Health insurance premiums are increasing due to a variety of factors:

Increased utilization of health care services (including prescription medication) Increased provider costs Cost shifting from public payers to private insurance payers Advancing medical technology Increased administrative and benefit mandates from the government

Employers can have an impact on health care costs by:

Implementing health and wellness programs and promoting healthy lifestyles Providing employees with information on the true costs of their health care coverage and on the appropriate use of benefits Educating employees to use urgent care centers instead of the emergency room (ER) for non-life-threatening care

Individuals can have an impact on health care costs by:

Understanding their benefits and making wise choices about utilization of services
(e.g., use an urgent care center instead of an ER for non-life-threatening care)
Participating in wellness programs when offered by an employer, or creating their
 

own Using generic drugs instead of more expensive brand-name alternatives Maintaining a healthy weight and making lifestyle changes (e.g., quitting smoking) Obtaining recommended preventive care (e.g., mammograms and physical exams)

Why do my health insurance premiums keep rising?

First, keep in mind that the basic equation for premiums is a simple one: cost of services x utilization of services = premiums. It gets more complicated when costs of mandated benefits, government regulation and costs shifted from the public sector to the private sector are factored in. All of these elements are discussed below.

 

INCREASED UTILIZATION AND COSTS

Patients are using more specialists²

While total office visits remained relatively stable between 1990 and 2000, the composition of visits shifted to a higher proportion of specialists. Specialists’ charges average more than double those of a primary physician.

1990 2000

36% specialist 41% specialist

64% primary care 59% primary care

Prescription use is increasing³

Prescriptions dispensed per capita have increased from 7.2 in 1992 to 11.0 in 2001 Increased usage of prescription drugs accounts for 58% of the increase in drug costs

Prescription costs are increasing

f Impact of direct-to-consumer advertising of prescription drugs —

Between1999 and 2000, prescription-drug spending increased by $20.8 billion. Roughly half of that increase (48%) can be attributed to the sales of the top 50 drugs most heavily advertised to consumers. The remainder of the increase (52.2%)can be attributed to the 9,850 drugs that were not as heavily advertised.⁴ •

•

f New drug formulations — Analysts predict that a new asthma drug, Xolair, will cost as much as $10,000 per year, compared to $3,600 per year for current asthma treatment.⁵

INCREASED PROVIDER COSTS

Provider reimbursement

Hospitals and physicians have cost pressures, too, and those costs are passed on to consumers in increased premiums. One very troublesome cost facing providers is malpractice liability insurance. In some rural areas of Arizona, hospitals can no longer provide maternity services because the physicians who deliver babies in those communities cannot obtain insurance coverage.⁶

 

Reduced competition

As hospital chains merge, competition decreases in urban areas, inevitably leading to higher prices. In rural areas, where there may be only one hospital and few doctors, there is no competition.⁷

COST SHIFTING FROM PUBLIC PAYERS TO PRIVATE PAYERS

¾ Under federal law, hospitals are required to provide emergency care even if they will not be paid. This is called “uncompensated care.” Hospitals also provide uncompensated care when patients do not pay their share of charges that insurance does not cover.

¾ Hospitals are also required to accept certain levels of payment from Medicare and Medicaid programs (in Arizona, the Medicaid program is AHCCCS). Both Medicare and AHCCCS underpay hospitals.⁸

¾ Hospitals must offset uncompensated care and underpayments, and there is only one source — privately insured individuals. This is called “cost shifting.” In Arizona, AHCCCS underpayments in 2001 alone account for approximately $90 million that is shifted to people with private insurance.⁹

ADVANCING MEDICAL TECHNOLOGY

¾ As of 2000, approximately 40% of the increase in health care spending was attributable to technology.¹⁰

¾ By 2005, it is estimated there will be 600-800 biotech drugs in development, with those on the market earning $50-60 billion in revenue.¹¹

¾ Medical technology can be miraculous, but it comes at a price. The following technologies have a high potential for a significant impact on costs: Drug-eluting stents (three times the cost of a traditional stent) Genetic testing for cancer PET (positron emission tomography) for cancer and diagnosis Low-dose spiral CT (computed tomography) for lung cancer

INCREASED ADMINISTRATIVE AND BENEFITS MANDATES

¾ Proliferation of state-mandated benefit laws — Each new mandate adds incrementally to the cost of health care, and thus to premiums. Arizona now has 26 mandated benefits. Many of these benefits were never requested by the individuals and employers paying for the benefits, but were brought to the Legislature by providers and special-interest groups.

 

Federal legislation — A number of laws have been passed in recent years that

were intended to aid consumers or simplify the business of insurance.

Far from simplifying insurance, they have made it much more complicated and

expensive to administer. Some examples:

f HIPAA: Health Insurance Portability Accountability Act ♦ more than 2,000 pages of regulations ♦ implementation costs of privacy regulations = $40 billion over 5 years ♦ transaction code set rules (for filing claims) = $18 billion over 10 years

f Department of Labor claims regulation — for BCBSAZ, it took more than 200 people nearly a year to implement.

¹ Blue Cross Blue Shield Association (BCBSA)
² National Center for Health Statistics, 2002, and National Ambulatory Medical Care Survey, 1996-2000
 

³ BCBSA Medical Cost Reference Guide 2002, 2003
⁴ National Institute for Health Care Management, Prescription Drugs and Mass Media Advertising, 2000
⁵ ”Expensive genetic asthma drug clears hurdle,” The Arizona Republic, 3/16/03, and BCBSAZ analysis
⁶ Doctors for Medical Liability Reform, State-by-state Analysis, 2004
⁷ James Langenfeld, Dir., American Antitrust Institute, Testimony at FTC/DOJ Hearings, April 11, 2003
⁸ BCBSAZ Actuarial Analysis of Report to Joint Legislative Committee on the Implementation of
Proposition 204 – Evaluation of the AHCCCS Inpatient Hospital Reimbursement System
⁹ Ibid
¹⁰ Centers for Medicare and Medicaid Services and Project Hope, 2001
¹¹ “The Healthcare Dilemma,” Thompson & Towery Assoc., 2/27/04