Splitting headache – healthcare costs

Combination of factors keeping health-care costs on the rise
Why are medical and hospitalization insurance premiums continuing to soar? Interviews with people in the health-care industry point to three major causes: 1) increased utilization of medical services, 2) improved technology, and 3) the paw prints of legislators, both state and federal.
Those three motivating influences have already slapped 20% to 30% increases on the face of this year’s health-care insurance renewals, and the trend continues.
Eric Bourgerding, director of Legislative Relations for Wisconsin Manufacturers and Commerce, said, “In the past six months, insurance premiums for health care have gone up as much as 70% for small businesses. Especially hard hit are companies with fewer than 50 employees. We have workers earning $14 an hour paying $400 a month toward their medical insurance. The other half of the cost per family is being paid by the employer, and small businesses can’t continue to swallow these costs.”
With patient-care costs in Milwaukee being one of the highest in the nation, second only to the city of New York, Milwaukee’s leaders should be very concerned about losing businesses to other parts of the country, say some in the health-care industry.
Michael Victorson, executive vice president at Mortenson, Matzelle, Meldrum, insurance brokers based in Waukesha, said that the firm’s renewal rates for HMOs in the past six months were up 20%. For PPOs it’s 30%. “In addition to the explosion of pricing for prescription drugs, utilization of services is a driving force in these price increases,” Victorson added.
The number of angioplasties performed on Medicare patients in Milwaukee is nearly 50% higher than the US average (Dartmouth Atlas survey). Heart by-pass surgeries run 27% higher.
To Victorson’s factor of utilization of medical services, Riley Enright, senior benefit consultant for R&R Insurance in Waukesha, added technology and legislation as causes for the double-digit premium increases.
“People are living longer. Hospitals are expanding, adding new innovative equipment. People want more comfort and services,” Enright explained. “Prescription drugs are now 18% to 22% of the total cost of health care. Four years ago they were 8% or 9%.”
Advocates for the drug industry, such as the National Institute for Healthcare Management, claim that prescription medicines are the best value in health-care today. New medications keep people on the job and out of the hospitals, off the surgery tables. Total prescription drug expenditures rose 14.7% last year, 10.7% of which reflect the fact that patients are getting newer and better medicines.
The volume of new medications is a contributing factor to rising drug costs. For example, in a 1999 survey by Pharmaceutical Research and Manufacturers, there were 122 new prescription drugs in development to treat heart disease and strokes, two of the top three causes of death in the United States. Eager to get their new drugs in the mouths of consumers, pharmaceutical companies promote with magazine and television advertising. That puts patient pressure on the doctors, so much so that the AMA is considering a proposal asking the FDA to ban direct-to-consumer advertising by drug makers.
Joe Kachelski, deputy director of the Association of Wisconsin Health Plans, an association of HMOs, agrees that creating consumer demand for new drugs is partially responsible for higher drug costs. “There’s no evidence that costs are going to mitigate. The costs for prescription drugs, 20% increases, are off the charts. Marketing directly to the consumer is a multi-billion dollar cost that someone has to pay for.”
Bourgerding blames legislative mandates for hiking the cost of insurance. WMC, a legislative watchdog for businesses, believes that employers, not legislators, should decide whether they can afford insurance coverage for things like temporal-mandibular-joint disorder (TMJ) or contraception, the latest state legislative proposed mandate.
The Patient’s Bill of Right legislation, presently being forged at the federal level, is bound to add another layer of liability on employers and insurance providers, liability that will require another coverage cost. The National Association of Health Underwriters estimates that the legislation will add premium cost increases of 2.9% to 4.2%, depending on the compromise version acceptable to both the Congress and the president.
Jim Murphy, senior vice president for Employee Benefits at Johnson Insurance Services in Racine, points out that medical claims costs in Milwaukee are 30% to 35% higher than in Chicago. “Our patient claims cost in Milwaukee are the second highest in the nation, second only to New York City,” Murphy stated, and he backed up his comment with graphs supplied by Humana.
A major reason Milwaukee has higher claims-cost-per-resident is that Wisconsin receives one of the lowest Medicare entitlements of any state. Hospital and insurance officials claim the shortfall adds as much as a billion dollars a year to our medical insurance premiums. A Medicare HMO in Milwaukee gets $452 a month to care for a senior citizen. The reimbursement in Dade County, Florida, is $778. To resolve that disparity that’s based on 1960 cost data, Jim Doyle, Wisconsin’s attorney general, filed a federal lawsuit against the Department of Health and Human Services last year.
Seeking cost relief, more employers are asking their employees to share a greater portion of their medical insurance premiums. Insurance providers are urging their clients to foster better health habits among their employees. Get more exercise. Stop smoking and watch your weight. According to University of Wisconsin studies, a third of Wisconsin’s population is over-weight, all of which adds to heart disease, diabetes, and other illnesses. Medical-claim costs for a 55-year-old male are twice as high as those for a 25-year-old employee. Milwaukee-area hospitals perform 23.4 heart surgeries per 1,000 population compared with 18.4, the nation’s average.
Immediate relief is not in sight, although Tommy Thompson’s position in Washington may help draw more Medicare money from the federal government, reducing charges hospitals and physicians load on insured patients to compensate for Medicare losses.
July 20, 2001 Small Business Times, Milwaukee