Health Insurance Premiums are High and Getting Higher

Lorena Plunkett remembers a time when BBF Oil Co. Inc. paid all of its employees’ health insurance premiums. Today the Pine Bluff company only pays 40 percent.

And there may come a day when BBF Oil, which operates several convenience stores, can’t cover that.

In July, BBF’s health care premiums for its nine workers shot up 30 percent, chipping into the company’s profits, said Plunkett, BBF’s controller. But the company doesn’t have many options to deal with the rising costs. Raising prices at the gasoline pump may drive away customers, but dropping the health insurance benefit may drive away employees.

BBF Oil is not alone. In 2001, employer health care plan premiums jumped 11 percent, and the average will be in double-digits again next year.

The insurance industry doesn’t see any relief on the horizon. Attempts to stick a Band-Aid on the problem with legislation haven’t worked.

Insurance experts say the only real relief will come when deductibles are raised as high as $10,000. But employers haven’t switched to those types of plans yet because they are still competing for employees.

“But when [monthly] rates start getting to $250-$300 an individual and $600-$800 a family, they are going to start to change their minds,” said Greg Hatcher, owner of the Hatcher Agency, one of the state’s largest health-insurance agencies.

There may be a move to increase consumer cost sharing, where consumers will be asked to pick up a larger portion of the tab for their health insurance, said Alwyn Cassil, a spokeswoman for the Center for Studying Health System Change, a Washington, D.C., nonpartisan research organization.

The contributions could come in the form of higher premiums or through increased co-payments and deductibles.

“We’re in a very different economic climate. We’re in a recession,” Cassil said. “The labor market will likely loosen, and employers will turn their attention to what is turning into a big drag on their bottom lines, which is the cost of health benefits.”

How employers respond will determine if the costs keep climbing, she said.

John Hartnedy, a deputy commissioner of the Arkansas Insurance Department, sees two options: a national health plan paid for the by the government or medical care saving accounts.

Users of medical saving accounts purchase insurance with high deductibles, and the savings from the lower premiums go into the account to pay for drugs and routine office visits.

“So what we’ve done is moved the low-cost items to the individual so if somebody wants a brand-name drug they saw advertised on TV and it costs $250, they’ll pay for that out of their account,” Hartnedy said.

Faced with that option, people often will choose to buy cheaper generic or over-the-counter drugs.

“That’s how you can legitimately control health-care costs,” he said.

High Hopes

In this year’s session of the Arkansas General Assembly, two bills emerged that were designed to bring some relief to small business: the Small Employer Health Insurance Purchasing Group Act of 2001 and the Arkansas Health Insurance Consumer Choice Act.

The purchasing group act allows businesses with fewer than 101 employees to join together in health insurance purchasing groups to buy insurance, which should give small companies greater buying power and better rates.

The consumer choice act allows insurance companies to offer policies that don’t include all the coverage that has been mandated by law, as long as the carrier offers at least one policy that includes all the mandated coverages.

The act was designed to give customers cheaper options that fit their needs. Current state law requires health insurance policies to cover 17 specific conditions, nine mandated coverages and six classifications of specific people.

“Both bills could help reduce rising health-care costs for small companies and provide greater access to health care for small-business owners who are struggling to find and keep affordable health care,” Eric Munson, state director for the National Federation of Independent Business, said in an Aug. 10 news release.

“Since small-business owners have limited access to affordable health care, both [of] these bills should improve the health-care playing field for small companies trying to compete with large businesses.”

But to date, the bills aren’t having any effect.

“So far we haven’t seen anybody use either of those bills,” Hartnedy said. “It has not generated an overwhelming reaction.”

A group in Northwest Arkansas is looking at a Health Insurance Purchasing Group, Hartnedy said, but most carriers find it’s too expensive to prepare the different policies.

“It’s not going to revolutionize our business anyway,” Hartnedy said. “We’re talking about saving 5-10 percent, and sometimes that’s just too much trouble for a carrier to go through.”

He hopes the bills can undergo some revisions in the next legislative session to be more accessible.

