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Friday, September 08, 2000
By Rachel Smolkin, Post-Gazette National Bureau
WASHINGTON -- U.S. businesses are experiencing the largest health insurance premium increases in seven years, a survey released yesterday found, but they say they aren't passing the costs on to employees because of the growing economy and tight labor market.
Premiums for employer-provided health insurance rose 8.3 percent in the past year, the largest increase since 1993, according to an annual survey by two nonprofit health research organizations, the Kaiser Family Foundation and the Health and Research Educational Trust. Firms cited higher spending for prescription drugs as a primary reason for the price increases.
"More than nine years into our longest economic expansion on record, more employers are now using health insurance coverage to attract and keep workers, and are absorbing rising costs rather than passing them on to their employees," said Drew Altman, president of the Kaiser Family Foundation.
"But this may change if the economy cools down," he said, "and the bigger challenge that still remains is how to help the 44 million Americans who are uninsured despite the robust economy."
Both presidential candidates are offering incremental proposals to provide more people with health insurance. Vice President Al Gore, the Democratic presidential nominee, would expand two existing government programs, Medicaid and the Children's Health Insurance Program. Texas Gov. George W. Bush, his Republican rival, would offer uncovered individuals a $1,000 tax credit and families a $2,000 credit to help them buy a health care plan.
The Kaiser survey found that firms with many low-wage workers are less likely to provide coverage than those that pay their employees more. One-third of small firms where more than 35 percent of the work force earns less than $20,000 a year offer health insurance.
The survey was conducted between January and May and included 3,402 public and private employers of all sizes.
From the spring of 1999 to last spring, average annual premiums shared by employers and employees rose to $2,426 for single coverage and $6,351 for families, the survey found. This year's increases nearly doubled last year's average of 4.8 percent.
Despite rising costs, more employers are offering health insurance, especially smaller firms. Among small firms of three to 199 workers, 67 percent of employers this year offer health benefits, compared with 60 percent in 1999.
The survey showed 99 percent of firms with 200 or more employees offered health insurance in 2000.
Employees on average are actually paying slightly less this year, contributing $28 a month for single coverage and $138 for families, compared with $35 for single coverage and $145 for families last year, the survey found.
Employers most often cited prescription-drug spending as driving their increased premium costs. Most workers share costs for prescriptions and pay more for brand-name drugs than for generics.
Levitt said employees under 65 who receive health insurance usually had prescription-drug coverage. But employees' drug benefits often diminish when they retire. Medicare doesn't cover drugs except during hospital visits, and many employers are reducing retirement benefits.
The soaring cost of prescription drugs has become a focal point of the presidential campaign, and both Bush and Gore have offered plans to help seniors pay for expensive medicines. Bush would rely heavily on private insurers, while Gore would add a prescription-drug benefit to Medicare.
The survey found that small firms of three to 199 workers faced the highest premium increases, experiencing a 10.3 percent rise, compared with 7.5 percent for large firms of 200 or more workers.
Bush supports allowing small businesses to buy health plans from trade associations, such as chambers of commerce, to give them the same advantages that large employers enjoy. Gore wants to give small businesses and their employees a 25 percent tax credit for premium costs.
Health-care premiums in the Pittsburgh region rose even more last year than they did nationally, employee benefits experts said.
"Western Pennsylvania was much higher," said Jere Cowden, a consultant with MMC&P Spectrum Benefit Options, a Downtown corporate benefits consultant. He pegged his clients' average premium increase for managed-care plans last year at between 10 percent and 12 percent. As the national survey found, "the smaller employers seemed to get smacked a bit harder," he said.
Dan O'Malley, in the Downtown office of Towers Perrin, a national corporate benefits consulting firm, said premium increases on managed-care plans for his firm's Western Pennsylvania clients -- mostly large employers -- ranged from 7 percent to 12 percent.
Last year's price increases followed double-digit gains in 1997 and 1998. Quotes on health benefits contracts being renewed for the coming year are in roughly the same range as last year, though more employers are seeing increases at the higher end, O'Malley said.
One big reason this region has experienced higher-than-average health premium increases in the past year and will in the coming one is that prescription-drug coverage costs are rising faster regionally than elsewhere.
"People are really trying to dig into that and figure out why," O'Malley said. Part of the reason is that local population is older than the national average, he said, "but that doesn't fully explain it."
Cowden said he thought the higher-than-average increases also reflected efforts by Highmark Blue Cross Blue Shield to resume profitability in its managed-care plans. The region's largest health insurer recently reported turning a $48 million profit for the first six months of this year, reversing a $46 million loss for the first half of 1999.
Staff writer Pamela Gaynor contributed to this report.