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Health premiums headed for another leap in January

By Liz Kowalczyk, Boston Globe, June 16, 2004

Despite slowing growth in healthcare costs nationally, many Massachusetts companies and their employees once again will face steep premium increases when they sign new contracts in January.

Average premiums have grown more than 10 percent in each of the past six years. But many employers and employees have been anticipating a break next year, because of a growing body of data showing that consumers are moderating their use of expensive prescription drugs, doctors' visits and outpatient tests, and surgery.

In Massachusetts, health plan executives said that savings in those areas will be more than offset by one factor: Hospitals and doctors are raising their prices.

''We're not seeing as big a slowdown in premiums as other markets because our market is seeing bigger increases in hospital and physician fees," said Vincent Capozzi, senior vice president of sales and marketing for Harvard Pilgrim Health Care.

Harvard Pilgrim anticipates premium increases of 7 to 12 percent for large employers, and 9 to 14 percent for small companies with fewer than 50 employees, Capozzi said. Tufts Health Plan estimates that average premiums will grow 13 to 15 percent. And Blue Cross & Blue Shield of Massachusetts predicts average increases of roughly 9 percent for small employers and 12 to 14 percent for everyone else, assuming companies keep the same benefits. Plans won't have exact increases for Jan. 1 until August or September.

In November of last year, Blue Cross said it was doing so well financially that it was slowing premium increases to 9 percent for small employees for 2004, down from 16 percent for the first half of 2003. Large employers, the company said, also would see price breaks. But while those smaller increases will stick for small companies in 2005, Blue Cross unexpectedly will increase premiums slightly for everyone else to 12 to 14 percent.

''The pressure on physicians is hitting a tipping point and that's what we're feeling right now," said Rina Vertes, Blue Cross chief actuary. Doctors are facing rising malpractice rates and costs of living, ''and it's resulting in some higher payments."

In Boston, health insurance premiums grew an average 12.6 percent and 12.2 percent in 2002 and 2003, compared to 15.2 percent and 14.7 percent nationally, according to Hewitt Associates, a consulting firm. This year, Hewitt projects, Boston premiums will grow 12.8 percent compared to 12.6 percent nationally. That will bring the average annual premium per employee to $7,484 in Boston and $7,009 nationally, including both company and employee contributions. Hewitt won't come out with 2005 predictions until the fall.

But some healthcare analysts expect average national premium increases to fall another 2 to 3 percent, as employers shift costs to their workers through higher deductibles and copayments. Paul Ginsburg, president of the Center for Studying Health System Change, a nonprofit research group, said hospital prices increased 8 percent last year -- the largest one-year rise in a decade. Because of the backlash against managed-care insurers and hospital mergers, ''hospitals are in a stronger bargaining position," he said. ''Boston is not unique."

But other factors may be pushing up hospital prices in Boston. Massachusetts has cut Medicaid payments to hospitals for treating the poor, leaving them to make up the losses by charging private insurers more. And employers have made it clear, at least so far, that they have little interest in limiting the hospital networks available to their workers to cheaper hospitals, which probably would eliminate most of Boston's renowned teaching hospitals.

''This limits our ability to force down their prices," said Jon Kingsdale, senior vice president, planning and development for Tufts Health Plan. ''If you're sitting across the table and they know you have to have them in the network, where's the leverage?"

Hospital executives, however, said prices are going up for a simple reason: So are their costs. Wages, drugs, utilities, and other costs are expected to rise 5.1 percent this year alone--the highest inflation in eight years, according to an analysis from the Massachusetts Hospital Association.

''Five or six years ago, hospitals accepted any rates they could get for fear of being left out of the network," said Paul Levy, chief executive of Beth Israel Deaconess Medical Center, a Harvard teaching hospital. ''That's changed, because hospitals realize they can't lose money on every patient and make it up in volume. We are much more definite about what we need to provide the level of service the public expects."

No matter the reasons behind the premium increases, employers and employees are struggling to find ways to cope with soaring costs. Employers are shifting costs to workers or trying gentler ways to nudge employees to reduce their use of expensive hospitals and tests.

Starting July 1, state employees who enroll in Tufts Health Plan, for example, will pay a $200 insurance copayment for each overnight stay at 15 hospitals Tufts identified as a better value for adult care. Employees will pay double that if they choose treatment at any of 51 hospitals across the state that the plan considers either more expensive, or lower in quality, or both.

Last year, NLG, a Woburn travel company with 1,200 employees, was told by its insurer, UniCare, that UniCare planned to raise its premiums 35 percent. So NLG switched all of its workers into a ''consumer-driven health plan" called Definity Health, which offers financial incentives to members to watch how much money they spend on healthcare.

For example, the company gives single employees $1,000 annually toward their medical costs and covers preventive care. When they've used up the $1,000, employees must spend a $500 deductible out of their own pocket until full insurance coverage kicks in. These plans offer large premium breaks, and in the first year NLG's premiums stayed flat. This year, they went up just 8 percent.

Other companies are taking smaller steps toward long-term cost savings. Raytheon Co. expects increases of 12 to 15 percent in its healthcare costs in January--similar to this year. The company still pays 85 percent of employees' premiums and has not raised copayments or deductibles.
The company has adopted a program that rewards providers financially for keeping diabetic patients healthy and out of the hospital and for using electronic medical records -- both of which it believes will eventually lead to lower costs.

''We're trying to attack the problem from as many angles as possible," said Diane Avellar, Raytheon's vice president for performance development and benefits.



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