Reading Eagle, Pennsylvania

The stock market downturn hammered people’s wallets in a variety of ways, but is it zapping income in the sensitive area of higher health care costs?

Predictably, insurance companies deny recouping lost investments through double-digit premium increases in 2002 and 2003.

But Douglas Heller of the Foundation for Taxpayer and Consumer Rights, or FTCR, a Santa Monica-based consumer watchdog group, said parallels between premium increases and insurers’ lost investments are indisputable.

“The role of the market has had a clear and direct effect on insurance premiums,” Heller said. “Analysis clearly shows that insurers became more aggressive in their investing during the bull market.”

Employer health care costs will soar 15 percent in 2003, according to a survey by Towers Perrin, Valhalla, N.Y. It would follow this year’s 12.7 percent increase, the largest year-to-year increase in medical-insurance premiums since 1990, according to the survey.

Large employers such as UGI Utilities Inc. and Verizon Communications Inc. dismiss links between health care increases and insurers’ investment losses.

Deborah R. Leuffen, UGI spokeswoman, said increases in prescription-drug costs and medical-malpractice insurance will push employee health care costs up around 14 percent next year.

Reading Hospital and St. Joseph Medical Center have differing views on the stock market’s influence on insurance premiums.

Though St. Joseph Medical Center expects a $ 1.5 million increase in health care costs in 2003, Michael B. Jupina, hospital spokesman, discounted the market’s responsibility.

“Higher premiums are related to rising medical costs and prior clams adjustments — a method used to adjust premiums due to greater-than-expected claims from the previous year,” Jupina said.

Charles Sullivan, president and chief executive of Reading Hospital, said it is unrealistic to think insurance premiums aren’t affected by the market.

“Health care costs are not immune to the investment revenues lost in the stock market,” Sullivan said. “Some increased premiums are related to the stock market.”

But despite being self-insured, Reading Hospital’s health care costs increased 16.5 percent in 2002, up about $ 3.2 million. Sullivan attributed several causes for the increases, including artificially low premiums in the 1990s due to health-maintenance organization price wars.

Richard H. Burd, an actuary and vice president of the Benecon Group in Leola, Lancaster County, said the soft market had little impact on the insurance industry’s tremendous bottom line.

“Insurance companies typically invest heavily in bonds and only about 10 percent in the market, ” Burd said.

Heller, who monitors the property and casualty-insurance industry for FTCR, said corporate bonds aren’t as safe as they once were.

Top insurers since 1998 have hiked investments in stocks and corporate bonds to 57 percent from 48 percent in devastated companies such as Enron Corp., WorldCom, Tyco International, Global Crossing, Qwest Communications and Adelphia Communications.

But Burd agreed with Sullivan that health care costs have been artificially low through the 1990s and that a correction is in place.

During the bull market, insurers covered higher costs through investment gains and employers absorbed most premium increases, he said.

“But because of the economic downturn, the work force isn’t competitive enough to compel employers to absorb increased health care costs,” Burd said.

The job market among highly sought-after medical professionals bolsters Burd’s assertion.

Nearly 80 percent of employers say they’ll increase workers’ health care contributions next year, according to a study commissioned by Henry J. Kaiser Family Foundation.

St. Joseph senior management suggested the hospital absorb its 19 percent increase, which was approved by the finance committee of the hospital board, Jupina said.

“Because of retention and recruitment issues, we’ve absorbed the increases,” Jupina said. “It is a bold decision but it’s something you have to do to stay competitive and retain highly specialized employees.”