And of course there is very, very low inflation.....

CA: Employers face health insurance rate shock

Choices grim at start of open-enrollment period

By Susan Duerksen and Tony Fong

UNION-TRIBUNE STAFF WRITERS

October 8, 2000

Someone put too much yeast in Charles Kaufman's bills.

At his San Diego bakery, Bread & Cie  as at businesses and homes around the region  costs have risen rapidly. The energy to power his ovens and lights, gasoline for the delivery trucks, and workplace injury insurance all are straining the budget.

Now, one more cost is climbing that has implications for workers and their families everywhere. Kaufman pays about $5,500 a month to provide health insurance for his 48 employees, about $1,000 more than his monthly cost two years ago. 

As open-enrollment season for health insurance begins this month, employers of all sizes face hefty increases in premium costs for the second  or in many cases, the third  year in a row.

The increases taking effect Jan. 1 are expected to average about 10 percent, about the same as this year, but that doesn't begin to tell the story for many workers and their families.

Some large employers, like the state of California, plan to pass on the full increase to employees, so out-of-paycheck costs in many cases will double, triple or worse. When the economy slows, other employees will likely pay a bigger share for their coverage as well.

"It's a big jump," said Nemia Gubio, office supervisor of the California Department of Transportation's Kearny Mesa maintenance station. "With everything else going up, it's going to be a hardship for everybody. The working people will be having difficulty paying the bills, and one of them is me."

Analysts say the higher prices also may prompt many large companies to trim the benefits they offer workers.

But small companies with paper-thin profit margins are more likely to drop coverage. In that way, the cost increases threaten to undermine national and local efforts to reduce the number of people who are uninsured.

"The more we see these radical premium increases, the less chance there is for small business to absorb them," said Richard Ledford, vice chairman of the health-care committee of the San Diego Regional Chamber of Commerce.

"I think you'll see more businesses thinking harder about whether they can provide it (health insurance)," Ledford said. "Most of them want to, but they also have to keep the doors open or nobody benefits."

Prognosis: more hikes

Health insurance premiums had been declining or stable for several years, but began to rise significantly two years ago.

Experts say health insurance costs are on a roll and won't slow down any time soon. Until major changes are made in American expectations of health care and the way it is provided, premiums will continue to climb, several analysts said.

Insurers blame the price increases mainly on greater consumer demand for ever-more-expensive medical services and drugs, as well as resistance to the cost-tightening restrictions of managed care.

No employer of any size is immune. The strong economy has sheltered employees of many large companies from the increases because employers are willing to pay the cost to attract and keep good workers. But when unemployment goes back up, those workers could see their share of health costs balloon.

"Very few of these increases are being passed on to individual consumers," said Peter Lee, president and CEO of the Pacific Business Group on Health, a coalition of employers. Yet companies paying more for premiums are likely to spend less on payroll, he said.

Last month, a national survey found that health insurance rates went up an average of 8.3 percent this year. For businesses with fewer than 200 employees, the average increase was 10.3 percent.

Among the 3,400 employers surveyed, the average monthly premium for single workers this year was $202, and for family coverage, $529. The survey was conducted by the Kaiser Family Foundation, a health-care philanthropy not connected to Kaiser Permanente.

Despite the rapid increases, the survey also found that more small-business owners provided employee insurance this year than last, probably because many consider it necessary in the booming economy. Michele Odle, for one.

Odle, the chief administrative officer of KwikWeb.com, an online services company based in Cardiff, said she's not pleased about the rising cost of insuring her six employees but believes health insurance is an indispensable benefit.

"This is one of the incentives that actually keeps my employees around," she said. For Kaufman, the increases mean he can't afford to pay the full premium for all his employees, or cover dependents for anybody. But he said he'll raise the price of his bread before dropping the coverage.

When his chief baker, a friend and valuable employee, had a tumor on his spine recently, it was quickly detected and removed, with no hassles and no lasting effects.

"If he'd been paying for it (medical care) himself, how long would it have gone unattended and what would it have developed into?" Kaufman said.

If his workers were uninsured, he added, "it would be hard for me to look at myself in the mirror."

Mom-and-pop stores

But many owners of small companies say they simply can't afford the luxury of health insurance, especially now. Local business leaders say the increases are particularly tough in San Diego County, where energy and gas prices are unusually high, as is the proportion of workers who are uninsured.

"This (price inflation) is going to further exacerbate a rather fragile system," said Bob Campbell, president of the North County Economic Development Council. "We can't handle much more."

In a survey by the San Diego chamber earlier this year, 84 percent of small businesses said their health insurance costs have gone up. The hikes were mostly between 5 percent and 10 percent. Only a few of the employers said they had passed on a higher share of the cost to their workers.

Another national survey last month found that one-third of workers in companies with fewer than 25 employees were uninsured. Most of their employers listed cost as the main reason they didn't offer insurance.

