Its no simple task to assess the business of health care insurance. It is, as Sally Rosen, managing senior financial analyst at A.M. Best observes, a constantly changing industry.

The business health of carriers is very dependent on individual states, said Jessica Waltman, vice president for policy and state affairs for the National Association of Health Underwriters (NAHU), and the variations among states are extreme.

And Beth Bierbower, vice president, product innovation for Humana, Inc., homes in on the biggest challenge: trying to curb rising costs. It may not be possible to paint a concise " or even particularly clear and consistent " picture of the industry, but some patterns are obvious.

Shifts and Trends

In April, Reuters reported that the six-year bull run for U.S. health insurer stocks screeched to a halt in the first quarter. The red flag was a disappointing earnings report from Aetna, resulting from higher-than-expected medical costs, but the article pointed out that other large health care insurers also saw their shares drop in the first quarter of 2006, by as much as 23 percent. Comments by analysts included the observations that:

This is just the beginning of a down cycle; the fundamentals are getting worse;

Investors fear too much price competition; without enough enrollment to go around, prices will likely be cut;

As the economy improves, people will spend more on health care, driving up medical costs.

There is no question that costs are rising. The contributing factors, according to the preliminary Millman 2006 Group Health Insurance Survey, released in July, include an aging population; increasing consumer demand; rising rates of conditions such as diabetes, obesity, and asthma; new technology and specialty drugs; the high cost of medical malpractice litigation; shortages in the health care workforce; the cost-shifting impact of government health care programs; the cost of complying with HIPAA (the Health Insurance and Portability and Accountability Act of 1996); and changing attitudes toward health care.

Nor is there any question that the increase in premiums is slowing. The Millman survey shows the lowest rate increase in seven years, and the fourth year in a row of decline. Though other studies show slightly different numbers, a variation largely attributable to the differing bases, the figures are fairly consistent. The estimated renewal increase for January 2007 among HMOs is 9.7 percent, down 0.9 percent from 2006 and seven percent from four years ago. PPOs show an anticipated renewal increase of 10.7 percent, down one percent from last year. These percentages are unsustainable, Doug Proebsting, co-author of the Millman study, told National Underwriter in July, because we are still at two to three times inflation. We have to get back to a susainable number.

There is a similar disparity between the rise in premiums and in income, says a study released in October by Families USA. It found that, while health care insurance premiums have risen 73.8 percent from 2000 to 2006, the U.S. median income has risen just 11.6 percent over the same period. A Kaiser Family Foundation survey, published in September and, like the Families USA study, based on data from the Census Bureau, Department of Labor, and Health and Human Services, found that health care premiums increased 7.7 percent over the past year " the lowest increase since 1999, but more than twice the rate of inflation.

Premium increases have slowed even in the tri-state area, according to a July report from HealthLeaders-InterStudy. Increases in 2005 were in the single digits, where they had been double-digit from 2002 through 2004. Contributing factors, said study analyst Chris Lewis, are past rate increases that were higher than the national average, allowing premiums to catch up to expenses, and better relationships with providers, resulting in better utilization and unit-cost performance.

Number of Uninsured Rising

The number of Americans without health care insurance " 46.6 million, or nearly 16 percent of the population, in 2005, according to Census Bureau data " is enormously troublesome from any perspective. But it also represents a large as-yet-untapped pool of consumers, making for both challenge and opportunity for health care insurers.

Most of the increase was among adults, but the number of uninsured children under 18 increased for the first time in seven years. Among the fastest-growing segments of the newly uninsured were those with jobs.

The Kaiser Commission on Medicaid and the Uninsured, in issue papers released in October, offered several reasons: the rapid growth in premiums led to a decline in the number of employers offering health benefits, as well as a lower rate of employee participation in employer plans. But the findings also point to demographic and workplace factors, including a shift toward work in small firms and self-employment; a decline in employment in industries that have historically provided high rates of coverage; and greater increases in population in southern and western regions, which tend to have lower rates of employer-sponsored insurance and higher premiums than the East and Midwest. Overall, the percentage of U.S. workers covered by employer-sponsored health insurance declined from 81.2 percent in 2001, to 77.4 percent in 2005.

Those who are covered by employer-sponsored plans are feeling the effect of cost-shifting. An annual study by Hewitt Associates, reported in the Chicago Tribune on October 12, indicates that workers contributions to health plan premiums and their out-of-pocket costs together are expected to rise by nearly eight percent in 2007. Out-of-pocket costs have been on the rise, as more companies offer high-deductible plans.

Availability, Cost Disputed

The availability and cost of individual coverage are matters of some dispute. A recent study by the Commonwealth Fund, arguing that affordable health care is essentially unavailable for individuals, was quickly attacked by both the Council for Affordable Health Insurance (CAHI) and Americas Health Insurance Plans (AHIP). AHIPs 2005 study found that individuals find more choices, broader benefits, and greater affordability than is widely known. AHIP president Karen Ignagni said, The data could not be clearer. Coverage purchased in the individual market is accessible and affordable.

One at a Time

Ignagnis assertion notwithstanding, individual coverage looks very different from state to state. NAHUs Waltman pointed out that the regulatory climates vary, making a huge difference in price and in the level of competition and on the willingness of insurers to do business in particular state.

