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Health insurance costs rise sharply this year

Effect of new law on rates unclear

By Reed Abelson
New York Times / September 28, 2011

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NEW YORK - Major health insurance companies have been charging sharply higher premiums this year, outstripping any growth in workers’ wages and creating more uncertainty for the Obama administration and employers who are struggling to drive down an unrelenting rise in medical costs.

The average annual premium for family coverage through an employer reached $15,073 in 2011, an increase of 9 percent over the previous year, according to the Kaiser Family Foundation.

“The open question is whether that’s a one-time spike or the start of a period of higher increases,’’ said Drew Altman, the chief executive of the foundation, a nonprofit research group that annually tracks employer-sponsored health insurance.

The steep increase in rates is particularly unwelcome as the economy still sputters and unemployment hovers at about 9 percent. Many businesses cite the high cost of coverage as a factor in their decision not to hire, and health insurance has become increasingly unaffordable for more Americans. Overall, the cost of family coverage has about doubled since 2001, when premiums averaged $7,061, compared with a 34 percent gain in wages over the same period.

How much the new federal health care law pushed by President Obama is affecting rates remains a point of debate, with some analysts suggesting that insurers have raised prices in anticipation of rules that would, in 2012, require them to justify any increase of more than 10 percent.

In addition to increases caused by insurers getting ahead of potential costs, some of the law’s provisions already in effect - such as the coverage for adult children up to 26 years of age and such prevention services as mammogram screening - have contributed to higher expenses for some employers.

The Kaiser survey includes big and small companies using employer-sponsored coverage representing about 60 percent of all insured Americans of working age. The annual growth in premiums, according to the survey, had slowed in recent years to 5 percent, rising just 3 percent in 2010, in part due to the lingering effects of the recession.

The unexpected increase in premiums raises questions about whether health care costs are, in fact, stabilizing at all, as people have postponed going to the doctor or dentist and have put off expensive procedures.

“No one quite knows,’’ Altman said.

Throughout this year, major health insurers have defended higher premiums - and higher profits - saying that their expenses would rise once the economy recovered and people believed they could again afford medical care. The struggling economy will probably keep suppressing demand for medical care, particularly as people pay a larger share of their own medical bills through higher deductibles and co-payments, according to benefits consultants and others. About three-quarters of workers now pay part of the bill when they see a doctor, and nearly a third have a deductible of at least $1,000 if they have single coverage, up from a ratio of just 1 in 10 in 2006, according to Kaiser.

Although demand for care appears to be growing relatively slowly, insurers and benefits consultants say prices for medical care continue to climb as prescription drug makers and hospitals charge more.

“If they’re a popular brand or anchor hospital, they’re going to negotiate a significant increase if they can,’’ said Edward A. Kaplan, a benefits expert with the Segal Co., which recently surveyed insurers about medical costs.

The question for employers and insurers is whether the lackluster economy, as well as recent efforts by employer and insurers to better manage the medical care of workers, will keep premiums increasing at a more moderate level. Early responses to a survey by Mercer, a consulting firm, suggest employers are expecting the cost of providing health benefits to go up about 5 percent next year, according to Beth Umland, Mercer’s director of research for health and benefits. These companies may be factoring in the more pessimistic view of the economy, she said.

Employers are reporting that their workers are using less medical care, Umland said, but they and insurers have been slow to estimate costs that reflect the lower demand.

“It always takes a while for underwriting to catch up with reality,’’ she said.

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