Aging populace, advancing technology fuel higher health insurance prices

Line up the defibrillators: It’s renewal season for employer health insurance.

And it’ll take a pretty big jolt to shock HR managers back into coherence after they get this year’s bill.

Marylou Dalton, director of human resources for Reno-based sandwich franchise Port of Subs, says her company’s premiums will jump 33 percent in 2012, despite steep new deductibles.

Sandra Allan, benefits manager with GLB Insurance Group of Nevada in Las Vegas, says clients are seeing average premium jumps of 20 percent, with some quotes coming in 40 percent to 50 percent higher than 2010’s premiums, also despite stingier coverage.

Premium spikes aren’t new. Health-insurance costs have outpaced inflation for more than a decade. But why?

No, it’s not greedy insurance company profits: Figures from trade group America’s Health Insurance Plans show that profits make up just 3 percent of your premium, while the cost of health care makes up roughly 85 percent.

And it’s not President Barack Obama’s health care plan, either. Insurance costs were rising long before the Patient Protection and Affordable Care Act passed in 2010, and many of its provisions won’t kick in until 2014.

Rather, costs are spiraling because of factors impossible to control, from an aging population to improving technology. With no end in sight to the premium hikes, employers and insurers are curbing their costs in the one area they can easily dictate: The share you pay. Understanding how different your coverage might look in coming years requires understanding what’s driving health-care costs, and why the industry can do so little about it.

BECAUSE WE CAN AFFORD IT

Health care costs are rising faster than inflation partly because we can afford it.

A 2007 study on health costs from the Henry J. Kaiser Family Foundation, a health-care think tank, pointed out that wealthier countries spend more on health care technologies. They constantly develop goods and services to match new knowledge about human health and disease. New medical technology may account for 50 percent or more of real long-term growth in U.S. health-care spending, the Kaiser report said. From lasers that destroy brain tumors with nary a surgical cut to pill-cams that photograph the previously unreachable small intestine, technology is more advanced — and more expensive — than ever.

But it’s not just more pricey treatment. How we consume health care plays a role in our premiums. We use more health care than ever — and pay less out of pocket than ever, too.

The population is aging, and older folks consume more health care than younger people. Plus, high rates of obesity and tobacco use have increased lifestyle-related diseases, pushing up health-care demand and prices. The number of conditions and procedures insurance covers has risen, too, with more than 50 mandates in Nevada alone.

But consumers pay pennies on the dollar for all that care. The Kaiser report noted that consumers paid just 15 percent of their health costs — or 15 cents for every $1 — out of pocket in 2005. That was down from 40 percent in 1970.

A March report in Investors Business Daily put the number at 12 cents for every dollar, and applied the same cost model to groceries. If you paid $1.50 for a $10 porterhouse steak at the meat counter, and a third party picked up the rest of the tab, how often would you eat porterhouse? When consumers pay so little of their health-care costs, there’s not much incentive to shop around or skip unnecessary treatments. There’s also little motivation for providers to price care competitively, because they’re not bound by what the average consumer can afford. They’re limited only by what the insurer will pay for.

Finally, cost-shifting drives up premiums. Medicaid paid just 87.1 percent of hospital costs program patients incurred in 2005, according to America’s Health Insurance Plans. Throw in unpaid bills from the 18 percent who are uninsured, and providers increasingly charge private insurers more to cover the difference. Insurers in turn pass on some of those costs through higher premiums.

In Nevada, some of those issues loom larger, with a few market-specific factors added in, said Larry Hurst, director of government relations at Anthem Blue Cross and Blue Shield in Las Vegas and a professor of health policy at the University of Nevada, Las Vegas.

The Silver State is a senior magnet. Its number of residents older than 62 jumped 54 percent from 2000 to 2010. The number of residents 85 and older spiked 78 percent. Overall population grew just 35 percent. The state’s median age went from 35 to 36.3 in the decade.

Plus, Nevada’s share of obese citizens jumped 90 percent from 1996 to 2011, according to the Robert Wood Johnson Foundation. The state also has the seventh-highest smoking rate and the second-highest smoking-mortality rate in the country, according to the Centers for Disease Control and Prevention. More than 22 percent of Nevadans smoke, compared with 18.4 percent nationwide.

What’s more, Las Vegas is an island. If you don’t like costs or care here, you can’t just drive an hour for a better deal in a different city, Hurst noted. And in the sustained downturn, with reduced hours and slumping sales, healthy people are dropping insurance while consumers with chronic illnesses cling to coverage. That higher-risk pool pushes up costs here, as well.

Group rates for Anthem’s 250,000 Nevada customers are rising 6 percent to 14 percent this year.

PLAN TO PAY MORE

The trends driving up insurance premiums aren’t going away. Nearly 80 million baby boomers mean the nation’s population will keep aging. Technologies continue to advance; personalized medicine is on the horizon, with researchers working on treatments targeted toward individual genetic makeups. And the obesity rate is rising.

Absent moves to stop treating seniors, quit inventing new technologies, force people to buy gym memberships and ban Coke and Twinkies, employers and insurers are controlling what they can — the amount you pay for your care. Expect to shell out more in coming years. Those days of paying 12 cents for every $1 of care? Going, going, gone.

The $500 deductible that prevailed a few years ago is almost nonexistent, Allan said. Average deductibles now run $2,500, and will likely go higher, with businesses adding health savings accounts to help employees sock away cash for the higher expense.

Hurst said employers are also choosing plans with higher co-pays for office visits and more coinsurance, or patient costs, on hospital visits. Some are dropping coverage altogether.

At Port of Subs, the company kept its premium jump at 33 percent by quadrupling one of its plan deductibles, though the company will help employees cover the expense. Keeping the deductible lower would have priced some workers out of insurance altogether, Dalton said.

Also, few companies pay 100 percent of premiums anymore, with most now asking workers to chip in half.

That’s the case at Expansion Specialties, a Las Vegas construction company. A year ago the company went from paying all of premiums for its 10 or so workers to splitting the cost, 50-50.

Office manager Kathy Pinkerton suddenly had a premium expense of $400 a month. Pinkerton handled the expense for a few months, but the lack of business forced Expansion Specialties to reduce workers to part-time. Pinkerton dropped the pricey coverage and turned to the individual market, where she bought a $186-a-month plan covering just accidents or catastrophic events. In July, she let that coverage lapse, as well.

Employers may have even tougher decisions to make after 2014, when the Patient Protection and Affordable Care Act kicks in. Justin Micatrotto, chairman of the board of the Nevada Restaurant Association, said adding mandates to already expensive insurance will force companies to choose between costly coverage or simply paying a smaller federal fine and letting workers go it alone on public insurance exchanges, especially if health-care costs keep businesses from hiring or expanding.

"Businesses take pride in knowing their employees and in having benefits that help them, but at a certain point, if they do the math, it may make more sense for them to have their employees go on an insurance exchange," he said. "Will it make sense to pay a fine (for not offering insurance), or will it make more sense to hire someone who has to dedicate their entire job to planning health coverage? It’s a balancing act."

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.

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