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Michigan’s misery: Costs for health care up, again

Date Posted: November 12 2010

U.S. health care costs have mostly defied the laws of gravity in recent years, and 2011 is expected to be no different.

While the nation’s inflation rate remained at a relatively calm 1.14 percent in September , health care costs are expected to jump in the 10 percent range in 2010, and then another 10.5 percent in 2011. So says the annual Segal Health Plan Cost Trend Survey, which has looked at such costs for the last 14 years. They survey managed care organizations, health insurers, pharmacy benefit managers and third party administrators.

In Michigan, the higher health care costs are just part of a pile of problems facing building trades pension and health care trustees, said John Tesija, an attorney representing about a dozen funds in the state. He said workers and employers aren’t big enough to have major purchasing power, so are at the mercy of the health care marketplace.

In addition, the construction economy has been lousy for a few years and contributing hours are down, pension plans are usually first in line for scant money allocated during negotiations, and now the new federal health care plan will bring new, costlier requirements to plans (like requiring plans to insure kids until they’re age 26) effective next year.

“It’s a tremendously negative environment, and I don’t see anything positive happening until work starts picking up in the state, and I mean really picking up,” Tesija said. “All the plans are hurting. With health care, we’re headed to the point where the member co-pays are just going to keep increasing.” He said other options for plans are to create “eligibility roadblocks” to benefits for members, such as more stringent eligibility requirements, in order to stay afloat.

It gets worse. Tesija said with the lousy construction work outlook, workers are retiring early, drawing on their pension (the pension funding mess is another horror story). Those retirees are not ready for Medicare, so they’re “getting things fixed” under their union health care plan. Higher man-hours worked is the only solution to re-funding the medical plans.

“Reserves are depleted, work is down, costs are going up,” Tesija said. “Michigan is hurting more than the rest of the country, and Michigan’s building trades funds are hurting more than those in the rest of the country.”

The Laborers said in an article that their health and welfare funds and signatory employers “face increased challenges to continue to provide affordable health care for Laborers and their families. The prospect will be particularly daunting for industries like construction, which has been heavily impacted by the recession.”

Other notable findings from the Segal survey include:

*All 2011 medical plan types are projected to experience cost trends that are more than eight times higher than the consumer price index for all urban consumers.

*Prescription drug trends (for retail and mail order combined), which have remained below 10 percent for the last three years, are forecasted to increase 9.2 percent for active participants and early retirees.

*Price inflation for inpatient hospital stays is the largest component of overall plan cost trend.

After several years of declining trends, it appears that 2008 was the bottom of a downward pattern, but that was just an aberration on the long-term history. Cost trend rates returned to an upward direction beginning in 2009.

Health care reform legislation adopted this year “is expected to add to cost trend rates, at least in the near term,” the Segal survey said. “However, the long-term impact of the Affordable Care Act on plan sponsors’ future health benefit plan cost trends is unclear.”

According to the Congressional Budget Office, overall U.S. health care costs tripled between 1965 and 1985, and then tripled again between 1985 and 2005.  Health care costs have historically averaged increases of 4.9 percent a year in the past 40 years.