Monday, May 07, 2001

Health costs stagger employers

No end in sight to spiraling inflation

By John Eckberg
The Cincinnati Enquirer

        When Dan Glier factors the rising cost of medical insurance for his 18 employees into his company's annual budget, he usually ends the exercise with a grimace and a question: When will the inflationary spiral end?

        “Our company splits the cost with employees. They pay half and we pay half,” said Mr. Glier, president of Glier's Meats, a Covington-based meat processor. “We've had 7 percent increases year after year.

  A 2000 review of employer health benefits by the Kaiser Family Foundation and Health Research and Educational Trust found:
  • Despite sharply rising premiums, workers did not contribute any more out of pocket in 2000 than in 1999 because of the competition for workers and the strong economy. Average monthly worker contribution for single coverage in 2000 was $28 and $138 for family coverage.
  • Workers in all small firms (three to 199 workers) generally pay more for family coverage as a percentage of the total premium. These firms pay 66 percent of the total premium for family coverage, versus an average of 73 percent across all firm sizes.
  • Prescription drug costs are the most rapidly increasing medical care expense for job-based health insurance: 40 percent of the increase in medical claims expenses in 1998-99 were attributable to prescription drug expenses.
  • Overall, 29 percent of covered workers are in plans that have a pre-existing condition clause (a temporary exclusion for health conditions that existed before enrollment).
  Premiums — including both the employer and employee shares — increased 8.3 percent from the spring of 1999 to 2000, a significant jump from 4.8 percent for 1998-99 and 3.7 percent for 1997-98.
  The average monthly cost of single and family coverage in 2000 is $202 and $529 respectively, including both shares by paid by employees and employers.
        “Now we do sometimes get a new guy who comes in and looks at the cost of the stuff and says "I can't afford that'. The rate hurts. Right now we have two people who don't carry the insurance.”

        Mr. Glier, like many businesspeople across the Tristate, finds his company caught in a tightening vise: Insurance costs are rising by at least 8 percent annually, but tight unemployment means costs cannot be passed onto employees for fear they will leave.

        According to, a research and policy group based in West Chester, Pa., premiums for medical insurance will hit a five-year high this year, and that means employees can expect higher premiums and co-pays for office visits or prescriptions.

        An April report from the group found that one reason for rising premiums is the rising cost of medical care: up 8.3 percent in 2000 and projected to rise by 8.6 percent in 2001.

        About 42 million Americans are uninsured, the Kaiser Commission on Medicaid and the Uninsured found last year. The commission, an arm of the Kaiser Family Foundation, is based in Washington, D.C.

        “I'd be thrilled with 8 percent,” said Linda Ray Rubel, president of Pete's PhotoWorld Inc., a company with 65 employees and six retail outlets in Kentucky and Ohio. The company also owns Pete's PhotoWorks, a photography lab.

        “Last year we had a 19 percent increase, and the year before was even higher. It leaves the small businessman at such a disadvantage. I want my people covered, but how many dollars can you throw at this?”

        In September, for the first time, employees had to contribute to their company's health insurance plan. Until then, the company picked up the tab.

        “The previous year, we picked up all of the increase, including the increase in family coverage. After the second year in a row, we just couldn't do it anymore,” Ms. Rubel said.

        When last year's 19 percent increase came, her insurance agent said she should be grateful she didn't get a 60 percent increase.

        “I cringe every month when I pay the premium and at least once a year when it's time to review the contract,” she said. “It just keeps getting more and more expensive.

        “How do you contain the costs?”

        When rates rise, companies have no choice but to raise prices. Start with a $100 premium, and after four years of 7 percent annual increases, the premium becomes $131 — a 31 percent hike.

        “Product prices have to be adjusted,” Mr. Glier said.

        Thomas C. Colvin, vice president at Schiff Kreidler Shell Inc., the largest independently owned insurance agency in Cincinnati, said larger-employer health-benefit costs are increasing here at a 10.6 percent rate. Costs of prescription drugs have risen by 14 percent.

        “The cost of prescription drugs has dramatically impacted employers' health costs. That's one of the No. 1 causes,” Mr. Colvin said. Recontracting between managed-care networks and health-care providers can also drive up costs because of rising reimbursements to providers.

        “Honestly, I don't see an end to it at this point in time,” he said.

        “The insurance industry calls this a hard market, and we've been in it for a number of years. It's a concern to every employer.“Sometimes insurance is seen as an entitlement, but it's not required. Employees often don't know the true cost.”

        The high cost of insurance hurt startup Medal Logics Inc., a company that makes laser-cut identification tags for joggers and others. It is based in Fort Mitchell.

        “We're a small company, and as a small company, we find it impossible to provide insurance even for all our officers,” said founder Mike Wimmer, 59, the company's president.

        “We looked at it six months ago, and it was a major, major expense — more than a big car payment, and about what you'd spend on a small house.”

        He is the only employee covered and is thankful because he has surgery planned this month that will cost thousands of dollars.

        His son, Edward, a vice president, was forced to take a night shift job at a beer distributor so he could buy affordable health insurance at $25 per week.

        “That was the main reason I hold down that second job. It's just to get coverage,” he said. “I imagine there's a whole lot of small businesses in the same situation.

        “Our profit margins are such that we can't afford it. It's that simple.”


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