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Author: Symonds, William C.Grow, BrianCropper, Carol MarieBrady, Diane

HEALTH CARE

During the bear market, many investors allowed their mutual-fund statements to pile up unopened rather than face the music. These days, as the season for enrolling in employer health plans kicks into high gear, millions of Americans are feeling equally queasy about another ominous envelope: the one bearing the bad news about their company's health plan.

With good reason. On average, health insurance costs for employers are expected to soar 16% this year. Although next year the surge will slow a bit, to 12%, according to a study released on Sept. 29 by benefits consultants Towers Perrin, it will mark the fifth straight year of double-digit increases. As a result, businesses are increasingly opting to share the burden with their employees in ways that make them more aware of the true cost of health care. ``One reason that health-care costs are out of control is that employees regard health care as free,'' says George David, chief executive of United Technologies Corp. To break that perception, UTC requires workers to pick up 30% of the cost of using in-network services, and 40% for out-of-network, until costs reach caps as high as $10,000.

Even for workers at companies taking more conventional approaches, costs are skyrocketing. Although most large companies still pay the same share of health insurance premiums as they did several years ago, the average premium workers shell out for family coverage has jumped nearly 50% over three years, to $201 a month, according to the Kaiser Family Foundation. Deductibles and copayments for buying drugs are up far more sharply, while more companies are tacking on nasty new charges, like separate deductibles for hospital admissions. And many small businesses are instituting far more draconian cuts, or dropping coverage altogether -- one reason why the number of uninsured Americans reached a record 43.6 million last year, up 2.4 million in just one year.

All that, in an era when wages and incomes are barely rising, has left many a worker increasingly squeezed. The extent and duration of escalating health-care costs have many experts predicting that a new battle over reforming the health-care system is on the horizon. It will almost certainly emerge as a major theme of the Presidential campaign. ``This system is simply not sustainable,'' warns Sean Harrigan, president of the California Public Employees Retirement System, which provides health benefits to more than 1.4 million people, making it the nation's third-largest purchaser of health care.

And double-digit increases in health care likely will continue through much of this decade. Blame that partly on graying boomers. The average age of employees covered by health-care plans is now 41, up from 38 in 2000. Because older workers use more health care, this pushes up costs a full four percentage points a year. Increased use of prescription drugs is another big culprit. So is greater demand for expensive tests and specialists.

Just as important, insurers also are flexing their muscles. After a brutal price war in the late '90s, many have become more focused on the bottom line. They are tightening guidelines, shunning unprofitable markets, and, yes, raising prices. Health-care costs for fully self-insured companies are up just 12.4% this year, according to Kaiser. In contrast, premiums for companies buying insurance are up 15.6%. ``It's a fabulous time to be an insurer,'' says Joe France, an analyst at Banc of America Securities. Take Aetna Inc., which suffered an operating loss of $266 million in 2001. With rates rising at a 16% annual clip, it expects to earn $900 million in operating profits this year.

No surprise then that employers are trying to regain some bargaining power. After receiving initial bids for a 31% hike next year, CalPERS negotiated a multiyear contract with Blue Shield and stepped up efforts to manage costly chronic diseases. The payoff: Premiums will rise 18%. Kaiser reports a stunning 62% of companies looked for a new provider last year. That shopping could begin to pay off, predicts France, since insurers ``want to gain members after years of losing them.''

For now, many big companies are resisting the urge to burden workers with a larger share of premiums. This year, Kaiser figures, the average worker will shell out $2,412 in premiums for family coverage. Although up 49% since 2000, that still represents just 27% of the total $9,068 bill, the same share as in recent years. ``Companies recognize this is a very sensitive issue,'' says Richard Ostuw, a principal at Towers Perrin.

Maybe so, but workers' out-of-pocket costs for using the health-care system are rising far more steeply than premiums. Since 2000, the average deductible for workers using in-network services in preferred-provider organization plans has jumped 57%, to $275, Kaiser says, while the hit for using out-of-network services has soared 65%, to $561. And 44% of companies now levy a separate deductible, averaging $200, for each hospital admission, reports Kaiser.

Of course, much depends on where one works. Although Ford Motor Co. has trimmed health benefits for its white-collar workers twice since it launched its turnaround efforts in early 2002, it still picks up 90% of the total tab for its active and retired workforce. By contrast, hotelier Wyndham International Inc. scrapped a health maintenance organization plan that required no copayment, in favor of plans that require employees to pay 15% to 40% of the full cost, up to a maximum of $2,500 or more. ``We needed to make [sure] people who use the plan really think about what service they are purchasing,'' says Dixie C. Sweeney, vice-president of compensation and benefits.

Small businesses have less wiggle room than their larger counterparts. Sandra Hord, vice-president of Premier Insurance Brokerage Ltd. in Itasca, Ill., says she's seeing the most dramatic overhaul of health benefit planning in 30 years among her small-business clients. When it comes to covering workers, she says, ``it's getting dangerously close to the time for companies to say, ``I just can't do it anymore.'' Just 65% of companies with 3 to 199 workers offered health coverage this year, down from 71% in 1999, even as 98% of those firms with more than 200 workers continue to provide coverage.

As companies large and small wrestle with rising health-care premiums, some insurers are stepping into the breach -- offering cut-price plans. To help hard-pressed small businesses keep coverage, Wellpoint Health Networks has rolled out a broader range of plans, starting as low as about $100 a month. For that, workers get insurance that covers 80% of the cost of catastrophic care and prescription- drug coverage -- but nothing toward office visits. Some 18 major employers, including Wells Fargo & Co. and Lockheed Martin Corp., have signed up for PacifiCare Health Systems Inc.'s new Value Network, which encourages employees to use high-quality but less expensive doctors and hospitals. The savings: 8% to 14%.

Still, many doubt such initiatives will solve the problem. That's why the 2004 Presidential election could echo 1992, at least on the issue of health care. That was the last time there was a spate of double-digit increases in health costs. Back then, the debate over health care helped Bill Clinton win the White House. The way costs are rising, the issue could be as potent in '04.

The McGraw-Hill Companies, Copyright 2003

GRAPH: As health costs soar...: AVERAGE INCREASE IN CORPORATE HEALTH-CARE INSURANCE COSTS

GRAPH: ...premiums are growing...: AVERAGE MONTHLY CONTRIBUTION FOR FAMILY COVERAGE

GRAPH: ...as are out-of-pocket costs: AVERAGE DEDUCTIBLE FOR IN-NETWORK OFFICE VISITS

PHOTO (COLOR): COSTLY CRISES Aging workers are driving prices

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By William C. Symonds, in Boston

with Brian Grow, in Chicago; Carol Marie Cropper, in Atlanta and Diane Brady, in New York, and bureau reports