State Health-Premium Costs Outpace Nation’s

Health insurance premiums rose faster in California last year than in the rest of the country, an ominous sign for a state struggling to maintain its economic competitiveness.

Private employers saw their health benefits bill jump by an average of 15.8% in 2003, compared with a national average of 13.9%, according to a study released Tuesday by the Kaiser Family Foundation. It was the first time since Kaiser began the survey in 1999 that California’s medical premium increases significantly outpaced those of the country as a whole.

In 2002, the cost of healthcare insurance rose about 13% for both the state and the nation.

Analysts at the foundation, a nonprofit research group unrelated to the large health system Kaiser Permanente, attributed the higher rate of increase in 2003 partly to changes in managed-care plans in California that are allowing consumers access to more doctors and hospitals. With greater access, patients have more leeway to see specialists and to be treated at research hospitals, which can drive up the cost of care.

Industry executives and consultants said there were other factors at work. These include rising hospital expenses to meet new nurse staffing and seismic retrofit requirements, which are translating into higher premiums. Fewer insurers also are operating in the state, giving them more control over rates.

“There is significantly less competition; there’s no question that’s part of it,” said Jeff Miles, who sells medical insurance in Marina del Rey and is president of the California Assn. of Health Underwriters.

Mark Strunin, 57, who works for a nonprofit organization that provides health coverage to people who don’t have it, said he wasn’t surprised by the rise in Californians’ health premiums.

“I’ve seen year upon year of increases in the cost of healthcare,” he said, noting that his own out-of-pocket health expenses rose a “modest” 15% in the last year -- well above the state’s current inflation rate of around 2%.

Kaiser analysts said it didn’t appear that many California employers had dropped health coverage last year as a result of the accelerating premiums. The survey of 864 businesses showed that 70% offered medical insurance, about the same as in 2002 and in line with the national rate. However, companies in California, as elsewhere, continued to shift more of the cost of health benefits to their workers, especially those with families.

Worker contributions for employer-sponsored health insurance in California rose by 22% last year for single coverage and by 30% for family coverage. Over the last three years, an employee’s share of family coverage has jumped by nearly 70%, to $2,452 in 2003.

“It’s alarming how much is increasingly being borne by workers overall,” said Alina Salganicoff, a vice president and director of California health policy at Kaiser Family Foundation in Palo Alto.

David Wolkenhauer, president of Planned Environments Inc., a commercial landscaping firm in the Bay Area, said the health insurance bill for his 20 employees went up more than 16% last year. Workers don’t foot any part of the premiums for single coverage, but that may not last, Wolkenhauer said.

“I hate it,” he said of the rate increases. “You want to take care of your guys, but you also want to stay competitive.... What are you going to do?”

The push by some employers to pass on more of the rising costs to employees has increased tensions in the workplace. Health insurance was a major factor in the long supermarket strike in California, which ended last month with the union accepting lesser medical benefits for new employees.

The study, conducted by Kaiser and the Health Research and Educational Trust, found that health insurance is still cheaper for employers in California than in most other places. The typical cost of employer-provided health insurance in California last year was $3,102 for single coverage, compared with $3,383 nationally. For a health plan covering the employee and his or her dependents, state businesses paid an average $8,504, versus $9,068 for the nation as a whole.

California’s lower tab reflects its higher concentration of workers enrolled in health maintenance organizations, but that cost differential -- one of the few that state businesses have had in their favor -- is diminishing.

“Are we losing our advantage? Very possibly,” said Chris Thornberg, a UCLA economist who studies healthcare.

That’s bad news for a state that is trying to overcome an image as an inhospitable place to do business. California employers already have been grappling with rising costs for workers’ compensation insurance, and complain that state laws such as the one guaranteeing extended family leave for workers with a sick relative or a newborn are burdensome for business.

Some insurance executives said they expected premiums to increase at a slower rate this year, in part because the cost for hospital services and drugs -- two of the biggest driving factors in escalating healthcare costs -- were trending somewhat lower.

David Olson, a spokesman for Health Net Inc., one of California’s largest medical insurers, said average premiums for his company’s customers in the state would rise about 11% this year, down from 15% in 2003.

But others, including leading health benefits consultants, weren’t optimistic that premium increases would slow significantly.

“We have a sense that 2004 is going to be worse,” said Kirby Bosley, who heads the healthcare practice at Mercer Human Resource Consulting in Los Angeles.

For one reason, she said, employees are increasingly opting to go with less-restrictive health plans, which are inherently more expensive. Then there are other factors, including hospital costs for staffing and the growing rolls of uninsured people.

“It just results in more cost-shifting to the insured segment,” she said. “Somebody has to pay for it.”

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Times staff writer Arlene Martinez contributed to this report.