Health Insurance Rate Hikes Expected
In an early look at what health insurance will cost in 2003, a new national survey by UCLA shows that many employers are expecting rate hikes of 20% or more and are preparing to make substantial changes in health plans to shift more of the burden of rising premiums to workers.
Some employers already have begun to make changes such as raising co-payments and deductibles or reducing the level of health benefits. But the pace appears to be quickening, according to the UCLA survey, which is being released today.
“We’re changing from an era where companies sucked up the increases to where they’re going to pass [them] on to employees,” said Chris Thornberg, a senior economist at the UCLA Anderson Forecast, which conducted the poll of 460 employers. “They view this as just the beginning.”
Just about all of the respondents to the survey said they were expecting health premiums to jump by double-digit percentages in the coming year. One out of four employers said it was bracing for an increase of 20% or more.
As a result, about 75% of the managers polled said they were somewhat or very likely to substantially revise their health plans when annual renewals come up.
UCLA’s findings are consistent with other recent reports from consultants that suggest health care will be even more costly for employers than previously expected. This month, Hewitt Associates said insurance firms are demanding HMO premium increases of more than 20% for 2003, compared with an average rise of 15% for this year. Hewitt’s survey noted that employees are being asked to pay more out of pocket for prescription drugs, which have been a major contributor to the inflation.
UCLA’s survey included small and large employers across a broad spectrum of industries. Most big employers are now only beginning to negotiate with insurers and decide plan options for the upcoming year. But a lot of smaller businesses have already received their annual renewal rates.
Garry Angelotti, owner of VTS Inc., a medical equipment service firm in Santa Clarita, got his new company health insurance bill last month. It jumped 45% from a year ago, to $2,925 a month. Angelotti has 10 employees, and his company is unusual in that it pays 100% of employee insurance premiums.
But Angelotti said he can’t keep that up for long. To pay for the higher premiums, he has raised prices for service and parts. But even that isn’t enough. “There’s only so much money in the till,” he said.
Most businesses, however, can’t raise prices because of the competition and tough economy, said Steve Richter, a senior health-care benefits consultant at Watson Wyatt Worldwide in Universal City. “They’ve got to pass a lot of the costs to employees,” he said.
Eva Wang, an insurance broker in San Gabriel who specializes in small-group policies, said her clients are seeing 10% to 30% premium increases. So far, she said, no one has dropped coverage. But some have boosted deductibles and switched from a regular HMO to a cheaper plan with fewer benefits.
“I see downgrading,” said Wang, who has more than 1,000 individual and small-business clients.
UCLA’s Thornberg said such widespread action is a huge shift from the late 1980s and early 1990s, when employers largely absorbed the cost increases before HMOs took hold.
UCLA’s survey, however, showed employers were in no rush to switch to so-called defined contribution plans, in which businesses give their employees a set amount of cash to buy health insurance themselves.
Some analysts had predicted these plans would proliferate soon, but only 15% of the respondents to UCLA’s poll said they were likely to take that route. Analysts said employers are hesitant to offer these plans because of tax consequences and the uncertainties of leaving it up to employees to buy private medical coverage, which typically is more expensive.
