The Medical Association of the State of Alabama's (MASA) health insurance for members will rise 15 percent next year. "We didn't like 15 percent," says Mark Jackson, executive director. "But don't get me wrong, we felt fortunate that we were able to keep it at 15 percent."
That runs about three times over the national expected average for businesses. Employers expect total healthcare costs to increase five percent in both 2016 and 2017, up from four percent in 2015, according to the annual Best Practices in Health Care Employer Survey.
The National Business Group on Health estimates a similar increase for employers at around six percent, which is three percent more than the expected average pay raise for 2017. Their survey reported data from 133 of the group's 425 large businesses, which employ and provide health benefits to more than 15 million Americans.
MASA's premiums for this year stayed within the expected range at five percent. But Jackson says those rates were based on speculation of a new plan that covered office staff for the first time. "We did not have a full year's claims data for Blue Cross to get an actuarial rate. Now we've been paying out over a longer time and it gives a truer picture," he says.
Unlike the volatile rates on policies for individuals--such as on the Affordable Healthcare Act (ACA) exchange where rates hikes are skyrocketing 20 to 39 percent in Alabama--large business insurance rates depend on each employer's claim amounts in previous years. Bigger risk pools within a company means stronger bargaining power with carriers and potentially more stability in premiums.
Small to mid-size businesses with their limited risk pools can get hit hard. For the smallest businesses--those with fewer than 50 employees--the ACA exchange offers insurance packages to mitigate that risk. In Alabama, the 2017 rates for those employers on BCBS products on the ACA exchange will rise 2.9 to 5.75 percent, compared to New York which shows an average 8.5 percent hike for these plans.
MASA says their past year claims, covering 2,500 people, showed unusually high expenditures. "We had individuals who had some medical conditions that were extraordinarily expensive. That drove a good bit of that premium surge," Jackson says, along with a continued increased in drug costs. "The new drugs on the market for some of those conditions were very, very expensive."
Muscular sclerosis tops MASA's claims list of costly new treatments. "Those drugs save lives, which we're thankful for, but somebody has to pay for that," Jackson says. Other high cost diagnosis for MASA included prostate cancer and NK/T cell lymphoma.
Escalating drug costs are causing premium upswings nationwide. The American Hospital Association reports a 38.7 percent growth in inpatient drug spending between 2013 and 2015, citing the cost of some drugs jumping as much as 3,600 percent during that time. Hepatitis C drug costs rose by 54 percent, according to New York state, whose claims reflected a 14 percent rise in the use of those drugs.
BlueCross BlueShield of Alabama (BCBS) also cites pricey pharmaceuticals for insurance premium increases. "Drug costs are increasing," says VP Koko Mackin. The BCBS Trend Factors Cost/Utilization section on the federal exchange reports, "The prescription drug cost trends include provision for high cost specialty drugs which have increased drug costs significantly since 2014 and will continue to impact costs."
In 2015, specialty drug spending reached $121 billion, up more than 15 percent from the previous year, according to an IMS Institute for Healthcare study.
"There are some things we could do on the drug program to lower our costs, but that would raise the cost to individuals who use those high-cost drugs, and we don't want to do that," says MASA's Jackson. "But it's fair game to look at those kinds of things if we continue in the same direction in the future."
According to Best Practices in Healthcare Employer survey, most employers are adjusting benefits to offset their premium hikes. Nearly nine in 10 employers targeted pharmacy spending for high-cost specialty drugs as their top priority over the next three years. They also added a surcharge on an average of $100 for working spouses with coverage offered by their own employers. Almost half say by 2018, they will only offer an account-based plan, which means a high-deductible health plan with a tax-advantaged savings account.
UAB's Mickey Trimm says the rising premium costs lie in the faulty healthcare system itself. "The problem is that we're not seeing a lot of changes to the system that could cause cost reductions," says the associate professor and director for the Center for Healthcare Management and Leadership at UAB. "There's a lot of experimentation but not a lot of big system changes."
"Where do we go from here? That's the million-dollar question -- or the 15 percent question for us," MASA's Jackson says. If the insurance hike runs high again in 2018, MASA will have serious conversations with BCBS about what they can offer their members. But Jackson is cautiously optimistic about the needs of those high-cost individuals lessening. "So maybe we won't incur that expense this year, and then our premiums for 2018 will be all about utilization."
"The bottom line is that healthcare in the U.S. cost per individual is about $8,000 per year and the rest of the industrialized world is at $4,000, and we have poorer outcomes," Trimm says, adding a reminder that premiums were going up before ACA came into existence. "We've had rate hikes for years and years. Some years had double-digit rate hikes. That's the reason the Affordable Care Act even passed, because we were having such high rate hikes."