Health Benefit Costs Soar 11% on Rising Drug Prices

Employer costs for providing health benefits surged 11% this year, the first time since 1992 that the inflation broke into double-digits and a sure sign that consumers would soon pay more for medical coverage, the Kaiser Family Foundation said Thursday in its annual price report.

Pharmaceutical expenses are the driving force behind the outburst of health care inflation as people are using more prescriptions and the drugs themselves cost more, according to the authoritative report.

Because companies are paying more for health insurance, “workers will take it on the chin,” Kaiser President Drew Altman said. He predicted that companies will respond to the health care cost pressures by making their employees bear more of the financial burden. Workers may be required to pay a higher share of health insurance premiums or face increased deductibles and co-payments.

Various industry officials and academic experts have spoken recently about the return of health care inflation, but the Kaiser report is particularly significant because it provides documentation based on a large scientific survey of businesses. The survey is part of a study of health care costs that began 13 years ago.

The Kaiser report determined that employers’ health care costs increased 11% from spring 2000 to spring of this year. Over the previous year, costs increased 8.3%; the 1999 report showed an increase of 4.8%.

“There is no way employees and employers can absorb the costs” if double-digit inflation continues, said Dr. Vince Kerr, medical director at Ford Motor Co.

Controlling inflation will be “a much tougher challenge” than it was during the 1990s, when health plans cut back sharply on payments to doctors and hospitals. “The discounts have been given,” Kerr said.

Inflation has returned to the level reached in 1992, when Bill Clinton successfully ran for president promising to deal with the twin problems of rising health care costs and the large number of people who lacked health insurance coverage. Kaiser said this year’s cost surge was the highest since the 10.8% inflation it recorded in 1992.

During a bitter political battle in 1993 and 1994, Clinton failed to persuade a Democratic-controlled Congress to enact his program of mandatory, universal insurance.

Instead, businesses broke the back of health care inflation by adopting managed care, moving employees into health maintenance organizations and other closely controlled networks of doctors and hospitals.

Kaiser reported that about 23% of American workers are enrolled in HMOs, a decline from 31% five years ago. About 39 million Americans do not have health insurance coverage, according to the U.S. Census Bureau.

While the HMOs were effective at winning discounts from doctors and hospitals, they drew increasing criticism from patients who felt their access to care was being excessively restricted.

A separate report on HMOs, also issued Thursday, showed that they are becoming much better at delivering quality preventive care, even as support for their approach to medicine lags among many of their customers.

Ironically, just as business is reporting a relative decline in HMO enrollment, “we’re reporting strong gains in quality,” said Margaret E. O’Kane, president of the National Center for Quality Assurance, an industry group aimed at improving standards of care.

Among the reviewed HMOs, which serve 63 million people, the quality assurance center found steady progress. The survey found across-the-board improvement from last year, with higher percentages of the health plan customers receiving cancer screenings, proper treatments for high blood pressure, immunizations for children and help with controlling cholesterol.

The findings “are extremely encouraging because as health care quality improves, so do patient outcomes, productivity and the value to both members and purchasers,” said Kerr, a participant in the center’s news conference.

But HMO advances in preventive care don’t translate into public support, O’Kane acknowledged. “Member satisfaction is inching up,” she said.

In California, however, where managed health care has a major share of the market, member support for HMOs is weaker than the national average.

Among a sample of HMO members surveyed in 323 health plans nationwide, 78% said they were assured of getting health care quickly. By contrast, the California figure was 72%. When asked about general access to care, the satisfaction rate again was lower among customers of California plans than among those nationwide. The rating for the overall quality of health care also was lower in the state than in the nation.

Customer enthusiasm for the general HMO industry may be even lower than reported by the National Center for Quality Assurance because the health plans in its study are presumed to be the industry’s top performers. These health plans have agreed to open their books to independent auditors, who review their practices and interview a sample group of customers about the quality of care.

The HMO industry says it is able to deliver quality health care while controlling costs and repeated its strong opposition to the patients’ rights legislation now being considered in Congress. The House and Senate have passed different versions of the legislation, which would expand the rights of patients to sue their HMOs.

“The sad irony is that even as some in Congress debate new ways to sue health plans, a new report shows that managed care has made significant strides in all areas of quality improvement for the second year in a row,” said Karen Ignagni, president of the American Assn. of Health Plans.

The Kaiser inflation study, a national survey of randomly selected public and private companies of all sizes, found that the proportion of American workers enrolled in HMOs had dropped significantly since last year, from 29% to 23%.

Managed care is “particularly unpopular with upper-class Americans who are not used to seeing their care rationed” and who think the HMOs too often prevent them from seeing medical specialists, said Jon Gabel, a vice president of Kaiser’s Health Research and Educational Trust, which conducted the survey.

Many businesses have moved their workers to “point-of-service plans,” which allow them to go outside regular HMO networks to see other physicians in return for paying higher co-payments and deductibles.

But it is harder to control costs in the more open-ended health plans, and employers will face the challenge of holding down health care inflation without angering their workers.

Employers surveyed for the Kaiser study identified soaring drug costs as the primary reason for the increasing cost of providing health care benefits. They also cited higher spending for hospital and physician care, better medical technology and richer benefit packages.

With the economy slowing down, “it looks like workers are going to pay the price,” Altman said.

The average annual cost of providing health insurance is about $2,650 for an individual worker and $7,053 for a family, according to the Kaiser survey.