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What goes up ... Featured

10:22am EDT October 29, 2001

What's driving the increase in health insurance premiums? That depends on whom you ask.

Some say it's the plunge into more research and development; others blame it on new technology and the high price of the latest equipment. Still others point to an aging population.

But there is a short list of primary drivers to health insurance cost increases that everyone can agree upon, says Scott Lyon, executive director of Group Services Inc., part of the Council of Smaller Enterprises.

Lyon says a recent survey by The Center for Studying Health Systems Change looked at issues contributing to the 2000 increases and offers the top primary and ancillary factors driving up the cost of health insurance:

Primary factors

Prescription drug spending

* 44 percent of the increase in spending in 1999 is attributed to drug spending.

* One-third of that 44 percent is due to higher drug prices; two-thirds is attributed to the introduction of new drugs, lifestyle drugs and pharmaceutical company advertising.

Physician spending

* 32 percent of the increase is attributed to growth in physician spending.

Hospital outpatient spending

* 21 percent of the increase is attributed to hospital outpatient spending.

* Annual per capita increases average 8.5 percent as inpatient admissions for medical procedures decrease.

The combination

* New drugs and new technology decrease the need for inpatient stays, but the cost to operate a hospital remains constant.

* Hospital costs are borne by fewer patients.

* New construction strains resources as the number of outreaching ambulatory centers increases.

Ancillary factors

An aging population

* The aging baby boom generation presents a higher demand for technology and treatment.

* Aging is complicated by obesity, which spawns cardiovascular disease, high blood pressure and high cholesterol.

Insurance carrier profits

* Health insurance companies push for profitability through mergers and acquisitions.

* The number of for-profit insurers exceeds the number of not-for-profit insurers.

HIPPA - The Health Insurance Portability and Accountability Act

* The law guarantees issue and renewal of health insurance in the small-group market.

* It requires that all insurance issuers offering coverage in small-group market accept every small employer that applies.

* Nondiscrimination provisions prohibit health plan or insurance issuers from denying individual eligibility for benefits or charging higher premiums than for a similarly situated individual based on health.

* HIPPA drove changes in rating methodology for commercial insurance carriers.

* Overall, many insurance carriers raised premiums to cover the additional risks associated with HIPPA.