Hold The Apoplexy

Premium hikes are down, owing to more modest benefits and robust insurance reserves

It's not the kind of sticker shock one often hears about. When Doug Moore opened the renewal notice from his health insurance carrier this summer, he discovered that premiums for Seubert & Associates, the 50-person Pittsburgh consulting company where he is a partner, were actually going to drop by 5%. Having faced rate hikes averaging 20% a year since 2002, Moore isn't convinced low prices are here to stay. "I'm concerned that we'll have to deal with double-digit increases again," he says.

But after several years of high anxiety about health-care costs, many small employers are nonetheless breathing a tentative sigh of relief. Premiums for companies with fewer than 50 employees are projected to increase 5.5% in 2006. That's higher than last year's 3.7%, but a whole lot better than 2003, when premiums jumped 16.1%, according to Mercer Health & Benefits. An overall slowing in health-care spending gets some of the credit, but state regulators and small employers also play a role.

The immediate cause of Moore's good fortune: The not-for-profits that often insure small companies, such as his insurer, Highmark Blue Cross Blue Shield, are awash in reserves. Reserves are the difference between the premiums insurers charge and the amount they pay out in claims. Highmark, which covers more than half of businesses in Western Pennsylvania, had a $2.5 billion surplus at the end of 2004, according to company spokesman Michael Weinstein. It increased premiums an average of 4% in January, down from nearly 17% in 2003.

Why such robust reserves? Most health-care analysts agree that the soaring profits at the not-for-profits are due to an unexpected slowdown in the growth of health-care spending. National spending on health care grew just 7.9% in 2004, the slowest rate since 2000. Prescription drug spending was up by 8.2%, the first single-digit increase in 10 years. Meanwhile, insurers were charging premiums that had expectations for much larger increases baked into them.

But Bill Faison, a Democratic representative to the North Carolina State Legislature, points to the BCBS in his state, with $865 million in reserves and profits that are up 132% since 2001, and says, "There is evidence that some price-gouging may be at work." Gayle Tuttle, a spokesperson for BCBS of North Carolina, says that charge is "ridiculous," because the state department of insurance has to approve the insurer's rates.

Health plans have been taking measures to keep costs down. They've encouraged the use of less expensive generic drugs and included disease management programs as free add-ons to small-company plans.

Business owners are helping to keep a lid on premium increases by gradually watering down their health benefit packages. According to the Mercer survey, 39% of small employers require a deductible of $1,000 or more, compared with 9% of large employers. Altogether, those efforts are giving small employers a bit of relief from their health-care headaches -- at least for now.

By Joshua Kendall

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