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Experts Warn Cost Of Health Care Going Back Up Higher Premiums Could Mean Employers Cover Less, Contract With Fewer Firms

Mon., Oct. 13, 1997

After nearly four years of relief from soaring health-care costs, employers across the country face a significant jump in premiums for health maintenance organizations and other types of health insurance.

Next year, HMO rate hikes will be double what they were in 1997, on average. Increases for other types of health plans are expected to be even higher.

Many experts believe it’s the start of an upward trend in the cost of health-care coverage, the first such development since President Clinton’s reform drive was squashed in 1994.

“Health insurance costs are clearly heading up again; the question is how steeply and for how long. No one really knows yet,” said Scott Ziemba, Chicago health-care practice leader for consultants Watson Wyatt Worldwide.

The mostly single-digit upturn in rates is a far cry from the double-digit increases of the late 1980s and early 1990s. But if the trend lasts for the next several years, as experts predict, important changes could be in store for employers and employees.

Companies may drop health insurance plans that cost too much, or contract with fewer plans in an effort to secure better deals. Employees may be asked to pay a larger share of health insurance expenses.

Health plans may tighten their doctor and hospital networks to better control expenses, leaving members with fewer choices. And small- and medium-size firms, which often are least able to afford rate increases, may drop health-care coverage altogether, adding to the more than 40 million Americans who are uninsured.

Heightened health insurance pressures also may give greater impetus to an option being considered by some of the largest and most active employers: banding together in a buying group to negotiate with HMOs, a tactic that has been adopted by employers in California, St. Louis, Cleveland, Minneapolis, and other areas.

“Bringing employers and health plans to the same table, and working together on the same set of problems - health-care costs and quality - makes a lot of sense,” said Dennis Nirtaut, managing director of compensation and benefits for Andersen Worldwide and a member of the Chicago Business Group on Health, which is organizing the effort. “I think it will happen here.”

The current round of health insurance rate hikes range from nearly 5 percent to 8 percent on average, but some increases are reaching double-digit levels or more, depending on the market, the experience of the employer and the characteristics of the insurance plan, according to several sources:

A new survey by BT Alex. Brown Inc., a Baltimore investment firm, shows that employers expect health insurance expenses to climb an average of 5.6 percent in 1998, double the 2.8 percent increase employers anticipated in 1997.

Sherlock Co., a Pennsylvania firm that closely tracks HMOs, says the plans look forward to premium hikes of 4.6 percent for 1998, following a 2.6 percent jump in 1997. HMOs now cover almost 60 million Americans, the majority of whom are working people and their families.

Salomon Brothers, a New York investment firm, expects HMO rates to climb 5 percent to 8 percent in 1998, compared with 3 percent to 4 percent increases that went into effect this year.

Towers Perrin, a major employee benefits firm, reports that preferred provider organizations appear poised to raise rates 6 percent to 9 percent in 1998; point-of-service plans (HMO-style plans that let members go outside networks for care, at extra expense) will go up about 5 percent to 7 percent, according to Tom Kuhlman, employee benefits leader in the Chicago office.


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