Health Insurance Market Update

by PAULA L. WILSON, RHU, REBC

Health care spending continues to rise, and the price to insure the risk is rising at
an equally alarming rate. Whether the purchaser of the insurance is an employer or individual, the reasons for increases and opportunities for rate relief are similar. Once we understand what is causing our costs to rise, we can make decisions to limit these increases.

What is causing the continued sharp increase in health insurance? There are many reasons, a few include:

Technology - The health care community continues to develop new and expensive diagnostic equipment and treatment procedures. Routine diagnoses that used to call for a $75 x-ray now call for a $4,000 MRI.

Pharmaceuticals - Medicines that used to work have been replaced with new and improved prescription drugs. Over-the counter allergy products that were used to stop the sneezing have now been replaced with $100 allergy prescriptions.

Consumer Demand - "I don't care how much it costs. I want the best available for my family and myself." There's a good chance you hear that from the insured more than the uninsured.

Government Mandates - The true definition of Health Insurance Risk is "Expenses incurred as a result of injury or illness." Government mandates have been a major factor expanding this definition. As medicine advances, consumers insist on access to these advances. Additionally, they want their health insurance to pay for it. Viagra, infertility and
domestic partner coverage are a few recent examples.

Provider Demands - Physician and Hospital groups are putting the insurers on alert. We see this very clearly in the California HMO sector. As HMOs have grown with their first-dollar appeal and have consumed the market, providers are getting together and demanding more money per patient and/or diagnosis. Either the insurers pay the higher price and increased premiums or lose blocks of popular providers from their HMO.

So what does all this mean? It means you are paying for technology, pharmaceuticals, government mandates, and consumer demands whether you want them or not. If Health care spending continues to rise, and the price to insure the risk is rising at an equally alarming rate. Whether the purchaser of the insurance is an employer or individual, the reasons for increases and opportunities for rate relief are similar. Once we understand what is causing our costs to rise, we can make decisions to limit these increases.

There is no avoiding the fact of rising insurance costs. You can reduce the rate of increase right now with some simple steps. The first step is admitting you’re addicted to first-dollar benefits. If you were to compare this to your car insurance, it would be like being forced to purchase car insurance that included first-dollar coverage for tune-ups, oil changes
and wax jobs. Services would be provided by a dealership and would cover your roommate's car.

Reducing Costs
There is no avoiding the fact of rising insurance costs. You can reduce the rate of increase right now with some simple steps. The first step is admitting you're addicted to first-dollar benefits. Employees continue to ask for benefits that include $10 office visits and 100% hospitalization coverage. Employers should lead the charge and start spreading the
word for some good old-fashioned responsibility. If you aren't an employer, the concept remains the same.

Start thinking like your father. Forty years ago my father purchased a $100 deductible. Coverage was limited to expenses
incurred as a result of injury or illness. Translating this risk into 2002 dollars is a far cry from the rich policies popular today. Encouraging employees to consider $500 deductibles is not an unreasonable idea. I don't mean $500 deductibles accompanied by $20 physician visit benefits and $10 Rx cards. I mean a true $500 deductible before any benefits are
paid. The result of lower premiums is immediate, and lower claims will result in lower increases at renewal.

What employers can do for themselves and their employees:
- Define a contribution level you are willing to make for each employee. This allows the employer to determine his costs.
- Offer multiple plans. One size doesn't fit all and hurts many. Employers offering high benefits and requiring employees to contribute aren't offering anything at all. What a single employee can afford may require an employee with a family to forego coverage for his children. Offering lower cost plans helps to keep insurance affordable.
- Shop the market annually. Insurers are constantly looking for ways to reinvent their products to make them more affordable.
- Educate your employees to help them become smart health care consumers.
- Obtain the services of an insurance agent that specializes in health insurance and offers the employee education you need.

Employees may balk at higher deductibles and increased out of pocket risk. To help alleviate some of this apprehension, employers can institute simple cafeteria plans (IRC 125) providing tax-preferred treatment of premiums and out of pocket costs. If you offer a choice of plans, it is up to the employee whether or not to take the high road.

No Access to a Group Plan?
Applying for insurance outside of a group plan requires good health. Those with health issues require special counseling from a health insurance professional regarding their options. When deciding on the plan that is right for you, it is important to decide the maximum annual risk you are willing to take. Then take it. The illustration above proves that a plan with a $2,500 deductible will save you money regardless of your claims.

On the surface it would appear an HMO with relatively low out of- pocket costs would be preferable to a $2,500 deductible plan. On the contrary, as you can see in the illustration, the plan with the $2,500 is a win-win situation. If this person were to stay healthy and have no claims, his annual premium savings would be $2,268. If on the other hand, this person were to have $100,000 in claims, his potential savings in premium and co-insurance is $2,232.

The point of the illustration above is that you need to consider your options with the mind set that you are responsible
for day-to-day medical costs. The $2,268 premium savings illustrated will pay for many routine office visits and prescriptions. It just makes sense.

Why haven't out-of-pocket costs increased over time? Why are we still offering 1965 benefits? Employers compete for employees with the benefits they offer. Regardless of the skyrocketing costs, insurers continue to offer expensive
first-dollar benefits. These are the benefits that make insureds poor consumers.

Doing Homework Before Deciding
A word of caution. The objective isn't just lower premiums through high deductibles. Purchasing your coverage through
established plans with names you know is important. Plans that promise return of premium, full benefits at lower than market premium, hospital-only plans and 100% coverage should be fully researched. Fraud is alive and well in health insurance. There is no magic to insurance. Insurers take in money, invest it and eventually return it to you in claims payment. It costs what it costs. Rule of thumb: If it sounds too good to be true, it probably is.

Employers can be a powerful force behind a shift in the current entitlement attitude of the insured population. It is possible for them to both educate and remain competitive in the workforce through the contribution levels they define. Individual purchasers need to consider all of their options.

To remain competitive, insurers are slowly building more personal responsibility into health insurance plans. You can start lowering your health care costs today by instituting some of these changes. There is no magic to insurance.
Insurers take in money, invest it and eventually return it to you in claims payment. It costs what it costs.

About the Author

Paula Wilson is owner of Paula L. Wilson, Inc., an Orange County,
California insurance agency specializing in employee benefits as well as life and
health insurance related products for individuals. She is a registered health
underwriter, registered employee benefits consultant, and the
2004-2005 Regional Legislative Chair for the National
Association of Health Underwriters. Wilson speaks to civic and
professional organizations on topics relating to health care and
health savings accounts.

She may be contacted at 888.44Paula.

Or visit her online at www.PaulaWilson.com