Most also were unaware that the cost of employee health coverage is tax-deductible, according to the Washington-based Employee Benefit Research Institute.

For next year, large insurance purchasers in California say their premiums are going up again, typically 10 percent for health maintenance organizations, or HMOs, and substantially more for the less-restrictive health plans called preferred provider organizations, or PPOs.

Changes in rates for the California Public Employees' Retirement System are telling because they often indicate changes across the nation. CalPERS, a purchasing alliance of the state and many local governments, negotiates health coverage for 1.1 million employees and retirees.

Its rates, on average, will rise 9.2 percent for HMOs next year, on top of a 9.7 percent increase this year. For PPOs, the rates are jumping 18.8 percent.

Gov. Gray Davis vetoed a bill that would have paid the full increase from state funds, so state employees will pay it themselves, barring a last-minute negotiating miracle. The employees' share varies by health plan, but is changing dramatically in almost all cases.

In Nemia Gubio's HMO, Kaiser Permanente, the monthly premium for family coverage is rising 10 percent, to $526. But the full $47 increase will come out of her paycheck, adding 175 percent to the $27 she has been paying.

Another major California insurance purchaser, the Pacific Business Group on Health, has negotiated an average 10.3 percent premium increase for its largest member companies for next year, on top of exactly the same increase this year and 8.1 percent last year.

The San Diego Unified School District will pay 8 percent and 12 percent more next year for its two HMOs. Facing similar increases, the county of San Diego has raised the co-payments some employees make and may raise employees' share of premiums next year, administrators said.

Going it alone

The self-employed and others buying individual insurance usually pay the highest rates, and their rates vary widely depending on their health histories. But the increases may not be as dramatic because insurers are afraid to scare off healthy customers who consider insurance expendable, said Deborah Chollet, senior fellow at Mathematica Policy Research in Washington, D.C.

Instead, insurers often camouflage increases in individual rates by reducing the benefits, she said.

Individual premiums have risen as much as 17 percent, on top of cutbacks in benefits, said Jeff Babcock, an insurance broker in Vista.

Wendy Hileman, a self-employed health and fitness trainer in La Mesa, researched buying health insurance this year for herself and her one employee, who are both healthy.

She said she would have had to pay about $400 a month.

"It was absolutely outrageous," Hileman said. "It was just going to be a fiasco." So her employee got another job with benefits and works for her part time.

Ledford, of the chamber's health committee, is a self-employed lobbyist who saw his own premium increase 20 percent this year. Still, he said, it's cheaper to insure his family through an individual policy than to get a small-business policy that also covers his one employee.

That employee has coverage through his wife's job, but Ledford wants to hire more help. "I'll have to go out there and tough it out (in the insurance market)," he said.

Many employers are searching for ways to avoid or counteract the upsurge in costs. Besides paying lower shares of the premiums or changing their coverage of dependents, some are getting more creative, said Ron Mason, an Irvine-based principal with Towers Perrin benefits consultants.

Some companies have started disease management programs through insurers, targeting the chronically ill 5 percent of employees who incur 50 percent of the health costs for many employers, Mason said.

Many small employers pool their insurance-buying power to save money. But a recent study by the California HealthCare Foundation concluded that "pooled purchasing alone cannot sustainably lower the cost of insurance enough to increase insurance provision among small firms."

And some large businesses and purchasing alliances have looked into contracting directly with groups of doctors and hospitals to avoid the middleman cost of health insurers. The idea hasn't caught on, alliance officials said, because someone has to administer the medical payments and the cost savings would apparently be small.

Largely because of health insurance costs, some companies have ceased to employ their workers and instead are leasing employees from companies that provide benefits, said Michelle Bergquist, senior consultant at the Small Business Development Center of North San Diego County.

"A lot of them are just choosing to go without (health insurance)," she said. "We see hundreds of businesses sacrifice that while they ramp up."

Karen Biggs, owner of Cookies by Design in Mission Valley, said she would like to offer health insurance "to attract more responsible people as employees," but can't afford the rising rates.

"It's fine and dandy to say you need healthy employees  and yes, you do  but you have to be able to pay the bills," she said.

Many employees have come to expect health insurance from their jobs.

At Bread & Cie, cafe manager Anna Yaqub said she couldn't work there if health insurance weren't provided. Besides having her own premium fully covered, she said the amount she pays to cover her husband and 10-month-old son is much lower than it would cost to buy separate coverage.

"It's paramount. I just can't imagine not having health insurance," Yaqub said. "It gives you a sense of loyalty to the company because you think, yes, the employer does care about me and my welfare."

http://www.uniontrib.com/news/business/20001008-0010_1n8insure.html

-- Carl Jenkins (Somewherepress@aol.com), October 09, 2000