Better Benefits Prompt More Use, Higher Cost

Everything-covered-for-little-cost insurance packages likely are encouraging more health care usage. They’re also ultimately driving up insurance rates.

Health insurance was offered first by employers competing for workers after World War II as a benefit to cover the often financially devastating price of catastrophic health care.

Now the insurance benefits are seen as “entitlement programs,” said Mike Russell, a director of marketing for PremierCare Northwest, which offers health insurance packages through the Northwest Medical System network of physicians and hospitals. He believes the insurance co-payment has changed the mentality of the insured and generated more doctor visits and health insurance use.

“It was a rotten deal,” he said. “It was terrible for health care. It’s called major medical, not minor medical.”

The Council for Affordable Health Insurance, a research and advocacy association of insurance carriers based in Alexandria, Va., reports that “richer” health insurance plans produce an average of 30 percent more utilization than basic plans.

“I think rich benefit plans have had a part in increased utilization,” said Mel Blackwood, Arkansas Blue Cross and Blue Shield regional executive.

But Blackwood believes new technology and increased pharmaceutical costs are also to blame for insurance rate increases.

According to statistics compiled by Arkansas Blue Cross, one $1,000-per-month drug for 1 percent of the company’s members could result in a 6 percent increase in premiums for all its 480,000 members.

Charlye Crawford, spokeswoman for the Arkansas Insurance Department, said state legislation passed last year should provide some relief for smaller companies penalized for their size when it comes to health insurance. The legislation allows companies with no more than 100 eligible employees to form a Health Insurance Purchasing Group. There has yet to be one organized in the state, but Crawford is anticipating that some will form.

Blackwood said the industry trend is to shift more health care costs to the employee to keep premium rates affordable.

“We need to bring cost sharing back in line where it used to be,” he said.

Insurance Alternatives

Mike Kaufman, also a marketing director for PremierCare Northwest, believes an Internal Revenue Service policy change may help slow the rising costs. The IRS ruled earlier this year to allow money in medical savings accounts to be rolled over into the next year, and that’s opened up new possibilities for employee health insurance packages.

New deferred contribution consumer-driven health plans allow employers to set up such medical savings accounts for each employee. The account can then be used to pay medical costs and count against a deductible. Kaufman explained that an employer typically would provide a $1,000 medical savings account, and out of that, the employee would be reimbursed for the full cost of doctor’s visits.

The employees would know they could only use $1,000 and then the remainder of a $2,000 or higher deductible would have to be paid before the 80/20 insurance coverage would apply.

They’d also know that anything remaining in the account could be left to build up to possibly cover the entire deductible or even allow the employee to opt for a higher deductible to lower the premiums, Kaufman said.

Deferred contribution consumer-driven health plans also encourage employee longevity. The funds are lost when the employee leaves the company.

“I don’t think this is a cure-all but a positive step to get people back in the mode of being personally responsible for their health care dollar,” Kaufman said. “This is a way to correct the error of the co-pay.”

Dave Tritt, human resources director for the city of Springdale, agrees that the co-payment and prescription drug card share some blame for higher insurance premiums. If the patient has to pay more of the doctor’s bill, he’s “more likely to question if [he] really [has] to go.”

Tritt is gathering information on other health insurance packages for city employees now. The city’s current insurance is through the Arkansas Municipal League and covers dental, vision and prescription drugs, as well as regular doctor’s visits.

The network of doctors and hospitals available under the plan, premium rates and the allowable benefits all factor into the insurance decision, Tritt said. The complexity of the plan’s administration would also weigh in. All the insurance the city offers now comes in one bill, he explained.

Russell of PremierCare Northwest recommends employers shop around and compare health insurance packages at least every three years. Insurance companies negotiate different reductions for health care services and pass that along to the insured, and those amounts change from year to year, he said.

Insurance companies try to keep their loss ratio at a maximum of 75 percent of the premiums paid. Lower loss expectations mean cheaper rates, Russell said.

“That’s all insurance is, is a balance of risk,” he said.

Some employers assume more of that risk and go for self-insurance plans. Few of those are completely self-insured, Kaufman said. They typically are self-insured up to a certain loss amount for each of the insured, then a reinsurance or separate insurance plan kicks in.

“If you have more than 200 employees, it’s better to be self-funded. You save a lot in premiums,” Kaufman said.

P.A.M. Transportation Services Inc. has a self-funded plan for its estimated 2,500 employees in Tontitown.

“We pay our own claims,” said Sheila White, human resources assistant.

P.A.M. employees pay $10 a week for individual health and dental coverage or $45 a week for family coverage.

Leo Anhalt, president of SSI Inc., said the construction company ended its self-insurance program last year when rates for its reinsurance jumped dramatically. SSI went with a full insurance plan only to find out after the company’s employees were signed up and rated that it would be about 50 percent more. Anhalt said that’s still less than the expected increase in the self-funded insurance plan.

“We’re coming up on renewal again, and quite frankly, we’re going to have to make some changes,” he said.

SSI shouldered much of last year’s increase without passing it on to its employees, but it can’t afford to continue, Anhalt said. He’s concerned for some of the company employees who may not be able to afford the increase.

The Associated Builders and Contractors is trying to get a change in federal regulations to allow professional associations to offer health insurance programs to their members nationwide. The problem is that states have different insurance statutes, and the federal regulations need to supersede those so insurance plans can stretch beyond state borders, Anhalt said.

“I think all small businesses need to really get involved and do something about these health insurance premiums,” he said.

Another step the Arkansas Legislature took last year, the Consumer Choice Act, provides more flexibility in developing a health insurance benefits package and should help keep costs in control, Crawford said. The act reduces the mandated benefits health insurance plans must provide. For example, insurance plans were mandated to cover in vitro fertilization, but eliminating that potential expense allows for a lower premium, she explained.

Tailored-to-fit plans that give the insured more choices but also more responsibility for their health care expenses are the future of health insurance, said Blackwood of Arkansas Blue Cross.

“It’s not one size fits all,” he said.