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Health costs to rise again

Insurers to boost rates about 10%; Shift of expenses to workers likely

By Robert Weisman
Globe Staff / September 16, 2009

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The state’s major health insurers plan to raise premiums by about 10 percent next year, prompting many employers to reduce benefits and shift additional costs to workers.

Increases will range from 7 to 12 percent, capping a decade of consecutive double-digit premium increases, according to a Globe survey of the state’s top health insurers. Actual rates for 2010 will depend on the size of the employer and the type of coverage, with small businesses and individuals expected to be hit hardest. Overall, premiums are more than twice as high as they were 10 years ago.

The higher insurance costs undermine a key tenet of the state’s landmark health care law passed two years ago, as well as President Obama’s effort to overhaul health care. In addition to mandating insurance for most residents, the Massachusetts bill sought to rein in health care costs. With Washington looking to the Massachusetts experience, fears about higher costs have become a stumbling block to passing a national health care bill.

“It’s all about medical costs going up,’’ said Brian Pagliaro, senior vice president at Tufts Health Plan in Watertown, which predicts an average increase of 9.5 percent for 2010. “The dollar you’re paying now will be $1.09 for the same service next year.’’

Tufts has about 720,000 members in Massachusetts.

Insurers predicted many employers, perhaps a majority, will seek to trim costs by instituting “cost sharing,’’ which boosts copayments for doctor visits, or by offering less comprehensive coverage. That means the effective premium rate increases could fall more on employees than their companies.

If the H1N1 flu proves to be worse than expected this winter or the US government taxes insurers as part of health care overhaul, the state’s premium rates - already the nation’s steepest for family coverage - could rise by even more than 10 percent, insurers warned.

Health care professionals attribute the premium increases to several factors, including greater use of medical services by aging baby boomers and higher bills from doctors using more costly technology and prescribing more expensive drugs.

Some insurers say the Massachusetts law mandating coverage has added to the cost burdens on the health system. At least initially, they said, it encouraged newly enrolled members to flood the offices of primary care physicians and specialists to receive physicals and other exams.

A special state commission studying changes to the payment system has recommended insurers scrap their practice of paying doctors and hospitals fees for individual visits or procedures and instead offer a set amount to cover patients’ care for a year.

“Health insurance is increasingly unaffordable for average working people and for employers, especially small employers,’’ said Drew Altman, president of the Kaiser Family Foundation, a nonprofit research group in Menlo Park, Calif. “It underscores the need to reach a consensus on how to reform health care and provide some help for low- and moderate-income people who can’t pay their insurance bills.’’

The foundation yesterday released a national survey showing the cost of family health premiums reached $13,375 in 2009, up 5 percent nationally in a year when inflation fell by 1 percent.

Over the past decade, premiums surged 131 percent, more than three times the increase in worker wages, the survey said. Altman projected premiums would climb 5 to 7 percent across the country in 2010, less than the increase in Massachusetts.

Despite being dominated by not-for-profit health plans, Massachusetts had the highest family coverage premiums in the nation - an average of $13,788 - in 2008, the most recent year for which figures were available, according to the Kaiser foundation. That included employer contributions of $10,425 and $3,363 from employees.

A large portion of those costs can be traced to the Boston area, where world-class medical centers perform expensive operations that elsewhere are handled for less money at community hospitals. In an effort to stem the rate of increases, health insurers have begun to roll out “quality’’ plans that pay doctors or hospitals at fixed rates with incentives for favorable outcomes.

Blue Cross and Blue Shield of Massachusetts, the state’s largest health plan with 2.5 million members, predicted that its average premium rates will rise 10 to 11 percent before any employer “buydowns’’ - changes in coverage that push some of the added costs to employees. But for self-employed individuals and small businesses, which are pooled in the same market segment, premium rates could rise even more.

“State health care reform has had some unexpected results,’’ suggested Tim O’Brien, senior vice president at Blue Cross Blue Shield’s headquarters in Boston. “The actual costs have been much higher than what were anticipated when health care reform went into effect in 2007.’’

O’Brien said health insurers were looking for payment reform to “flatten the rate of increase’’ in coming years. “Double-digit rate increases are unsustainable for businesses,’’ he said.

At Harvard Pilgrim Health Care in Wellesley, which has more than 800,000 members in Massachusetts, executives forecast average premium increases of 6 to 11 percent before buydowns, about the same as last year’s increases. But there are two “wild cards’’ that could send premiums higher, said senior vice president Vin Capozzi.

“If the H1N1 flu strain were to mutate into something more serious, then we would all have an expense problem,’’ Capozzi said, referring to the swine flu. “And if the folks in Washington decide to tax us, we would have to pass on some of those costs.’’

Robert Weisman can be reached at weisman@globe.com.