Combating Rising Health Insurance Costs.

Health insurance. Everybody needs it, but can anyone afford it? This year, health insurance premiums will increase by as much as 13 percent, up from a 12 percent increase last year, according to a 20001 survey by the management consulting firm Towers Perrin. While inflation, with information and careful analysis of your choices, you can better manage costs.

REASONS FOR RATE INCREASES

Prescription drug costs have risen by more than 20 percent a year for several years (compared to less than 10 percent for other healthcare services). Increases in pharmaceutical advertising have been exceptionally effective in creating consumer demand for the vast number of new drugs being brought to market.

Another cause of rate increases is that managed care may have reached its limits in reducing costs. Managed care kept things in check for most of the 1990s, but now costs have begun to rise again. Some health care providers have stopped requiring pre-authorizations on many procedures. While this may speed up treatment time, it also allows for expensive procedures to be performed with little or no review of the necessity and cost.

Also, providers are bargaining more fiercely for higher reimbursement rates from insurance carriers and these costs are passed to consumers. Yet another factor is that legislatively mandated benefits, while generating some improvements, have increased costs for all insureds.

Additionally, employers have been pressed to offer a variety of benefits to be competitive in the market and health insurance usually ranks high on that list. According to the Wall Street Journal, employers have given in to workers' demands for freedom in choosing doctors and medical services and as a result, often absorb the rising costs themselves to try and retain key employees.

WAYS TO COMBAT RISING COSTS

Though daunting, the situation is not hopeless. The first step is to be a smart shopper. Several competing health insurance companies exist and offer a variety of plan options, so check the premiums available across carriers. However, be careful not to always buy the cheapest plan; this may leave you with insufficient coverage.

Review prescription drug coverage, which varies widely with the level of coverage. Many health plans are promoting the use of generic drugs (chemically identical to brand name drugs, but significantly less expensive). Also, depending on your employees' health needs, you may be able to choose a plan that has higher copays and cost-sharing for employees to reduce the plan's cost and encourage appropriate use, while still providing needed coverage. Consider changing your prescription drug program to limit the impact of these costs.

California employers with 50 or fewer employees don't have the flexibility of larger employers when it comes to negotiating plan components. Insurers offer plans with predetermined benefits for these small businesses. However, small businesses certainly have the choice to switch to a different insurer's plan. Few employers are likely to abandon their workers when it comes to health benefits, but with costs expected to rise significantly, it is not uncommon or wrong to ask your employees to pitch in. Discuss with your employees their needs and satisfaction with your current plan. While providing a high-end health plan is generous, some benefits offered may be unnecessary and financially burdensome for your business.

Consider sharing the burden with your employees (typically you only need to cover 50 percent of premium costs to qualify for small-group benefits). In addition, if you set up a special account (e.g., a Section 125 plan), employees can pay their share of the premiums with pre-tax dollars.

EMPLOYER RESOURCES

A health insurance broker's job is to understand your business and provide you with choices that may fit your needs. Brokers receive sales commissions from the health insurance company itself, so using one will not affect the cost of your plan. Finding a good broker who can help you choose, as well as manage and administer your benefits, is important and will help you get the most from your health plan.

Most projections suggest that health costs will continue to rise. With information and choice at your side, you will be able to make an informed decision about health insurance plans without worrying yourself sick.

Bob Darin is chief operating officer for Healthlnsurance.com and former managing director of business development at Blue Cross/Blue Shield. Darin can be reached at [phone] ext. 240 or [e-mail].