“We’ve just got to do things that are going to lower the costs of health insurance,” Hartnedy said.

Munson said he’s frustrated that the bills haven’t attracted more interest.

“But we are pursuing several companies that would come in and write a HIPG for the state of Arkansas,” he said.

Rising Costs, Rising Rates

The reason for the rising rates is simple, Hatcher said: Insurance companies have been losing money, and they’re tired of it.

The insurance companies have to raise rates to cover health care inflation and make up the money they’ve lost so they’re operating at least at a small profit, Hartnedy said.

The average Arkansas Blue Cross and Blue Shield customer is going to see between a 15-20 percent increase for similar benefits in 2002, Arkansas BCBS spokeswoman Max Heuer said.

“That level of rate increase is considered by us to be a trend increase since that’s the rate that medical claims costs are increasing at,” she said.

About 60 health insurance companies have left the state in the last couple of years, Hartnedy said.

“You know they aren’t leaving the state because they’re making too much money,” he said. “I haven’t seen a single company that’s really making good money in the health insurance industry.”

Part of the insurance companies’ losses can be blamed on the cost of prescription drugs, which has skyrocketed. In 1998, the prescription drug market was $88 billion, Hatcher said. In 2000, it was $223 billion.

More people are taking brand-name drugs, such as Paxil and Prozac, every day to make their lives better, Hatcher said.

“But the bottom line is they cost $80 a month, and that’s more than heath premiums used to be 15 years ago,” he said. “So when you get these people on these medications, they’re taking away 50 percent of your premiums every month right off the bat.”

Another item driving up the costs is managed care. Under those policies, people tend to go to the doctor more because visits cost them $10 or $20, depending on the co-payment plan, he said. But more visits to the doctor mean more tests and more prescription medications.

The theory behind managed care was giving employees a richer benefit package in exchange for having the care more tightly managed, said Cassil, the spokeswoman for the Washington, D.C., Center for Studying Health System Change.

But many consumers didn’t care for the managed approach, she said.

“Now the pendulum has swung back to more choice and flexibility, and that brings along additional costs,” she said.

The future doesn’t look bright for the costs dropping anytime soon. Rates should continue to climb in the next 10 years as the baby boomers age, Hatcher said.

“You’ll have more older people and not enough younger people to balance the risk,” Hatcher said. “All the cost is based on average age.”

Rates have climbed steadily over the years but have been in overdrive since 1998.

Just three years ago, premiums were $150-175 for an individual and $350-$400 for a family. In 2001, the premiums were $250-$275 for an individual and $550-$650 for a family.

Some groups are paying $500 for an individual policy and $1,300 for a family.

“And that was the best they could get,” Hatcher said.

In the last year, Hickingbotham Investment Inc. of Little Rock has seen rates jump 25-40 percent for its 450 employees, said Gene Whisenhunt, executive vice president and chief financial officer.

The company pays most of the premium and has adjusted the level of co-pays for office visits and prescription drugs, he said.

“We have tried to avoid radical changes in our heath program, but the last two years have left us no option,” Whisenhunt said.

The company has asked its employees to contribute more to cover the costs.

“If these trends don’t change, the options are going to get much more radical,” Whisenhunt said.

One option may be raising the deductible to $2,500 or introducing financial incentives to employees who are good stewards of their health care programs.

“We’re committed to finding a way to keep our employees covered in an adequate fashion, and that’s becoming more difficult,” Whisenhunt said.

BBF Example

Plunkett, the controller who has worked for BBF Oil for 18 years, said the company gets hit with premium increases like clockwork.

“We have one employee whose spouse has health problems, so we catch every increase that comes because of the high costs of her medical treatments,” she said.

The company, however, feels it has to offer health insurance.

“It’s really hard to get a good, quality employee without having good fringe benefits,” Plunkett said.

The company pays $3,000 a month for nine employees to be in the health-care group; included in the nine are three family plans. A couple of years ago, $3,000 a month would cover 15 employees.

She said the company has accepted that the prices for health care are going to remain high.

“Yet, it’s very hard for small business to take these big increases time after time,” she said.