Healthcare costs spike ever higher

Insurance premiums see their largest increases since 1990. The average cost of family coverage: $2,084.

Pay more, get less.

That's what millions of Americans will hear from their employers this year, as healthcare costs keep spiraling upward, even as the quality of care deteriorates.

Health-insurance premiums have spiked more than 12 percent in the past year, the largest increase since 1990. If you account for inflation, that's the largest increase ever.

And it has left employers like Greg Hunt in a bind. Health insurance is already one of his biggest expenses. To keep providing it, particularly in these tough economic times, he's finding he has to increase his employees' deductibles and cut back on benefits. "Costs are absolutely astronomic," says Mr. Hunt, of Amsterdam Billiard Clubs in Manhattan, a small business with 30 employees.

Those steep premium increases are just the latest sign of trouble. The number of uninsured, already more than 43 million, is on the rise. Hundreds of thousands of recipients of Medicaid – the health program for the poor – are losing benefits as states grapple with huge budget deficits. And senior citizens are finding it more difficult to access care.

The situation is similar to the late 1980s, when increasing health costs alarmed the middle class, prompting the first major debate on healthcare reform in a generation. While that didn't lead to any fundamental changes within the system, the debate, combined with the growth of health-management organizations, did help rein in the cost of care in the short term. By the end of the 1990s, however, the cost of health care was again increasing in the double digits.

Now, many experts say, the situation is even worse than a decade ago. And the prospects for major reform this year are slim. "The problem is more serious than it's ever been, and it's only going to get worse," says Henry Simmons, president of the National Coalition on Health Care, the largest US alliance of business and professional groups working for healthcare reform.

A survey done for the Kaiser Family Foundation, which identified the premium increases, also gives an indication of what this means for individual workers and their families. For single coverage, the employee's share now costs an average of $454 per year. That's $95 more than last year, an increase of 27 percent. Family coverage averaged $2,084, 16 percent more than last year.

Those costs will continue to go up in the foreseeable future. Seventy-eight percent of large firms said they were "very or somewhat likely" to increase the amount employees pay next year.

And while workers are paying more for premiums, many are also paying higher out-of-pocket expenses. Deductibles at preferred-provider organizations – the networks of doctors and hospitals that work with specific insurance companies – were up 37 percent. In addition, more workers are receiving fewer benefits, even as they're paying more. That's the first time in four years that's happened.

Growing insecurity

"The ugly combination of rising costs and a sputtering economy leave us with a lot of problems in the healthcare system with no apparent solution in sight," says Larry Levitt, vice president of the Kaiser Family Foundation. "The net result of this will be growing insecurity not just for the poor, but for middle-class people as well."

It's the kind of insecurity that people like Debbie Flood want to prevent. She's the owner of the Melron Corporation, a small manufacturing company in Schofield, Wis., that makes commercial window hardware. With 24 full-time employees, and 10 part-time, she watched the company's health-insurance costs jump up 30 percent in each of the past two years.

"We have some older employees whose premiums are up to $1,600 a month," she says. "It's like paying them another $9 an hour. We're going to get to the place where we either can't afford it, or we'll have to pass on so much of the costs that the employees will choose not to take it."

Studies have shown that every time premiums go up half a percentage point, 350,000 people drop from the insurance pool. Dr. Simmons of the National Coalition on Health Care predicts, conservatively, that another 6 million people will become uninsured by the end of the year.

While Ms. Flood believes that things have gotten so bad that "it will have to be dealt with," some experts in the healthcare field are less sanguine about the prospects for reform. Robert Blendon of Harvard's School of Public Health notes that with the prospects of war against Iraq, the current war on terrorism, the huge federal deficit, corporate scandals, and the troubled economy, healthcare reform is far from the top of Washington's agenda.

"You can only have so many problems on the national agenda at one time," he says. "This thing can go two or three years before it bursts out on the political scene."

A campaign issue?

But many advocates for reform, such as Simmons and Ronald Pollack of Families USA, believe that healthcare will play a crucial role in the 2004 political elections, just as it did in 1992 when Bill Clinton was first elected on a promise to overhaul healthcare. "As more people are affected by it, it will become a higher priority," says Mr. Pollack.

It's already a priority for business owners like Flood and Hunt in New York. Both want to continue to provide health insurance, but neither is sure they can if costs keep spiking upward.

"Getting rid of it is an option, but not one I like," says Hunt. "It would be a sad state of affairs if it came to that."

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