Grappling with rising premiums
The decision comes after Olsen, co-owner of Spark Creative, an advertising agency in Avon, got socked with a 37 percent increase in premiums for his 10 employees’ health insurance. Olsen, who pays Humana, the largest small group insurance carrier in the valley, $40,000 a year in premiums, says he considered two options:- Cut vision and dental coverage.- Share the increase with the employees and ask them to forego salary raises this year.He opted for the latter, which still means he’ll be paying an additional $12,000 a year for the premiums’ increase.”We have to do a lot of work to pay for the insurance,” he says. “Instead of giving our employees a raise, we’re giving them health insurance.”Spark Creative’s situation is one that many Colorado business owners have been facing in recent years. A report issued by the Colorado Division of Insurance last week says 4,680 Colorado companies eliminated health insurance coverage during 2001. Between 2000 and 2001, 81,845 employees in Colorado left the small market group – one to 50 employees – a decline of more than 15 percent.”If you’re starting a company now, I don’t know how you can provide insurance to your employees,” Olsen says. “In eight years in business, we’ve raised our fees less than 25 percent. Our health insurance premiums went up more than that in one year.”Marci Tribelhorn, a health insurance agent in Avon, says all of the health insurance companies she works with are increasing their rates between 30 and 40 percent.”Some are up to 50 percent,” Tribelhorn says. “Small group employers can’t afford it anymore.”Mark Mathis, spokesman for Humana, says the premiums merely reflect the rapidly rising increase in the cost of health care.”Our margin of return is less than 3 percent. Our rates are set in accordance with the Colorado State Division of Insurance,” Mathis says. “One of the biggest factors for the steady rate increase is that Colorado regulations don’t allow health insurance companies to rate the small group market according to health status.”The small insurance group market in Colorado is in crisis,” he adds. “The state Legislature needs to do something about it. Thirty-seven states allow health insuracnce companies to vary the premiums according to health status.”Mathis says small employers see the premiums rising even when employees are healthy.”Healthy people leave the “group’ and go “individual’ because it’s cheaper, but they come back to the group system if they’re having health problems,” he says. “The pool of healthy people is paying for the sicker ones.”Why the increases?Factors Humana uses to explain the increase in rates include:- Doctor and hospital costs – Fees charged by doctors and hospitals during recent years have increased annually by as much as 20 percent, according to health care industry studies.- Prescription drug costs – According to industry studies, prescription drug trends are increasing at 20 to 25 percent a year as a result of research, development and advertising.- New government rules and regulations – State and federal requirements often affect benefits.”Whenever you add mandated coverage, there will be additional costs, and that cost is passed to the consumer,” Mathis says.Local doctors and hospital officials, however, say they’re not the ones driving up the cost of health care.Sue O’Neill, chief financial officer of Colorado Mountain Medical, a group of 20 physicians in the valley, says her charges have never increased more than 4 percent in one year.”When I see these premium increases, I’m flabbergasted,” O’Neill says. “I don’t know what they’re talking about when they mention up to 20 percent. Those increases are not coming from us.”In the past four years, Vail Valley Medical Center’s fees have gone up between 3 and 5 percent, says Shaun Scanlan, the hospital’s chief financial officer.”We’re a nonprofit organization, and the board of directors challenges us to control our expenses,” he says.Other factors driving medical costs up, Scanlan adds, are an aging population, more complex technologies and patients demanding more services.Prescriptions increases, for example, are fueled by billions of dollars in direct consumer advertising, Mathis says.R&D vs. marketingThe Colorado Public Interest Research Group, or CoPIRG, reports that in the past five years prescription drug prices have increased at more than twice the rate of inflation, with Americans paying as much as six times more than Europeans for some.Although drug companies say research and development drives costs up every year, facts show that drug companies spend far more on marketing than they do on research and development, CoPIRG reports. New data even suggest research and development costs sustained by the pharmaceutical industry is almost five times lower than the industry claims, reports CoPIRG, with 33 percent of the drug industry’s spending going to advertising and 11 percent to research and development.”Almost everybody’s plan has a $20 difference between generic and brand drugs,” O’Neill says. “I think most of the consumers use generic. Everybody’s trying to save.”Drug companies also block other companies from producing the drugs more cheaply, CoPIRG reports.Employer spending on prescription drugs, meanwhile, grew 123 percent between 1992 and 1997, from $18 billion to $40 billion. As a result, some employers can’t afford health plans with drug coverage.To reduce the cost for drugs, CoPIRG advocates the creation of a State Buying Pool that would allow individuals and small business owners to buy prescription medication at lower, wholesale prices.Deductibles woesStill, to provide health insurance to his employees, Olsen says he had to go with a $1,000 deductible and a $40 co-payment.”High deductibles are a double-edge sword,” O’Neill says. “People stop coming in for annual exams because of the high deductibles. And this can cost the health care industry more in the long run. Melanoma is a classic. You don’t want to wait till it’s late.”Mathis says the definition of insurance is to protect yourself from risk. “Our plans include some preventive procedures,” he says. “But it’s like expecting car insurance to cover a tune-up.”To control soaring premiums, Tribelhorn recommends shopping around. “There are more choices now. There are a variety of plans in different price ranges,” she says. “Of course, the cheaper you go, the less benefits, but some people prefer that.”O’Neill says Colorado Mountain Medical has about 2,000 health care options loaded in its computer system.Back at Spark Creative, meanwhile, Ellen Feigin, a designer, will have to add an extra $60 a month to the $160 she already pays for her family’s health insurance. She says she’s willing to share the increase.”From the employee’s standpoint you have to understand,” she says. “What we pay is just a fraction of what the premium costs. Health insurance cost is out of control.”Veronica Whitney can be reached at (970) 949-0555 ext. 454 or at firstname.lastname@example.org.