The largest factor driving premiums higher is the escalating cost and use of prescription drugs, health insurers say.
“It’s just the passing on of cost,” said Steven Heacock, vice president of Priority Health, a Grand Rapids-based HMO with about 290,000 subscribers in 27 counties.
Priority Health customers are seeing average premium increases of 15 percent for 2001. Small businesses with 25 or fewer employees received higher average increases, Heacock said.
Subscribers of the state’s largest health insurer, Blue Cross Blue Shield of Michigan, received even larger hikes in the health premiums.
Small businesses in West Michigan that employ 100 people or less received an average 28 percent increase for 2001 from the Blues, which has 1 million subscribers alone in a service region that covers east of Lansing. Larger customers of Blue Cross Blue Shield saw similar average increases, said Joe Johnson, sales team manager for the Blues’ Grand Rapids office.
This year’s double-digit increases are on top of similar hikes in each of the past two years.
When compounded, the rising cost of providing health insurance has become a serious problem for employers, said Rob Fowler, vice president of small business insurance services for the Small Business Association of Michigan.
Rising health insurance rates, Fowler said, is “the fastest growing cost of doing business in Michigan today.
“It’s certainly among the biggest, if not the biggest, issue,” said Fowler, who administers a group plan for the 8,000-member trade association.
In response to rising premiums, employers are tweaking their health plans in order to keep increases to a minimum by passing on costs to employees through higher co-pays for prescriptions and deductibles for doctor visits.
Priority Health subscribers, for example, were able to trim premium increases back 10 percent to 13 percent by altering benefits and transferring more of the burden for prescriptions to employees, Heacock said.
“The cost of pharmacy is getting so high, they’re going to have to put some of it into the employees’ lap,” he said. “We’re each going to have more responsibility for cost.”
In addition to the escalating cost of prescription medications, rising insurance premiums are also blamed on the costly development of new medical technologies and an aging population that requires a higher level of care.
While offering substantial health benefits, today’s prescription drugs are quite costly for pharmaceutical firms to develop. People are also using prescriptions more than ever before to cure what ails them. Blue Cross Blue Shield of Michigan in 1999 paid $1.9 billion to cover subscribers’ prescriptions, about $322 million more than the previous year.
One of the factors insurers point to as contributing to the rising drug costs are ad campaigns by pharmaceutical companies that encourage consumers to request specific name-brand medications. As a result of the ads, which began after a 1997 rule change by the U.S. Food and Drug Administration that allows direct advertising of pharmaceuticals to the public, some consumers are refusing to accept less-costly generic drugs.
“Patients are marching into their physician’s office and saying, ‘I saw so-and-so on TV … I should take that, too,” Johnson said. “We certainly incur those costs and that goes into the pool and subscribers incur those costs.”
Blue Cross Blue Shield is beginning to encourage employers to switch to percentage-based prescription plans, Johnson said. Such plans, initiated a year ago by the Blues, require employees to pay a set percentage of a medication’s cost, rather than a dollar amount such as $10 or $15 per prescription.
A percentage-based prescription plan is one way for insurers and employers to generate awareness among consumers about the high cost of medications and the need to accept cheaper generics, Johnson said.
“It really hits home, as far as consumers go, what prescription drugs really cost. What they will have to do is compare costs and begin shopping for prescription drugs, which they haven’t done,” he said. “The days of the miniscule co-pay for prescription drugs are behind us now.”