Small Business Faces Sharp Rise in Costs of Health Care

By REED ABELSON - The New York Times - October 24, 2009
As Congress nears votes on legislation that would overhaul the health care system, many small businesses say they are facing the steepest rise in insurance premiums they have seen in recent years.

Insurance brokers and benefits consultants say their small business clients are seeing premiums go up an average of about 15 percent for the coming year — double the rate of last year’s increases. That would mean an annual premium that was $4,500 per employee in 2008 and $4,800 this year would rise to $5,500 in 2010.

The higher premiums at least partly reflect the inexorable rise of medical costs, which is forcing Medicare to raise premiums, too. Big employers are also seeing higher health insurance bills, but because they have more negotiating clout, their increases are generally not as steep.

Higher medical costs aside, some experts say they think the insurance industry, under pressure from Wall Street, is raising premiums to get ahead of any legislative changes that might reduce their profits.

The increases come at a politically fraught time for the insurers, as they try to fight off the creation of a government-run competitor and as they push their case that they have a central role to play in controlling the nation’s health care costs.

President Obama, in his Saturday radio address, said the Democrats’ health insurance overhaul would help small businesses and stimulate the economy by providing relief from “the crushing costs of health care — costs that have forced too many small businesses to cut benefits, shed jobs, or shut their doors for good.”

The insurance industry has already been under sharp attack by Democratic lawmakers who favor creating a government-run insurance plan that would compete with private insurers. Without that competition, proponents say, insurers will continue to price coverage beyond the reach of many Americans.

The House speaker, Nancy Pelosi of California, said the sharp rise in premiums for small businesses offered the latest evidence that Congress must act swiftly on health care legislation.

“This underlines the urgent need for health insurance reform, including a public option,” she said in an interview. “We need to have competition for the insurance companies to keep premiums down.”

Insurers vehemently oppose a government-run insurance plan. So do most Republicans, who traditionally portray themselves as champions of small business.

They, with the insurers, argue that the proposed legislation would raise premiums across the board because sick people would be more likely to enroll than healthy people. They also say the taxes and other ways of paying for the program would be passed on to employers and their workers in higher premiums.

The minority leader, Mitch McConnell, Republican of Kentucky, said in a response to the president’s radio address, “We can’t support a bill that will raise premiums.” The big insurance companies declined to comment.

With negotiations over next year’s premiums still under way between some small companies and insurers, data on rate increases are mostly anecdotal. Formal surveys have not yet been completed by the health benefits consultants who track the figures. And in some parts of the country, experts say they are not seeing overly high rates.

But benefits consultants say there is no doubt that many small businesses are seeing a spike in premiums. Edward Kaplan, a consultant with the Segal Company, said his clients are seeing renewals for coverage at prices 15 to 23 percent higher this year. Last year, he said, they typically faced increases of 7 to 12 percent.

The brokers and consultants say the price jumps seem hard to justify. “Frankly, I’m mystified by the size of the increases,” said one broker, Charles J. Newman, who works with small employers in the New York area.


Some say the threat of an overhaul may be at least part of the reason. Joshua Miley, a consultant with HighRoads, which analyzes benefit information for employers, said the “undercurrent of health reform is driving part of the renewal increases.”

HighRoads projects that premiums will rise 14.4 percent for an individual in a health maintenance organization plan at a typical small employer.

There is no question that insurers are under pressure from Wall Street. In recent years, insurers were often not quick enough to raise their premiums well above the rising cost of medical care.

But they have heard from angry investors who disappointed by the companies’ earnings.

“There’s no one out there who hasn’t had to do a mea culpa to Wall Street,” said Sheryl Skolnick, an analyst for Pali Capital who follows the companies. While the industry is particularly vulnerable now in Washington, she said, “it seems like they’re more afraid of Wall Street.”

Michael A. Turpin, a former senior executive for UnitedHealth, the insurer, and now a top official at USI Holdings, an insurance brokerage firm, said insurers were now “under so much pressure to post earnings, they’re going to make hay while the sun is shining.”

Along with many Republican lawmakers, the insurers say the current Congressional proposals do too little to address the underlying reasons for high premiums — the unabated rise in medical costs and effects of a weak economy. Hospitals, for example, have been treating greater numbers of people who have lost their jobs and their insurance, and they are passing along some of those costs by charging higher prices to private insurers.

The industry also points to low government payments to hospitals and doctors, which insurers say result in higher prices for employer-based coverage to make up for the shortfall.

In an analysis released two weeks ago by the industry’s trade association, America’s Health Insurance Plans, insurers said premiums would rise even faster under the legislation under study in Congress — an assessment fiercely disputed by Democratic Congressional leaders and some health care economists but shared by many Republicans.

Of course, the mere mention of profit pressures tend only to galvanize supporters of a Congressional health care overhaul.

