In another sign of the breakdown of traditional, all inclusive employer paid health insurance, the (Santa Rosa) Press Democrat reports today that the now common 75-25 percent employer/employee premium cost share is morphing into a straight split. “Often we see companies cutting their contributions down to as low as 50-50,” David Hodges, a Santa Rosa insurance broker, told the newspaper.
Marian Mulkey, director of health reform and public programs at the California HealthCare Foundation, is quoted, pointing to a rapid rise in health care costs and utilization that have ratcheted up premiums 117 percent in California over the past eight years. “We use more services and we pay more for what we use,” Mulkey noted.
The large group health insurance market is rearranging itself along the lines of medical utilization with those using more medical services opting for managed care HMO plans and those using fewer services opting for lower cost, high deductible PPO and POS plans. Premium rates are adjusting to this higher utilization, with HMO members expected to see a 9.8 percent bump in 2011, the highest rate increase since 2006’s 10 percent hike, according to a report issued this week by Aon Hewitt.
Since HMOs provide richer benefits but at a higher cost, they are preferred by employees who use health care more often and need coverage that is more robust. “Having a higher mix of these plan participants in HMO plans raises the risk pool, which can drive costs higher,” Aon Hewitt notes. In other words, adverse selection. Once the trend of adverse selection becomes entrenched, the risk pool enters a death spiral of fewer insureds to share costs, requiring big premium increases that speed depopulation of the pool.
Large employers are apparently already feeling those higher prices — and it could ultimately lead to contraction of the large group HMO market, Aon Hewitt warns. “Employers continue to be successful in reducing HMO rate increases by a few percentage points through aggressive negotiations with health plans, changes in plan designs and employee cost sharing,” said Jeff Smith, a principal and leader of Aon Hewitt’s HMO rate analysis project. “Still, these increases have been very difficult for employers to absorb, particularly this year when many companies are focused on economic recovery and complying with health care reform. If HMO rates continue to outpace average health care cost increases, employers may elect to take even more aggressive steps in the coming years, such as eliminating HMO plans altogether.”
This looks like yet another sign of the end of the rich, all inclusive employer provided health coverage of recent decades and a revival of major medical coverage for hospitalizations and other high cost services and not routine or minor ones.