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Health Inflation Makes a Comeback

Insurance premiums rose 11 percent in 2004, survey found

Third of five stories

WEDNESDAY, Aug. 24, 2005 (HealthDayNews) -- After a period of moderation, health-care inflation is back. And once again, employers are scrambling for new ways to reduce the financial burden.

Premiums for employer-sponsored health insurance rose 11.2 percent in 2004, according to a survey by the Henry J. Kaiser Family Foundation and the Health Research and Educational Trust. That's down from 13.9 percent the previous year but still represents the fourth consecutive year of double-digit growth.

The latest increases follow a period of relatively modest growth that occurred in the mid-1990s, when managed care was popular. By instituting pre-authorization requirements and other cost-containment measures, employers were able to keep annual premium increases to single digits at the most.

By most accounts, managed care was effective in holding down costs.

"The problem is that the American people didn't like managed care," said Helen Darling, president of the National Business Group on Health, which represents many large, Fortune 500 employers.

Public resistance led to a backlash against restrictive managed care plans, such as HMOs, and the growth of loosely managed preferred provider organizations (PPOs). And with the ascendancy of PPOs, medical costs continued their upward spiral.

The latest approach to solving the nation's runaway health-care cost problem is called "consumer-directed health care," and it avoids the term "cost containment." Instead, the emphasis is on encouraging individual "ownership" and "control" of health benefits.

One consumer-directed option that is garnering greater interest combines a high-deductible health plan that covers some preventive care and catastrophic medical expenses with a tax-free health savings account (HSA). As with an individual retirement account, the money in an HSA belongs to the employee and may be used to pay for medical costs until that high deductible has been met. It gives consumers an incentive to spend more wisely than they would if the company were picking up the tab, advocates say.

"The savings from an HSA comes from people spending their own money as opposed to spending somebody else's," said Dan Perrin, president of the HSA Coalition and publisher of HSA Insider, a comprehensive source of HSA information.

Skeptics like Paul Ginsberg, president of the non-partisan Center for Studying Health System Change, don't see HSAs as a panacea.

"Whereas there is a lot of enthusiasm on the part of some health insurers ... about HSAs, I think very few people in the health-care system see this as a long-term fix," he said.

In the United States, roughly 10 percent of the population accounts for about 70 percent of all health-care spending. These people include the chronically ill and patients who suffer from multiple health conditions. In Ginsberg's view, few of these individuals are likely to choose high-deductible health plans, so the potential of HSAs to contain costs is limited.

"The people who use 70 percent of the care aren't going to be affected," he said.

But proponents like Perrin insist HSAs are the most promising tool on the horizon for controlling medical inflation. "No one knows how to control health-care prices, and this is the only thing that is working," he said.

More information

Learn more about rising health premiums by visiting the Henry J. Kaiser Family Foundation. To read the second article in this series, click here; to read the first article, click here.

SOURCES: Helen Darling, president, National Business Group on Health, Washington, D.C.; Paul Ginsberg, president, Center for Studying Health System Change, Washington, D.C.; Dan Perrin, president, HSA Coalition, and publisher, HSA Insider, Washington, D.C.; Henry J. Kaiser Family Foundation/Health Research and Educational Trust survey of employer-sponsored health benefits, 2004
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