Small businesses, besides having less negotiating leverage than big employers, tend to pay more for the same coverage because they cannot spread the cost of expensive medical conditions or hospitalizations over large numbers of workers. Premiums can be especially high if they have sick or older workers.

Small businesses, which employ about 40 percent of the private labor force, are a big constituency for both parties. And they have long complained they are forced to pay more for the same coverage as large employers.

Owners of small companies say the lack of options is why they have been paying increasingly higher premiums for less and less coverage — this year perhaps more than ever.

In August, when Walter Rowen, who owns Susquehanna Glass in Columbia, Pa., sought to renew his company’s coverage for two dozen employees, he said his insurer demanded a 160 percent rate increase. Mr. Rowen said he was told his work force was “getting too old and very expensive.”

Mr. Rowen said his insurance broker found that any other health plan was likely to charge 30 to 50 percent more than he paid last year. He chose a less generous plan from a different carrier for 44 percent more.

David M. Herszenhorn contributed reporting.
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Medicare Disadvantage- Privatized Health Care For Seniors Can Leave Them In The Dark As Insurance Companies Reap A Windfall

CBS/AP - WEST HAVEN, Conn., July 16, 2007
CBS) It was the summer of 1965 when Medicare was created to provide government-sponsored health care for seniors. Today some $381 billion tax dollars a year are spent on Americans 65 and older.

But in recent years, more and more Americans — 8.3 million and rising — are getting Medicare through private insurance companies. Tonight, CBS News chief investigative correspondent Armen Keteyian takes a closer look at the program critics charge has turned into a disadvantage for seniors, and a windfall for the insurance industry.

Fast Fact
Three independent reports found private insurance companies are paid, on average, 12 percent more than what it would cost the federal government — in some cases, 50 percent more.

It was the winter of 2003 when Congress, in the dead of night, overhauled Medicare.

"This prescription drug benefit is a good deal for all seniors," said Rep. Dennis Hastert, R-Ill.

But buried inside the bill was another deal — one that CBS News investigation has discovered was not necessarily a benefit for seniors.

A large portion of one of the most successful public programs in history was quietly placed in the hands of private insurance companies. The goal of Medicare Advantage: to provide seniors with more benefits, like vision and dental care, and control rising costs. But today, for seniors like Aaron Cohen, it's become Medicare Dis-Advantage.

"I'd rather go back to the old-fashioned Medicare," Cohen told Keteyian.

Cohen, an 86-year-old who lives in Connecticut, says he switched to an advantage plan only after a salesman assured him he would be completely covered while staying in Florida.

But after breaking his leg in that state, Cohen began to believe he had been sold a bill of goods.

"There was something radically wrong," Cohen said. "They wouldn't give me any home therapy, claiming that it wasn't covered."

But that's only part of the problem. With traditional Medicare, there's one plan for everyone, everywhere. Private Medicare Advantage offers as many as 50 different plans, causing untold confusion over coverage, premiums, co-pays, provider networks.

"These insurance benefit packages are very complicated. Almost nobody without really technical sophistication can figure out exactly what they are buying," said Robert Hayes, who runs the Medicare Rights Center.

Hayes said every year his staff fields thousands of calls from seniors scared to death they've made the wrong choice.

Not only are private plans more confusing, they are more expensive to taxpayers.

In fact, three independent reports found private insurance companies are paid, on average, 12 percent more than what it cost the federal government to run Medicare — in some cases, 50 percent more.


FYI: Find out more about private medicare and how to find help navigating the system.

The head of Medicare insists private plans give you more for your money.

"I think there is a lot more that we could do in regular Medicare that we aren't doing currently, that some of the Medicare Advantage plans are able to do because of how the payment structure works," Leslie Norwalk told Keteyian.

But how much of that money is going back into the pockets of the insurance companies?

"Well, it's required by law: 25 percent goes back to the federal treasury, 75 percent goes back to the beneficiary," Norwalk said.

So the insurance companies are doing this, what, out of the kindness of their hearts, asked Keteyian?

"There, there would be, I'm sure, some small amount to administer the additional benefits," Norwalk said.

But CBS News has found that's not always the case. An independent report found when it comes to the fastest-growing plans, known as private fee-for-service, half of that extra money goes back to the insurance companies. All these private Medicare plans are expected to cost taxpayers an additional $54 billion over the next five years.

"Taxpayers are losing; people in Medicare are losing," Hayes said. "And the structure of Medicare as a national treasure that we need to rely on moving forward, is being undermined."

So much so that key Congressional Democrats now want to cut payments to private plans. The insurance industry is fighting back with a direct mail campaign urging seniors to contact their representatives.

Ironically, Cohen got one of the letters. On the back, his very personal feelings about his Medicare Advantage plan.

"This plan is worthless," he wrote.
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