She offered several examples. In New Jersey, for instance, recent reforms have driven the individual pool down from about one million insured to fewer than 100,000. This year, she said, they raised the dependent age to 30, because so many young, healthy people are not buying individual coverage. But keeping them on their parents plan is not really addressing the problem of very costly, front-loaded policies with limited benefits. In contrast, in Pennsylvania the same young, health individual can buy inexpensive individual coverage, costing, Waltman estimated, less per month on average than car insurance.

The regulatory environment, Waltman observed, can be very market-unfriendly, and insurers pick and choose. If they think a particular market isnt healthy, they dont want to be there. Some years ago, she said, the climate for individual health care insurance in Kentucky was so bad that there was essentially no market " you couldnt get individual insurance. But a comprehensive reform package, passed by the state Legislature six years ago, included medical underwriting and a high-risk pool, and carriers returned.

Where rates do not include such factors as age and medical condition, the result is what Waltman calls a death spiral. When insurance companies have no way of assessing risk, she explained, they tend to assume the worst, making rates very high.

Training the Consumer

Pressuring state legislatures for change has not always been successful; they seem to learn from direct experience (witness New Jerseys turn-around on automobile insurance), rather than from evidence. Consumers are another matter, though they, too, may have a slower-than-desired learning curve.

Health savings accounts (HSAs), still relatively new and taken up by small numbers, have made an enormous impact, Waltman said. Most people who elect that option were previously uninsured, and their participation increases the size of the market. More important, perhaps, is the constellation of various consumer-driven health products (CDHPs) which are exposing consumers to health care costs and consequences. The phrase in the industry is price transparency, and making people aware of the real costs, Waltman said, has an impact on utilization and on wellness.

Its important to educate employees to be better health care consumers, said Humanas Bierbower. How do we get consumers to budget for health care needs, as they do for other expenses? Humana, she noted, was an early-adopter of consumer-centered health care, which has given the company insights into approaches that create positive behaviors. She said that communication with employees about issues like how to choose health care benefits and how to use them is a major factor in curbing costs year after year. But, she pointed out, you have to communicate year-round, not just during open enrollment.

Technology

To that end, in addition to the more traditional newsletters and information packets, Humana uses newer technologies for programs like Maximize Your Benefits, an automated, voice-activated call used to inform and educate consumers on topics such as lower-cost alternatives for prescription medications. The companys quarterly Smart Survey summarizes the consumers medical activity and prescriptions and a breakdown of costs, and includes health-related information and articles specifically tailored to that individual.

For many companies, technology has helped cut operating costs. Rosen noted the rapid growth of web-driven services, such as checking on the status of a claim, which frees up customer services employees. The newer systems can handle more volume, she said, and have more features.

Websites are also proving valuable for helping consumers compare costs of doctors, medications, even hospitals, whose costs for a particular procedure may vary considerably. And many of the larger carriers, like Humana, have a variety of wellness and fitness programs " aimed, most often, at the rapidly rising incidence of obesity, diabetes, and the like " which include incentives.

Still, Rosen acknowledged, while carriers are trying to make consumers more aware of costs and choices, and more responsible for both, its not easy to change attitudes and behaviors " trends take time.

Down-to-Earth Change Or Blue-Sky?

One question that is still open, Rosen said, is what will ultimately happen to Medicare? Medicaid is already moving into managed care and being shifted to the carriers, quite a few of whom, she noted, are showing real interest. If Medicare were turned over to the carriers, it could be advantageous for them, but Im not sure the country is ready for that, she said.

Bierbower commented that Humana is always looking for new products, not just the traditional health care insurance offerings. One in particular, she said, is showing promise. Because of the increase in high deductibles, were starting to see health plans that partner with banks around a line of credit exclusively for health care use, she explained. By way of example, she proposed the case of an individual who enrolls on January 1 in a plan with a high deductible and an HSA. By January 15, that consumer has put away $100, but on the 16th, breaks her leg skiing and gets a bill for $2,000. The line of credit would fill the gap. I think were going to see this evolve, she suggested, but its too new for any specific details.

And then theres medical tourism. A recent article in The New York Times " and not in the travel section " describes a growing number of Americans, primarily uninsured, who travel overseas for medical procedures and treatment that cost up to 80 percent less than in the U.S. That translates, in one example cited in the article, to a total cost of $9,000 for three weeks in New Delhi, including spinal surgery with a five-day hospital stay, airfare, hotel, and sightseeing. The surgery alone could have cost as much as $50,000 in a U.S. hospital. Hospitals in India, Thailand, Malaysia, and Costa Rica are aggressively courting Americans with high-end amenities and, very often, American-trained physicians and surgeons.

No one has confirmable data yet, but the growing numbers of medical-travel companies would indicate a large anticipated market. Those companies are being joined by some insurers: the Times article notes that United Group Programs, in Florida, offers medical travel in its health plans for corporate clients, of which some 40 now make those plans available to employees. And the West Virginia Legislature is looking at a proposal that would encourage employees to travel abroad for some medical procedures.

Medical tourism may or may not put enough pressure on domestic health care to lower costs and increase availability. But the combination of medical treatment and vacation might just improve outcomes.