OUR AGING HEALTH CARE PROGRAM

Rough Notes, Apr 2004 by Widmer, Lori

Aging baby boomers experience boom in health care costs

Thanks to a period of stagnant economy, losses in 401(k) investments, and an aging population that didn't figure huge losses into its retirement savings plans, more employees are staying on beyond retirement age. What's that going to do to your clients' and your agency's health care programs'?

Are you ready for another year of double-digit health care cost increases? No? That's too bad. According to the Spring 2003 Health Care Trend Survey conducted by Aon Consulting, your clients can expect to see an average 16% increase in costs. Increases for PPO plans are expected to be above 17%. Point-of-service programs are going to see 16.1% in price hikes, and HMOs will see an increase of 16.4%. Those increases are approximately eight times the annual general inflation rate of 2.1%.

If you're looking for good news down the road, look again. According to a study by Project HOPE and the Office of the Actuary, Centers for Medicare and Medicaid Services in Baltimore, health care spending over the next 10 years is expected to outpace economic growth. As a result, the health care "share" of the gross domestic product is expected to climb to near 20% by 2013.

More bad news-baby boomers expect to work well into their 70s and beyond, according to a recent AARP study. If they're lucky, they'll still have health care coverage. Guess who they're hoping to get it from? That's right-their employer.

Current crisis

Congress recently approved the Medicare budget for 2004. President Bush countered two months later with a call for an additional $134 billion increase on top of the already huge $400 billion budget. The White House says the extra monies are needed for the addition of a prescription drug benefit to Medicare.

That's just this year. Wait until baby boomers hit retirement age, say experts. "As the baby boomers reach retirement at the end of this decade, millions of individuals will be entering the Medicare program," says Robert Hartwig, chief economist for the Insurance Information Institute. "That's part of the debate behind Medicare reform and prescription drug benefits. The Medicare reform benefit that was recently passed is going to cost far more than originally estimated."

That creates yet another costly scenario-uninsured people. Right now, 43.6 million people in the U.S. have no health coverage. Yet these same people do not stop incurring medical expenses, say the experts. Who pays? You and your clients.

Aging employees

Given all this, it's no surprise that half the employees surveyed are staying put in their jobs, or working part time in order to offset health care costs, as 30% in the AARP study stated. What that adds up to is more cost for everyone. "Employers are going to face higher premiums," says Hartwig. "Employees are going to pay a greater share of it. Invariably, taxes are going to have to rise. Unfortunately, we're already seeing a shaving off of benefits. It's in the form of higher deductibles and copaymcrits, and higher premiums for employees-and in a record number of uninsured individuals."

According to the 2000 U.S. Census, it is expected that 54 million workers will be between the ages of 50 and 64 by 2010. The 50-plus population of the U.S. will stand at approximately 90 million. That's one-quarter of the population looking to draw more frequently from Medicare and other health care programs. Experts cringe at the numbers, predicting shortages in coverage and more people joining the ranks of the uninsured. Congress is working feverishly toward a solution that many times seems just out of reach. According to the Committee on Small Business: "As we debate protective legislation in Congress, we must accept the fact that any of the alternatives we consider will increase the costs of health insurance for small employers." Even the solutions sound painful.

Where health care is heading

Will there be a raise in the age limit for Medicare? "That's one thing that's been discussed," says Hartwig. "It's likely to meet enormous opposition from senior citizens." However, that doesn't change the obvious. "The fact is that the health care spending rose to $1.7 trillion in 2002. These are astounding growth rates. This is about 15% of GDP. It's the case that the elderly do require more intensive use of health care systems.

"If we go out five years, it's the same system we have today, but getting more expensive," he says. "If we go out 15 years, the current system will be creaking, with a very substantial portion of the population uninsured, with costs consuming 20% of GDP, and Medicare facing an enormous unfunded liability potentially. It's a very scary scenario when you look 15 years out and baby boomers are beginning to retire and the underlying cost of health care continues to rise at double-digit rates, especially if there's a period of economic weakness where the employer feels it needs to cut this benefit. We wind up with millions and millions more people without health insurance."