Higher costs threaten health care

Employer-sponsored health benefit premiums are rising at their fastest rate in a dozen years during 2002, and rate hikes will get worse before they get better, according to a study released Thursday by the Kaiser Family Foundation in Menlo Park.

Insurance premiums for employer-sponsored health plans jumped an average of 12.7 percent in this year's survey, which was conducted from January through May 2002. That's the highest rate of increase since 1990, when premiums rose 14 percent, and is many multiples higher than the 1.6 percent inflation rate during the same period.

The upshot is that fewer companies, especially small businesses, are offering health coverage, many are trimming the scope of their plans and employees are paying more out of pocket. "It's totally out of control," said Dennis DeCota, the owner of a service station in San Anselmo. DeCota is paying 15 percent more this year than in 2001 to insure his four cashiers.

"The question is, when does it become a situation when people cannot afford health care?" DeCota said. "I think we're rapidly approaching that point." According to the survey, average family coverage rose to $7,954 in 2002, with an average worker contribution of $2,084. Coverage for single people hit $3,060, with the beneficiary paying $454 of that.

Premiums are going nowhere but up. "This is the beginning of the bad news, it's not the end," said Diane Rowland, executive vice president of the Kaiser Family Foundation. The California Public Employees' Retirement System is paying an average of 25 percent more in 2003 to insure its 1.2 million members and has dropped two health care providers to help mitigate costs, CalPERS spokeswoman Pat Macht said. CalPERS managed to hold co-payments steady after increasing them in 2001.

But members who share premiums will shell out more next year. Health insurance rate growth, which tends to be cyclical, bottomed out in 1996 with a mere 0.8 percent increase and has been rising steadily since. Last year, premiums jumped 11 percent. In the mid-1990s, under the threat of federal controls by the Clinton administration, many employers instituted strict managed health plans that pushed down costs, Rowland said. But consumers rebelled against restrictions on things like choosing their own doctors, and many of the controls were loosened.

At the same time, hospital stays have lengthened, technological advances have made some procedures more expensive and drug costs have soared, Rowland said. Because consumers rejected strict managed care, "the consequence is going to be increased cost sharing by consumers," Rowland said.

According to the survey, the portion of premiums borne by workers has remained the same in the past two years -- 16 percent for individual coverage and 27 percent for families. But with premiums and co-payments increasing, 56 percent of large employers surveyed said their staffers paid more for health coverage in 2002 than the prior year. More troublesome: 78 percent said they expect workers to pay more in the future.

At the same time, benefits are being trimmed. For the first time, more employees experienced reductions in benefits (17 percent) than increases (11 percent), Rowland said. "In economic boom times, health benefits become a way to attract and retain employees, and businesses are able to absorb the costs," Rowland said.

In the current bust, that trend is reversing itself. Only 61 percent of small businesses offered health benefits in 2002, down from 67 percent in 2001, according to the survey.

DeCota has continued to pay all of his workers' premiums, although their co-payments tripled this year to $15 from $5. "In the service station industry, many of those insured are cashiers making $10 to $12 an hour," DeCota said. "That medical plan is a major enticement to keep good cashiers," but if costs are passed onto them, they might not be able to afford it.

With the number of uninsured people increasing, there will almost certainly be a toll on Americans' health unless there are structural changes to the system, Rowland said. "Managed care was the last magic solution and the public didn't want much of it," she said.

"We always think when there's a crisis it's going to make us control costs and do something about the uninsured, yet we seem to have an infinite capacity as a society to absorb it and keep on going." Said DeCota, "This is a problem of regulatory process and oversight. It's up to the government to step into these types of situations and try to find reasonable solutions to the problem. But I don't see it happening."

E-mail Carol Emert at cemert@sfchronicle.com

This page was last updated on 07/28/06