Healthcare premiums to leap again
Rates could increase ranks of uninsured
Most Massachusetts companies and their workers will get hit with increases in their health insurance premiums of 10 percent or more beginning next year, according to the state's largest insurers.
Insurance companies and many employers are already negotiating rates and coverage for 2006. Insurers and industry consultants say employers may end up absorbing a bigger share of premium increases. Many companies will also opt for health plans in which workers have to pay higher-out-of-pocket costs to keep premiums down.
The double-digit increase -- coming on top of five consecutive years in which premiums increased by at least 10 percent -- are expected to lead to a greater number of uninsured people in the state as more companies and workers find coverage too costly.
''As prices go up, some at the margin won't be able to afford to cover their families," said Michael Doonan, executive director of the Massachusetts Health Policy Forum, a nonpartisan research group. That will drive more people to Medicaid, the federal program administered by states for low-income individuals, Doonan said.
Insurers blamed the continued steep rise of health premiums on increasing hospital costs, rising prescription drug expenses, and an aging population.
''Baby boomers are a very demanding group," said Vincent Capozzi, senior vice president of sales and marketing at Harvard Pilgrim in Wellesley. ''They're all in their late 40s to early 60s, and their use of the healthcare system is at a high level."
But the rate of increases is slowing, noted Capozzi and other insurance executives. Harvard Pilgrim Health Care, the state's second-largest insurer with about 885,000 members, predicted typical increases of 7 to 13 percent in 2006, compared to the 8 to 14 percent that rates went up this year.
Since 1999, the average total annual cost of health insurance for an employee in the Boston area nearly doubled, to $7,999 in 2005 from $4,144, according to a study conducted by Hewitt Associates, a human resources and consulting firm in Lincolnshire, Ill.
''The projected increases will hit employees in two ways," said Susan Connolly, worldwide partner and consultant specializing in health care benefits for Mercer Human Resource Consulting in Boston. ''Employers are likely to increase cost sharing by adding higher deductibles and increasing copays. At the same time, employees are likely to pay more out of their paycheck to cover a higher insurance premium."
Insurers have tried to control costs through aggressive management of patients with chronic diseases, and plans that require consumers to pay a greater share of costs.
Blue Cross and Blue Shield of Massachusetts, the state's largest health insurance provider with 2.75 million members, said it expects to raise premiums 10 to 14 percent for employers with more than 50 workers.
Benefit buy-downs -- a strategy in which an employer eliminates some types of coverage to reduce premiums or passes more costs to employees by increasing co-payments -- will reduce the effective increases to 8.5 to 12.5 percent.
For employers with fewer than 50 employees, buy-downs will result in average increases of 8.5 to 10.5 percent.
Tufts Health Plan, the smallest of the big three with about 680,000 members, will raise rates an average of 10 to 12 percent, according to Rob Egan, vice president of marketing. This year, premiums typically increased 13 to 15 percent, he said.
Some lower-income employees whose health insurance premiums are subsidized by a state program could also be hit with higher out-of-pocket expenses. The Insurance Partnership, part of the MassHealth Medicaid program, pays 50 percent of premiums for workers earning $19,140 -- twice the federal poverty level. But premiums are now on the verge of exceeding the program's $150-a-month cap.
When the cap is reached, ''the person or the company will have to absorb the difference," said Dave Ten Eyck, vice president of marketing for the Insurance Partnership. ''These are people that are having a hard time. They can't afford it."
Governor Mitt Romney recently proposed a series of health insurance changes that would encourage employers to offer more plans and introduce penalties such as lost wages or the elimination of tax benefits to persuade low-income individuals to enroll.
Massachusetts residents continue to pay higher healthcare premiums than people in other parts of the country.
The Hewitt survey showed that this year the average annual healthcare cost per employee is $7,999, compared to $7,542 nationwide. That is because the state's teaching hospitals and specialists provide more choices for consumers than other areas, said Stuart Altman, professor of national health policy at the Heller School at Brandeis University.
''Our costs are in line with the rest of the country, but we're a very rich healthcare system because of the mix of services we get," he said.
Stephen R. Booma, Blue Cross's executive vice president of sales, marketing and service, said insurance company costs are tied to an increasing demand for such services. At the same time, he said, hospitals want more money from insurers, partly to pay for sophisticated medical equipment.
''In Massachusetts, providers have increasing costs, and we think it's fair for them to be paid appropriately," Booma said. For instance, hospitals are purchasing high-tech imaging equipment, he said. Also, while programs aimed at managing the costs of patients with multiple medical conditions are being introduced, the savings often are not realized for a year or two, Booma said.
Ultimately, the continued sharp increases in health costs will mean lower take-home pay for most workers, according to Andre Mayer, senior vice president for research at Associated Industries of Massachusetts, a nonprofit advocacy group for employers.
''The overall costs of health benefits ultimately tend to come out of wages," said Mayer. ''Employees will tend to receive less in the long run in direct compensation from employers."
Jeffrey Krasner can be reached at krasner@globe.com. 