BestWire
OLDWICK, N.J. — Recent studies on the effects of consolidation among health insurers are stoking renewed debate over the causes of rising health-care costs in the United States — and over how to solve the problem.
Neither the government nor the private market is doing anything to control costs to make health insurance affordable for the average American, said Mike Chapman, president of Benefits Boutique, a Dallas-based broker that serves the market for individuals and small groups, or employers with 100 employees or fewer.
Efforts instead are aimed at cutting benefits through high-deductible health insurance plans linked to health savings accounts, said Chapman, referring to consumer-driven health plans. Small businesses are paying anywhere from $300 to $500 per employee per month, which is unaffordable, he said.
The rising costs are attributed in part to the rising number of uninsured. Nearly 46 million people don’t have health insurance.
A report in January by PricewaterhouseCoopers estimated the overall increase in premiums between 2004 and 2005 was 8.8%, which the firm said was 36% lower than the 13.7% increase reported in 2002. About 86 cents of every premium dollar goes directly to paying for medical services such as hospital and physician care, medical devices and prescription drugs, PWC said.
The estimated increase in outpatient costs — 13.6% — contributed almost a quarter of overall premium increases in 2005. Physician, inpatient hospital, prescription drugs and other medical services contributed to the remainder of the premium increase fairly evenly, PWC said.
Meanwhile, a report released last month by the American Medical Association found a steep decline in competition in U.S. health insurance markets (BestWire, April 19, 2006). “The remarkable reduction in the number of competing health plans is troubling for doctors and patients, as competition drives innovation and efficiency in the health care system,” Dr. J. James Rohack, an AMA board member, said in a statement.
More than 400 mergers involving health plans and managed care organizations occurred between 1995 and 2005, the AMA reported.
The U.S. Government Accountability Office, in an October 2005 report, found that market share of the largest small-group carriers has increased since its 2002 report on the competitiveness of the small group-health market.
The GAO report found the median market share of the largest small-group carrier was about 43%, up from 33% reported in 2002. The combined market share of the five largest small-group carriers represented three-quarters or more of the market in 26 of 34 states, compared with 19 of 34 states reported in 2002. And the median market share of all the Blue Cross Blue Shield carriers in 24 reporting states was about 44%, up from 34% reported in 2002, GAO found.
There is no evidence that lack of competition among health plans is driving up health-care costs, said Susan Pisano, a spokeswoman for America’s Health Insurance Plans. “There is clearly choice,” she said.
James Kappel, a spokesman for WellPoint Inc. (NYSE:WLP), the nation’s largest health insurer based on membership, said every time WellPoint completed a merger, it has been able to reduce administrative expenses and grow membership in the newly acquired plan, “and that helps to keep health care more affordable for millions of consumers.”
Despite health plans’ historically high profit margins, premiums for patients keep rising without an expansion of benefits, Rohack said in his statement.
The Foundation for Taxpayer and Consumer Rights, a California-based group, contends that health insurers spend 20% of premiums on “overhead,” including profit and administration.
Brokers could do better at forcing publicly traded insurers to cut their retention, or slice of total premiums charged, said Edward Kaplan, national health practice leader for Segal Co., an employee benefits firm. He said the firm’s own guidelines are that at least 90 cents should go to paying claims and 10 cents or less should go to paying the health insurer’s salaries and bonuses, which he called administrative costs.
CEO salaries and health insurers’ profits aren’t the factors behind rising costs, said AHIP’s Pisano. Driving premium increases is the underlying cost of providing health care, she said, referring to the findings in the PricewaterhouseCoopers report.
One potential solution to rising costs is health savings accounts, backed by President Bush, which he maintains will make health care more affordable and accessible for everyone. HSAs allow contribution of pretax funds by individuals or their employers into tax-free accounts that may be used to pay qualified medical expenses. The accounts must be attached to so-called catastrophic coverage through compatible, high-deductible health plans.
Scott Wood, co-chief operating officer of Independence Holding Corp., which sells consumer-driven plans to small employers through subsidiaries Standard Security Life Insurance Company of New York and Madison National Life Insurance Co., said these plans eventually would rein in the unabated increase in health-care costs. However, “we have to recognize that it’s not the health plan design that is the end game, but the changes to the health-care delivery system that will come about because we engaged the consumer to take ownership of the cost,” Wood said.
Chapman is skeptical. “You are paying less because you are getting less coverage — but the next year, your rate increase is still 20%,” he said.
Employers with 1,000 or more employees are self-insured, said Kaplan. The factors behind high health costs — people’s behavior and lifestyle — are out of a health insurer’s control, he said. Until insurers can force an employer’s workers to stop eating junk food and choose a more healthful diet, controlling health costs will remain a big problem, Kaplan said.
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