
DATE: Tuesday, October 21, 1997             TAG: 9710210249

SECTION: FRONT                   PAGE: A1   EDITION: FINAL 

SOURCE: BY MARIE JOYCE, STAFF WRITER 

                                            LENGTH:  156 lines

HEALTH INSURANCE RATES INCHING UP PREMIUMS LIKELY TO INCREASE FROM 5% TO 7% IN HAMPTON ROADS OVER NEXT YEAR.

Hampton Roads residents can expect to pay roughly 5 percent to 7 percent more in health insurance premiums next year, after several years of much lower average increases, health care sources say.

But the rise won't match the steep increases of the late 1980s, they say.

Next year's increase seems to be happening nationwide. The New York Times reported that the average charge for health benefits will rise at least 5 percent - higher than wages and inflation.

The change may not be welcome news to consumers who are re-enrolling in their health plans during the annual fall sign-up period. But it's an inevitable reaction to several years of price wars and cost-cutting, said William K. Ginnow, associate dean for health affairs at Norfolk's Eastern Virginia Medical School.

``Insurance premiums run in a cycle: They go up, they go down,'' he said. ``It's time for them to go back up.''

The extent of the increase varies, depending on whom you talk to:

Norfolk-based Sentara Health System, owner of Optima Health Plan and one of the region's biggest insurers, will raise its premiums an average of 4 percent in 1998, compared with a 3.5 percent increase in 1997. Sentara covers about 244,000 people in Hampton Roads.

Richmond-based Trigon Healthcare, which covers about 400,000 people in Hampton Roads, is charging Virginians 5 percent to 6 percent more for premiums in 1998. Last year, it raised premiums just 3 percent, said Tom Snead, the company's president and chief operating officer.

Overall, Hampton Roads customers can expect a cost increase of 5 to 7 percent, said Richard P. Herzberg, an independent insurance agent with The Frieden Agency Inc. in Virginia Beach.

``It's probably a little higher than last year,'' he said.

For health maintenance organizations in the South Atlantic region, which stretches from Delaware to Florida, rates are projected to rise 5.12 percent, according to a survey done by Sherlock Co., a Philadelphia-based health consultant.

That's slightly higher than the overall national increase his company reported - about 4.6 percent - but lower than in the Northeast.

That said, plenty of individuals could see much higher increases, depending on specific arrangements between employers and insurers, Herzberg said. Typically, large employers have more clout and a larger pool to spread costs around.

One of the unlucky companies is Smithfield Companies Inc., the Portsmouth-based parent company of Pruden Packing Co., V.W. Joyner & Co. and other meat-processors. Company managers recently were told to expect a 10 percent to 12 percent rate increase, beginning in April.

``We're still seeing increases significantly greater than the increase in inflation,'' said Mark D. Bedard, treasurer and chief financial officer of the company, which has a work force of about 100.

One reason for the projected increase, Bedard said, was the company's claims history during the past year.

Why are rates increasing now? The cycle actually started in the late 1980s, when health insurance premiums for many companies were rising 15 percent every year. Employers and the federal government rebelled.

Their dissatisfaction led to an explosion in managed care, a type of health insurance that aims to cut costs by emphasizing prevention, promoting outpatient treatment over hospital stays, and limiting access to expensive specialists.

In many cases, insurance companies reduced what they paid to doctors and hospitals.

A price war went on for several years. Some insurance companies took losses to undercut competitors. Often, premium increases were lower than the rate of inflation, said Ginnow.

This trend peaked in Virginia in 1995 and 1996, said Snead. In 1995, Trigon's premiums dropped about 2 percent. ``A lot of competitors in Virginia were going after market share.''

But those days are over.

``You can't dodge inflation,'' said Ginnow. ``Some insurers are actually walking away from employers'' who won't take a rate increase.

``You get enough people doing that across the country, you get a national phenomenon.''

But there's no single reason for next year's increases.

Drug costs soared in 1997, insurance companies said.

At Sentara, pharmacy costs rose about 15 percent during 1997, compared with an 8 percent annual increase in previous years.

``We'd had a recent flurry of (Food and Drug Administration) approvals of very costly pharmacy products,'' said Ron Bennion, senior vice president of finance and operations for Sentara's insurance products.

Two examples are Rezulin, a diabetes medication that runs about $200 a month, and Fosamax, which prevents osteoporosis and costs about $75 a month.

Both drugs are being aggressively marketed directly to consumers.

Until recently, companies focused marketing efforts almost entirely on doctors. That changed about a year ago. A recent example is the aggressive television campaign for the allergy drug Claritin.

``You not only say, `Oh, Doc, please help me,' '' said Snead. ``You say: `I want that Claritin stuff.' ''

Another factor in the increases: Some employers are willing to pay more.

After three years of strong employment growth and a healthy economy, some companies don't mind shelling out a little more for ``quality,'' said Douglas Sherlock, with Sherlock Co. He questions whether they'll get it, since there's no good way to measure quality, and higher costs don't necessarily mean better care.

``Employers aren't as focused on the cost of health care because they're feeling rich,'' he said.

In the late 1980s, employers were so eager to cut costs that they let the insurance companies strictly limit what doctors their employees could see and what treatments were allowed. Employees chafed at this.

Now, employers want more access to doctors and less insurance company control of health-care decisions, said Bennion.

``And they're willing to pay just a little bit more for that.''

Other factors also contribute to the rising premiums.

Doctors and hospitals have banded together and gotten smarter about dealing with insurance cost-cutting, said Herzberg.

For example, said Trigon officials, insurance companies have been trying to push more patients into outpatient surgery, which is cheaper than an overnight hospital stay.

That has had a heavy impact on hospitals, so some have started charging more for, say, an X-ray in the outpatient clinic than an X-ray in the hospital. Trigon is changing its payment policies to eliminate that cost-shifting.

Most of the fat - unnecessary doctors' visits, pointless expensive tests, brand-name drugs when generics would do - has been trimmed from health care.

``The doctors have taken big cuts. The hospitals have taken big cuts. The whole system is artificially held down,'' said Herzberg. ``The doctors aren't going to take a whole lot less. Hospitals can't run on air. . . . The fat has been shaved.''

Insurance companies disagree, pointing to surveys that show that at least 30 percent of what is spent on health care is unnecessary - antibiotics given to people with a viral infection, for instance.

``Obviously, there is a point in time when it's more difficult to reduce cost. Now, we certainly haven't gotten to that point yet,'' said May Fox, executive director of the Virginia Association of HMOs.

The government is mandating more treatment.

Reacting to consumer outrage, many states, including Virginia, have passed laws requiring the insurers to pay for certain types of treatment.

Virginia has limited how quickly a new mother can be discharged from the hospital after delivery, and made it harder for insurers to deny coverage for some types of emergency room visits. ILLUSTRATION: Washington Post file photo

Nationally

The average charge for health benefits will rise at least 5 percent

in 1998.

Graphic

Optima

Norfolk-based Sentara Health System, owner of Optima Health Plan,

will raise its premiums an average of 4 percent in 1998, compared

with a 3.5 percent increase in 1997.

Trigon

Trigon Healthcare will charge Virginians about 5 percent to 6

percent more for premiums in 1998. Last year, it raised premiums 3

percent.