CEO SUMMARY: Health insurance costs are climbing again for the nation’s employers. Premium increases for 1999 average in excess of 10%. After losing money in 1997 and 1998, managed care companies are serving stiff premium increases to their customers. For clinical laboratories, the impact of these national trends are too soon to predict. But there is no expectation of increased reimbursement for laboratory testing.
HEALTH INSURANCE PREMIUMS for 1999 are again spiraling upward. Benefits consultants report hefty premium increases for all categories of employers.
“Thirty days ago, the average increase already was 14% to 15%, and just since then, the average has moved into the high teens,” observed James Mueller, President of Frank Haack & Associates, a health insurance broker based in Milwaukee. “It’s not uncommon for smaller employers to now see increases of 30% to 50%.”
A recent survey of Fortune 500 companies by BT Alexander Brown determined that benefits managers expect to see an average increase of 10.3% in HMO healthcare premiums for 1999. This contrasts with an average increase of 5.9% for 1998.
Experts say that HMOs are aggressively raising premiums in response to their huge losses at the end of 1997 and into 1998. Another factor supporting aggressive premium increases is that, unlike past years, managed care companies stopped slashing prices to employers as a strategy to build market share.
Clinical laboratory executives know that insurance premium increases have been minimal during the years 1994 through 1997. This was the result of employers shifting significant numbers of their employees away from indemnity insurance plans and onto managed healthcare plans. Currently 85% of Americans are enrolled in some type of managed care health plan.
During these years, as employers moved their employees into closed panel-HMOs and similar types of plans, the HMOs themselves shrank the reimbursement they offered providers, including hospitals, physicians, and clinical laboratories. This dual trend allowed HMOs to report record profits, at least until the end of 1997.
So it is not surprising that managed care plans are pushing double digit premium increases onto employers for 1999. Given the economic squeeze facing HMOs, predictions are that stiff premium increases are expected in the years following 1999 as well.
HCFA’s Annual Report
At the same time that the managed care industry is pushing premium prices upward, the Health Care Financing Administration (HCFA) released its annual report on national healthcare costs.
HCFA disclosed that healthcare spending was relatively stable in 1997, with the national bill growing by less than 5% for the third consecutive year. This is the smallest increase since 1960, when the government began keeping these statistics.
Medicare expenditures grew by 4.8% in 1997, staying in line with 1995 and 1996, which increased 4.9% and 4.9%, respectively. Total private healthcare spending rose by only 3.2% in 1997.
In the private sector, hospital care spending increased just 2.9% in 1997. Physician expenditures grew only 4.4%, maintaining a single-digit streak extending back to 1992. Home healthcare agency expenses increased by 3.7%.
Big Pharmaceutical Increase
According to HCFA, the only category that increased by double digits was pharmaceuticals, which climbed 14.1% in 1997 (and 13.2% in 1996). This is attributed to consumer advertising and the introduction of a number of new high-priced drugs.
From the perspective of THE DARK REPORT, these numbers paint a contradictory picture. If spending with health- care providers, such as hospitals and physicians, increased by less than 3% during 1997, why do managed care companies need to raise premiums by 10% or more for 1999?
It is our opinion that managed care companies, taken as a collective industry, are not yet capable of adding value to the clinical and operational aspects of healthcare. Quite the opposite, these companies tend to suck funds out of the healthcare system to feed their bureaucracies and stockholders.
Charles Peck, M.D., Director of Physician and Managed Care Services for Arthur Anderson & Co. in Atlanta, says the same thing in a different way. “They got the easy piece under control by getting [hospital] bed days cut in half. Now comes the really hard work: redesigning the way we deliver healthcare, preventing illnesses, changing bad habits.”
THE DARK REPORT recommends that laboratory executives and pathologists think critically about the dichotomy between managed care premium increases for 1999 and the reported changes to the healthcare producer price index in recent years. The disconnect between the two demonstrates the failure of managed care to tangibly deliver its promise of improved healthcare at reduced cost.
But lab executives and pathologists should go beyond that analysis. This dichotomy points to the greatest business opportunity available: using laboratory and pathology data to improve clinical outcomes while reducing cost of care.
Managed care companies desperately need the added value that clinical laboratories and pathologists are capable of providing. As THE DARK REPORT has consistently demonstrated, those labs and pathology practices which create diagnostic services with recognized value usually get paid a lot more money for those services.