Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 26, 1992 TAG: 9201280424
SECTION: ECONOMY PAGE: 10 EDITION: METRO
SOURCE: CHARLES HITE MEDICAL WRITER
DATELINE: LENGTH: Long
COST OF HEALTH CARE CONTINUES UPWARD SPIRAL
With its health insurance premiums rising nearly 20 percent in 1990, Lawrence Transportation Systems Inc. switched to self-insured medical coverage.By going this route, the company saved money by absorbing some of the insurance risk itself. It also cut some of the overhead associated with administering conventional insurance.
The Roanoke-based moving firm also attempted to reduce costs by changing a couple of insurance benefits: charging deductibles for non-emergency visits to the emergency room and increasing employees co-insurance payments for psychiatric and mental-health coverage.
The changes worked - at least temporarily. Health-insurance costs in 1991 stayed about the same as in 1990.
"But the trend has started upward again," said Ron Spangler, the company's human resources manager. "Our experience has been worse than expected. We may be looking at a 25 percent increase in 1992."
In Roanoke and across the nation, employers are losing the war on health costs.
Despite attempts to manage and restrict health benefits, the cost of employer-sponsored medical plans continues its upward spiral.
The increase in employer medical plans has averaged 15 percent per year over the past four years - three times the rate of increase of a national index that measures inflation of most goods and services.
Employers in the United States paid an average of $1,384 a year for health-care costs for a single employee and $3,277 for family coverage in 1991, according to a survey by the Wyatt Co., a Washington, D.C., benefits consulting firm.
Costs to employees are going up as well. More than 75 percent of the companies in the Wyatt survey require workers to contribute to the cost their own coverage and 93 percent of the companies say employees must pay a portion of cost of insurance for their families. The average annual contribution for a single worker was $292 and $927 for family coverage.
Besides higher premiums, employees also are paying higher deductibles, co-insurance contributions and out-of-pocket expenses, the survey showed.
"Unfortunately, health care is one area of the economy that is growing at an ever-increasing rate. Costs are constantly going up," said Dick Robers, vice president of Maid Bess Corp., a Salem apparel manufacturer. He also is president of the Blue Ridge Regional Health Care Coalition, a group of 31 employers seeking ways to lower health-care costs.
Factors behind the rise in the cost of health insurance include large catastrophic-illness claims, increased use of substance-abuse and mental-health services, and the practice of increasing charges to the private sector to offset underpayments from government programs like Medicare and Medicaid.
An increasing number of employers - including some in Roanoke - have turned to forms of "managed-care" plans to control health-care costs. The two dominant managed-care plans are "health maintenance organizations" or HMOs, and "preferred provider organizations" or PPOs.
HMOs and PPOs are designed to control costs by requiring employees to get treatment from selected doctors and hospitals. In return for the right to treat these employees, the doctors and hospitals offer deep price discounts. The percent of employees in HMOs and PPOs nationwide was 38 percent in 1990, up 5 percent from the previous year, according to a survey by the Health Insurance Association of America.
While HMOs and PPOs are commonplace in Richmond, Tidewater and Northern Virginia, they have failed to gain much support in Roanoke and Western Virginia. A PPO started 2 1/2 years ago through the efforts of the regional business coalition has enrolled 3,600 employees from eight companies. The PPO had hoped to enroll at least 13,000 employees.
The Roanoke PPO - administered from the Northern Virginia branch office Community Care Network, a California-based health-benefits company - offers about a 13 percent to 18 percent savings to employees and family members using Lewis-Gale Hospital, Robers said. Community Hospital of Roanoke Valley had been in the PPO, but dropped out after its merger last year with Carilion Health System, parent company of Roanoke Memorial Hospital.
Several reasons have caused 23 other coalition companies not to enroll their nearly 18,000 employees, Robers and other coalition officials say.
A big obstacle is that many Roanoke companies are actually subsidiaries or branch operations of corporations based outside the region. Corporate officials are reluctant to have a small segment of employees under one health plan while others are insured by other plans, said Lisa Craft, executive director of the coalition.
The Western Virginia office of C&P Telephone encountered another stumbling block.
Health-care benefits were a major factor in a strike by C&P workers nearly three years ago, said Tom Jones, government and community relations director for Western Virginia.
After nearly two years of negotiations, management and union officials agreed to form a PPO that would be administered by the Prudential Insurance Co. of America.
Prudential officials held talks this spring with hospitals and doctors to set up a network for the phone company's approximately 500 union employees in the Roanoke Valley. "But Prudential called back and told me, `We just can't make it work,' " said Jones, a former president of the regional health-care coalition. There weren't enough employees involved to get price discounts from health-care providers, Jones said.
Another reason more Roanoke-area employers aren't using the existing PPO is that it does not have an agreement with doctors, Craft said.
The business coalition is talking to companies interested in establishing a network that would appeal to more businesses. The coalition also is exploring the possibility of discount pricing for specialized areas such as prescription drugs and eyeglasses.
A closer relationship with doctors is one of his major goals as coalition president, Robers said. The Roanoke Academy of Medicine, the area education and lobbying group for about 400 physicians, recently was given the opportunity to have associate members on the coalition board.
Officials from the academy and coalition have held private discussions about how to hold down costs, Robers said. One topic: the concept of "gatekeeper" physicians who would see that employees got proper preventive and sick care and help hold down inappropriate use of the emergency room or unnecessary visits to specialists.
Until more managed-care options are available in the area, Robers and others predict, employers are likely to continue turning to two options to help hold down health-care costs:
The first is becoming self-insured. By doing that, companies take on some of the risk of insurance themselves and have the option of cutting or reducing benefits - such as expensive mental-health and substance-abuse coverage - that otherwise are mandated by federal and state laws.
More than 56 percent of all employees work for companies that are self-insured or partially self-insured, according to the Health Insurance Association survey.
The second is to continue shifting more of the cost of health care to employees, either through higher premiums or increased deductibles and co-payments.
Lawrence Transfer tried both. But its costs are rising again.