"I Can't Afford to Get Sick" (page 2 of 4)

Insurer's Dilemma

Few people are pitying the nation's health insurance companies, whose profits have risen by double digits since 2000 (in 2004 alone, they shot up 32%). But the picture hasn't been entirely bright.

From 1997 to 1999, the health insurance industry posted losses, as the cost of developing new plans grew more quickly than premiums. And now insurers contend they're caught between steep cost increases in areas like new medical technologies and pharmaceuticals, and employers who insist they can't pay another cent for insurance. These pressures are part of the reason profit margins are stuck between 3% and 4%, less than half that of insurers in other industries. Like everyone else, health insurers are looking for a new business model.

In the 1990s they thought they had found the answer -- the health maintenance organization, or HMO. "We provided first dollar coverage with an emphasis on prevention all the way to catastrophic," says Karen Ignani, president of America's Health Insurance Plans. But HMOs restricted access to certain doctors, medical tests, and hospitals, so they quickly met with loud disapproval. The plans responded by expanding networks and, predictably, costs shot right back up.

"The system in its current form really is unsustainable," argues Carol McCall, vice president at Humana, one of the nation's largest health insurance providers." Employers will say 'Look, we can't pay for this anymore. It's eating into our bottom line.' They set the parameters of choice." It is employers, increasingly, who are asking for plans that feature more cost-sharing and higher deductibles.

Don't blame us, say those running both large and small businesses. They contend they must limit health care choices precisely because insurance rates are out of control.

For ten years, Richard Czarniecki has run a small metal-cutting business out of Kentwood, Michigan. He says profits have declined while insurance prices have shot up "every single year." So three years ago, Czarniecki decided to replace his 100% coverage plan with 90%, asking his 12 employees to pick up 10%. "We want people on the floor to understand that costs do go up every year, and feel a little bit of the pain we feel."

In 1998, when one worker fell ill with kidney disease, costs jumped 32% across the board. "Every time a single person gets sick, your rates go through the roof," Czarniecki says.

Think big business has it better? Take a drive from Czarniecki's factory across the state to Detroit, where GM employs some 150,000 people. Last year GM shelled out $5.4 billion in health care costs, up $200 million from the previous year. Those expenses account for about $1,500 of the cost of each vehicle produced in the United States. Sharon Baldwin, a communications officer for GM, says that health care costs, including extremely generous benefits for retirees, make the company less competitive. So GM plans job cuts affecting thousands of workers, and reductions in salaried employees' benefits.

• • National Health Care
• • Your Medical Care
• • Health Insurance
• • Medical Dramas

• Tips on Choosing Your Health Insurance Plan
• It pays to do your research before selecting a health plan.
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• Reader's Digest Health Care Poll
• Read our fascinating findings about the underinsured middle class
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• Insurance-Speak Translation
• 20 health care terms to know.
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• Secrets of Great Doctors
• An insider's guide to getting the best medical treatment.
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• Buying Medicine Over the Internet
• Proceed with caution when purchasing from online pharmacies.
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• Is Your Hospital Gambling With Your Life?
• Your health -- even your life -- is increasingly at risk in hospitals, doctors' offices and outpatient clinics.
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