and administrative costs mean nonprofit health insurers locally are posting profit margins of 4 percent or less.
Still, that’s little consolation to employers, workers, or individuals like Morano. The father of three school-age children lives on his fixed Postal Service pension and a Veterans Administration pension. His wife doesn’t work, so all of their health insurance is through him. And at 59, he’s too young for Medicare.
Friends of his, also retired from the Post Office, are in the same boat. “Everybody’s going to get hit with this,” he lamented.
Lawley and Niagara National expect a 15 percent increase on community-rated “small groups” of fewer than 50 employees. For larger communityrated groups, the increase will average about 18 percent to 20 percent, but could range up to 25 percent. And experience-rated large groups will see hikes of 10 percent to 12 percent.
“I think it’s going to be substantial. There’s so much technology used in diagnosis that the costs are going to increase,” said Kathryn O’Donnell, president and CEO of Botanicus Interior Landscaping in Amherst. Her company has 20 employees in Buffalo and Rochester, and uses Independent Health here and Preferred Care in Rochester.
And at First Niagara Risk Management, the insurance unit of First Niagara Financial Group, senior vice president John Lynch said many employers expect increases of 9 percent to 12 percent, but he predicts low to upper teens for community- rated, and 10 percent to 14 percent for experience-rated.
Options considered
As usual, employers are responding by increasing the portion of the premium workers pay, raising copays and deductibles, or dropping extra coverages that are now considered luxuries. Plans with “rich” benefits are increasingly rare.
They’re also trying more strategic shifts, particularly moving to an experience rating where there’s more flexibility in designing health plans, more options for controlling coverage, and more information available about the health of workers. That enables employers and insurers to implement wellness programs, as well as disease management programs to combat chronic conditions.
About half of all illnesses are related to lifestyles, so fitness and nutrition programs tied to the overall health plan — such as with financial incentives — can pay off, Revelas said.
“We’re really seeing a real push with the wellness arena,” said Brian Murphy, another Lawley partner. “There is plenty of information to show that wellness programs, when done as a campaign, are effective.”
More employers also are asking about high-deductible “consumer-driven” health plans, where premiums are lower because consumers are paying more of the upfront costs for their care before coverage kicks in. Such plans also come with health savings accounts or health reimbursement accounts, in which employees can save money to pay the deductible, and possibly even accumulate savings for many years.
AccuMed Technologies of Buffalo cut its health care costs by 10 percent after it went “experience- rated” and switched to a high-deductible health plan from Independent Health in July. To mitigate the impact on its 215 workers, the company funds a significant portion of the savings account.
AccuMed also hired an outside consultant to institute an internal fitness and wellness program to help employees better manage their health. The consultant leads employees in lunchtime walks, yoga, aerobics and nutrition training.
“It was just a phenomenal change for AccuMed, and the employees really like it. It’s building their savings accounts, and you’re seeing people start to take control over how they spend their medical dollars,” said AccuMed Chief Financial Officer William M. McGowan.
Tags: Health