Health Premiums Rise, but Not as Fast

Insurance Industry Group Sees Progress in Fight Against Rising Health Costs

Medically Reviewed by Louise Chang, MD on January 30, 2006
From the WebMD Archives

Jan. 30, 2006 -- Premiums for private health insurance reached their slowest rate of growth since 2002 last year, according to a study released by the industry's main lobbying group.

The report shows that medical premiums rose 8.8% between 2004 and 2005, a rate the industry touted as progress against rising costs that are pricing some employers and workers out of affordable coverage.

Health insurance premiums are only one part of overall health costs, which last year reached a record $1.9 trillion dollars, according to federal figures.

The cost of an average health plan obtained through an employer reached $10,880 last year, according to the Henry J. Kaiser Family Foundation, a nonprofit health policy group. Workers typically pay about one-third of that cost, in addition to co-payments and deductibles for needed care.

Premium growth has slowed over the last several years from 13.7% in 2002, though the increase still outpaces the overall growth in health costs by about 1%.

"The trajectory is definitely down," says Karen Ignagni, president of America's Health Insurance Plans, Washington's main lobbying group for medical insurers.

Growing Health Costs

Insurers point to a report finding that the increased use of hospital and doctor services is doing the most to push premium costs higher. Just 14% of the increase is due to rising administrative costs, marketing, and insurance company profits, shows the study, which was conducted by the accounting firm PriceWaterhouseCoopers.

But while premium growth is slowing, health costs continue to outpace the nation's economic growth.

Federal figures released last month showed that more and more employers are decreasing their share of premium payments and instead shifting the cost to workers. The analysis showed that employers last year cut their average share of premiums by 1.3%, while other worker costs, like co-payments, went up an additional 5.5%.

"What we're aware of is that health care costs, even when they slow down, are still outpacing peoples' income and ability to pay," Judy Feder, PhD, dean of the Public Policy Institute at Georgetown University, tells WebMD.

New Health Care Proposals

Private insurance companies are now responsible for carrying Medicare's new prescription drug benefit for the program's 40 million eligible beneficiaries. Proposals expected in President Bush's State of the Union address Tuesday night are likely to seek to significantly increase that role.

Bush is widely expected to propose new laws that encourage small businesses to band together to buy insurance in groups known as association health plans, or AHPs.

The president is also expected to seek an expansion of health savings accounts (HSAs) that let consumers buy cheaper, bare-bones coverage with a high deductible and then save money tax-free for higher out-of-pocket costs.

Proponents of the accounts say they could lower health costs by giving patients more direct responsibility for their spending. Consumers with more financial stake in their health care are more likely to seek only essential care, Bush has said.

Insurers favor the plans, mainly because they stand to extend access to coverage to more people.

Critics of Proposals

But critics attack AHPs for skirting state insurance regulations and for letting insurers cover only the healthy and young workers, thus making insurance more expensive for others.

Democrats on Monday criticized health savings accounts, saying they would do little to ease rising costs already hitting consumers.

The president's approach "is to look at the problem of 45 million uninsured and to suggest that what we need to do is shift more of the burden onto individuals," said Rep. Henry J. Waxman (Calif.), the senior Democrat on the House Government Reform Committee.

"They're going to have to bear the risks of the cost of health insurance," he said.

Ignagni said insurance companies are working to increase access to health information that is intended to help consumers more wisely choose which medical services they need and which they don't.

"The most essential factor in this is to have transparency," she told reporters.

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SOURCES: "The Factors Fueling Rising Healthcare Costs 2006," PriceWaterhouseCoopers for America's Health Insurance Plans. Karen Ignagni, president, America's Health Insurance Plans. "National Health Spending in 2004: Recent Slowdown Led by Prescription Drug Spending," Centers for Medicare and Medicaid Services, published in Health Affairs, January/February, 2006: pp 186-196. Employer Health Benefits 2005 Annual Survey, Henry J. Kaiser Family Foundation. Judy Feder, PhD, professor and dean, Public Policy Institute, Georgetown University. Rep. Henry J. Waxman (D-Calif.).
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