Health insurance costs are expected to increase again in 2007, although not by as much as in some recent years, local health insurance brokers say. Still, as health care costs continue to escalate, more businesses are asking their employees to shoulder a greater share of their health insurance costs. Many firms are creating health benefits packages with high deductibles, often combined with a health savings account (HSA) or a health reimbursement arrangement (HRA). That trend is also expected to continue in 2007, health insurance brokers say.
Some insurance brokers say that if the private sector does not solve the problem of rising health care costs in the marketplace, then the public will demand a government solution. Now that Democrats have taken control of Congress, it may not be long before the federal government tries again to fix the system.
Already, Wisconsin Gov. Jim Doyle and some members of the state Legislature are working on proposals that they say would reduce health insurance costs for businesses in the state.
“If we keep going on the path we are going, we could be again looking at some type of government reform,” said Riley Enright, assistant vice president of large accounts for Waukesha-based R&R Insurance Services Inc. “I am more than a little bit concerned about our industry in the next few years.”
The insurance industry is encouraging businesses to go with high-deductible plans and lower premiums, said Jim Mueller, president of Brookfield-based Frank F. Haack & Associates Inc.
“The insurers are promoting high-deductible plans because they see the affordability issue being such a hot topic for employers and employees,” he said. “That brings in less premium. It makes no sense, unless you dig a little deeper. They think, ‘If we don’t solve the affordability issue, the country might look for government intervention.’ It is self-serving. They want to keep more people in the system.”
Jim McCormack, chairman of Waukesha-based Diversified Insurance Services Inc., said the nation’s health care system is so troubled that he supports a government solution.
“There’s only one possible solution, to have the government take it over,” McCormack said. “Someone has to stop the insanity. Stop the insane building (of hospitals and clinics) that is going on.”
However, many are still skeptical that the government could provide a quality and affordable health care system.
“I’ve never seen a government program succeed, never. Show me one,” said Daniel Burkwald, president of Pewaukee-based Burkwald & Associates Inc. “At the end of the day, that’s not a solution. Insurance premiums don’t drive up health care costs, health care costs drive up insurance premiums. It’s absolute buffoonery to think the government can do a better job.”
McCormack concedes that a government-run system would offer lower-quality health care than the current system.
“We’re all driving Rolls-Royces,” he said. “We can’t afford to all drive Rolls-Royces.”
However, others say a better way to lower health care costs is to put more information and responsibility into the hands of health care consumers so they can put pressure on providers to lower costs.
“For the first time, I believe health insurance is a consumer good,” Enright said. “Now (consumers) have to decide and make an educated, adult decision about what they are going to do. People are going to think of government intervention as a panacea. We may all have health insurance, but it may not look like it does now.”
In the meantime, local health insurance brokers say health benefits costs for businesses are increasing by about 10 percent annually, which is an improvement compared with the 15- to 20-percent increases that hit many businesses in the area in 2004 and 2005.
The addition of a new health insurance carrier, Trilogy Health Insurance, to the metro Milwaukee area this year could help keep price increases under control in the region. Former UnitedHealthcare executives William Felsing, Jim Enright, Glenn Reinhardt, Gary Hovila and Mike Flock are creating Trilogy.
A big reason that the size of the health insurance price increases expected for 2007 is smaller than increases in 2004 and 2005 is that more employers are redesigning their health benefits plans, shifting more of the costs to employees with high-deductible plans, usually combined with an HSA or HRA.
“We’re doing a lot of high-deductible plans,” said John Cyganiak Jr., an agent with Brookfield-based Cyganiak Planning Inc.
HSAs are individual accounts owned by employees. Employees can put their own money into a tax-deductible HSA, and the employer can also contribute to the HSA. The money in an HSA can be used by employees to pay for qualified medical expenses, including their deductibles, prescription drugs and dental care.
With an HRA, a business can use a high-deductible to save money on premiums, but then reimburse employees for medical expenses on a tax-free basis. For example, some employers that have added an HRA have doubled the deductibles for their employees, but then reimburse half of the higher deductible. In that scenario, the deductible cost for the employee remains the same, but the higher deductible allows the employer to get a much lower premium. Employers can take the savings from the lower premiums and use the money for the reimbursements to their employees in an HRA. If employees do not use the entire deductible, then employers do not have to pay the reimbursement.
The HSA is designed to create a tax-free way for employees to save money for health care expenses, including those higher deductibles.
“The employee can take the money they save on the premiums and put it into their HSA for future health care expenses so they can pay those high deductibles when they have to,” Cyganiak said.
However, critics of HSAs say some workers are not disciplined enough and cannot afford to contribute money into an HSA account.
“Some people are poor savers,” said Christopher Kramer, sales manager for Hartland-based Diversified Benefit Services. “Switching to an HSA plan may lower the premium paid for health insurance on employees’ paychecks, but, like retirement plans, if they don’t save a little, they’ll be in for an unpleasant surprise down the road.”
However, many middle- and lower-income people do not have enough money to pay into an HSA, much less a deductible of thousands of dollars when hospitalization is needed, prompting critics to say that the plans are for the “healthy and wealthy.”
“HSAs are shifting a tremendous responsibility to their employees,” McCormack said. “Many of those employees don’t have the wherewithal to cover it. What do you do when you are a foundry worker making $15 to $16 an hour and you get a $4,000 medical billω I’m just curious how people with middle incomes are going to pay for it when the bills come.”
As more employees are unable to pay for their high deductibles, health care providers will see an increase in their bad debt – medical bills that are never paid – some brokers say. The health care providers absorb those losses, which are ultimately passed on to the costs of care for patients who have insurance.
“(Health care providers) are going to be getting more and more people in collection,” McCormack said.
Health care providers are becoming concerned about high-deductible plans resulting in more patients who can’t pay their medical bills, Mueller said.
However, high deductible plans have discouraged frivolous emergency room and doctor’s office visits, Mueller said. That decline in utilization is helping to slow the increase in health care costs in the area, he said.
“Utilization has slowed somewhat,” Mueller said. “People who have a $2,000 deductible are now taking Tylenol or some other over-the-counter medicine instead of running to the doctor to kill the common cold a day early.”
Businesses with high-deductible health insurance plans are foolish if they do not combine those plans with a wellness program, Mueller said.
“Just putting in a high-deductible plan is at best a partial answer,” Mueller said.
The best wellness plans use incentives to encourage people to improve their health, Burkwald said. Employees need to be educated so they understand that they have to take part in the process to keep health care costs down, he said.
President George W. Bush recently signed the Tax Relief and Health Care Act of 2006 into law, which contained legislation co-authored by U.S. Rep. Paul Ryan (R-Wis.) to expand opportunities for employees and employers to contribute to HSAs. The new law includes provisions that: repeal the annual deduction limitation on HSA contributions; allow employers to contribute more to the HSAs of lower-paid employees; allows the funds to be transferred from IRAs to HSAs; and allow employees to fund HSAs with flexible spending account and HRA funds.
Mueller defends the use of HSAs.
“They just make real solid sense,” Mueller said. “It’s a savings vehicle, much like flexible spending accounts, which were new in the 80s and are now commonplace. There is no better vehicle to have money in than the HSA. There is no other vehicle that you can put money in tax-free and take it out tax free. (HSAs) should be the No. 1 thing you fund before anything else. We all know we are going to have future health care costs.”
