Medical Insurance Hikes Loom in Massachusetts. . . Will be 7th year in row of double-digit increases
09/10/2006
By Jeffrey Krasner, Globe Staff | September 10, 2006 The state's four major health insurers plan premium increases of more than 10 percent for most of their insurance products in 2007, the seventh consecutive year of double-digit hikes. Some employers are expected to react by switching to health plans with higher deductibles or by increasing copayments and making other changes that will result in additional out-of-pocket expenses for employees. The projections for next year's rates frustrated Massachusetts healthcare executives, who said they have been making efforts in recent years to rein in rising costs related to doctors' pay, drug spending, high-tech imaging, and surgery. ``I feel like Bill Murray in the movie `Groundhog Day,' " said Stephen Booma , executive vice president of Blue Cross and Blue Shield of Massachusetts, the state's dominant health insurer, with about 3 million members. ``I'm waking up again and telling you the very same thing I did last year and the year before that." Brian Pagliaro , vice president of sales for Tufts Health Plan, said, ``All things being equal, everything we paid $1 for last year costs $1.10 now." In recent years, insurers have used a variety of strategies to curb healthcare spending. Many now offer tiered pharmacy benefits, which use lower copayments as a way to encourage members to choose generic drugs that are less expensive. They also have attempted to make doctors limit the number of costly imaging tests they order, such as positron emission tomography and MRI scans. Tufts Health Plan, which has about 600,000 members, even requires doctors to obtain approval before recommending a hysterectomy or lower back surgery. So far, the cost-containment efforts have had only a minimal impact, said Stuart Altman , dean of the Heller School for Social Policy and Management at Brandeis University . ``We're throwing pebbles at a tank," he said. ``I would have thought healthcare costs would be growing closer to 6 percent or 7 percent." Increases are expected to be higher in Massachusetts than in other parts of the country. For example, health premiums increased about 9 percent nationally in 2005, according to the Kaiser Family Foundation, compared with an average increase of more than 10 percent in Massachusetts. The high concentration of academic teaching hospitals in Boston -- which typically provide advanced and expensive services and treat patients with complicated conditions -- contributes to the disparity, according to healthcare specialists. Vin Capozzi , senior vice president of sales and marketing for Harvard Pilgrim Health Care, the state's second-largest insurer, with about 975,000 members, said its rates will increase 7 percent to 13 percent in 2007. Those members whose health plans offer better coverage and a broader array of benefits will face the biggest increase, he said. Capozzi attributed part of the increase to the aging of the post-World War II generation. ``Baby boomers are demanding a lot of services, and that's driving costs," he said. Insurance company executives said baby boomers expect better medical care than previous generations. In addition, Capozzi said, insurers like Harvard Pilgrim face routine annual cost increases from doctors and hospitals they contract with to provide medical services. Eric H. Schultz , chief executive of Fallon Community Health Plan of Worcester, which has about 190,000 members, said he anticipates premium increases of 6 percent to 12 percent. The state's four-largest insurers are nonprofits and use surplus income to control rate increases or build investment accounts that can provide them with income in unprofitable years. Blue Cross said this year that it was reducing its target profit margin because it had built up substantial reserve funds. The three other major insurers have posted modest profits in recent quarters, but much of it has been from investment income, not health insurance business. Unlike automobile insurance, health insurance rates are not regulated by the state. Increases in costs still are largely passed to employers, who purchase most health insurance plans. Insurers have worked especially hard to tamp the escalating costs of prescription drugs. Some of those efforts, such as tiered pharmacy benefits, have succeeded. But Schultz and other healthcare executives said increased demand for expensive biotechnology drugs aimed at small populations of patients are leading to a surge in spending for prescription drugs. Such drugs include Genzyme Corp.'s Cerazyme, an enzyme-replacement therapy that treats Gaucher disease, a rare genetic disorder. Fewer than 5,000 patients worldwide are treated with the Cambridge company's drug, but it can cost $200,000 or more per patient annually. Those costs eventually are reflected in insurance premiums. ``These drugs are emerging as a high-growth cost challenge for the healthcare industry," said Schultz. Tufts Health Plan expects a 10.2 percent premium increase for health maintenance organizations , which limit subscribers to designated doctors and hospitals, and an 11.5 percent increase for preferred provider organizations, which are more flexible. Pagliaro, the Tufts sales executive, said the company's 2007 increases will be slightly lower than this year's. The continued price increases are taking a toll on employers and their workers, many of whom have not had pay raises large enough to offset the escalating insurance costs or the rate of inflation, which is about 4 percent this year. ``It's becoming increasingly difficult for employers to offer health insurance for employees when the rates have essentially doubled in the last seven years," said Richard C. Lord , chief executive of Associated Industries of Massachusetts, the state's largest business lobby. Drew Altman , chief executive of the Kaiser Family Foundation, an independent nonprofit that studies healthcare issues, said that continued healthcare premium increases are a significant burden for working families. ``What average working people pay out of pocket for premiums has been going up four times faster than wages in recent years," Altman said.
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