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Employers battle ever-rising cost of health care

The cost of health care remained a top concern for employers in 2003, which looked to save money by passing costs on to workers, lobbying the state Legislature and keeping an eye on programs that increase premiums.
/ Source: The Business Journals

The cost of health care remained a top concern for employers in 2003, which looked to save money by passing costs on to workers, lobbying the state Legislature and keeping an eye on programs that increase premiums.

Studies have shown that the cost of health insurance in Colorado is rising faster than in other parts of the country. Employers here indicated premiums rose about 18 percent this year, compared to 14 percent nationwide.

Nearly 60 percent of Colorado's small businesses saw their health insurance premiums increase more than 20 percent in 2003, according to a survey by the National Federation of Independent Business. It marks the fifth consecutive year that a majority of Colorado members in NFIB have had such a large increase.

"That has had an obvious effect on health benefit plan designs for employees," said Jim Hertel, editor of industry newsletter Colorado Managed Care, "and resulted in movement away from HMOs to more PPO and point-of-service type plans."

The number of people in health maintenance organizations (HMOs) in Colorado continued to fall this year, dropping by 338,000 members in 18 months.

From the end of 2001 through this June, Colorado HMOs lost 22 percent of their membership, according to Colorado Managed Care Review 2003. HMOs cover about 1.2 million Coloradans.

However, Colorado HMOs posted $93 million in profits in the first half of 2003, a number fueled in part by four straight years of double-digit premium increases.

The increasing popularity of preferred provider organizations, or PPOs, and the shift away from HMOs in government programs Medicare and Medicaid may be to blame for the drop in membership.

HMOs are the most restrictive form of health insurance because they limit members' choice of doctors and hospitals to those in the plans' network as a way of controlling costs.

In recent years, employers have favored giving workers more choice, even opting for new, so-called consumer-driven plans where employees tap an employer-sponsored health spending account for, say, the first $1,000 of care. When that is gone, they pay out of their own pockets for perhaps the next $500 worth of care. Then managed-care coverage may kick in.

Seeking legislative help

Employers also have looked to cut costs through legislative remedies.

House Bill 1164, passed by the state Legislature last session, allows insurers for the first time to charge healthy groups up to 15 percent less for their health insurance. Unhealthy groups -- those with more medical claims -- will pay up to 10 percent more, but not for another year. The practice is called risk rating.

HB 1164 was passed to help stabilize the premiums in the small-group market, which includes business with 50 and fewer employees. Health insurance policies for groups that size are regulated by the state.

In March, the Colorado Division of Insurance reported that about 413,000 people are covered in small groups, the lowest figure since the division started tracking and reporting small-group activity in 1996.

"The move to risk rating fundamentally changes the way insurers do business and that will mean a friendlier environment for insurers but ... a more difficult environment for small employers," said Denver insurance broker Bill Lindsay. "A small employer who has an older work force is probably going to see their rates go up pretty considerably because older people are typically less healthy than younger folks."

However, in March, Anthem Blue Cross and Blue Shield informed brokers that in May PPO rates would drop as much as 9 percent, and HMO premiums would decrease as much as 5 percent for new clients. The adjustment means compared to a year ago, small-business premiums are still higher, but increasing just 5 percent to 10 percent for PPOs and 11 percent to 14 percent for HMOs.

That is a big change from last year, when small employers saw Anthem's annual premiums increase an average 20 percent to 25 percent for PPOs and 22 percent to 26 percent for HMOs.

The state Legislature also changed Colorado's auto insurance system, a move criticized by some employers, doctors and hospitals, who say the new system is driving up health insurance premiums.

Gov. Bill Owens signed the bill authorizing the change to a tort system during the last legislative session, hoping to make auto insurance more affordable. Depend-ing on the level of coverage consumers buy, Colorado's premiums have been the 11th or 13th most expensive in the country, according to the National Association of Insurance Commissioners.

Under the state's old system, a person's own insurer paid medical bills regardless of who caused an accident, and in both systems, drivers can sue for "pain and suffering."

Discussions pitted auto insurers, health plans and business groups against trial lawyers and some health providers with a huge stake in how auto insurance claims are handled.

Businesses have a big stake in the issue because many people expect the new system to increase the cost of health insurance.

"It's a cost shift not only from the auto insurance to the health insurance, but it's also a cost shift from auto insurance to hospital and doctors that very well may be stuck with uncompensated care," said Carl Miller, government relations director for Anthem Blue Cross and Blue Shield. "Somebody has an accident, they don't have insurance, it's their fault -- there is nobody else involved to pay for it. ... Many of those cases will end up being uncompensated care."

With the new tort law, the insurance company of the person responsible for an accident pays for medical treatment. In cases where fault is disputed, the parties could resolve the matter in court. Drivers who cause an accident will rely on their own health insurance to pay for their injuries unless they have bought optional "medical payments" coverage.

A recent study by the Colorado Division of Insurance stated the average health insurance premium increase that is related to the elimination of no-fault auto insurance is 1.12 percent. A study by the National Association of Independent Insurers showed the cost of auto insurance in Colorado is between 14.7 percent and 27.2 percent less expensive than before the law change, depending on the coverage.

Medicaid issue looms large

Denver business leaders grew increasingly critical of Gov. Bill Owens this year for not developing a plan for reducing escalating Medicaid costs, which they say are driving up the cost of private insurance.

Colorado employers have a huge stake in the Medicaid issue. When the state covers fewer people or doesn't pay enough for care, doctors and hospitals increase charges to patients with insurance to make up the cost of caring for those groups.

That raises private insurance premiums, which are mostly paid by businesses.

Medicaid covers about 36 million people nationwide, including children, the blind, the disabled and people who are eligible to receive federal income assistance. In Colorado, that's about 345,000 people. The Medicaid budget is $2.8 billion, an amount shared by the state and federal government.

But the fixes aren't easy. The state's revenues are shrinking at a time when the rolls of the state's health plan for the poor are growing.

The Department of Health Care Policy and Financing, which manages the federally and state-funded program, is embroiled in several lawsuits with Medicaid HMOs that could cost it tens of millions of dollars.

The Denver Metro Chamber of Com-merce took steps this year to educate its membership and the public about the relationship between Medicaid and the business community through cost shifting. It has developed two white papers outlining options for improving quality and cutting costs.

This year also saw the first of four new hospitals in the Denver area open. HealthOne's Sky Ridge Medical Center in Lone Tree, which has 106 beds, opened Aug. 20.

By the end of next year, metro Denver will have four new hospitals and 451 more beds, including Sky Ridge. That number does not include The Children's Hospital in Denver, which is moving to the Fitzsimons campus in Aurora in 2007.

"It pre-stages a multiyear period of hospital growth for the metropolitan area," Hertel said. "The new hospitals are going to change the patient mix in downtown hospitals as they begin to capture more of the profitable commercial marketplace."