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Insurance 2002: Pay more now or pay more later

By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times, published August 25, 2002

The good news about insurance? I'll let you know when I find some.

The good news about insurance? I'll let you know when I find some.

The bad news? Insurance premiums for nearly every conceivable type of insurance, from health to vehicle to home coverage, seem to be skyrocketing at the same time.

Which brings us to a stopgap strategy by the insurance industry and employers to keep premium-shocked policyholders from outright rebellion: the fast-rising deductible.

Experts warn we are at the start of a new cycle of ballooning insurance premiums. To dull the blow to consumer wallets, insurers are aggressively pushing a half solution. The rate increases won't have to be quite so outrageous if policyholders are forced to cough up sharply higher deductibles before coverage kicks in.

Let's put this another way: If you hit me harder in the head, I won't care as much that you're stabbing me in the back.

So here's my question: At what point does an insurance deductible get so big that it makes the policy behind it irrelevant?

Just to be clear, I checked the definition of "deductible." Here's what Webster's dictionary says:

. . . a clause in an insurance policy stating that the insurer will pay that portion of a loss, damage, etc. remaining after a stipulated amount, to be paid by the insured party, is deducted.

That sounds correct, on paper. But it's sure wrong in spirit. Here's a more timely definition of deductible, based on what's happening in 2002:

1. Skyrocketing sum you must first pay out of your own pocket for: any damage to your home or apartment, vehicle or boat; any basic health coverage before your sorry excuse for an HMO kicks in; 2. for businesses facing their own rising costs, what must be dumped on employees to maintain the facade of offering affordable health plans; 3. what insurance companies can't raise fast enough to make up for inefficiency, poor risk analysis, too many claims and years of heavy losses on their stock market investments.

Rising deductibles are appearing in employer-offered health care plans. Why? To help offset the larger percentage of higher premiums that businesses want their workers to pay. Deductibles of $1,000 (that's right, you pay $1,000 before coverage even begins) are growing common for major procedures such as surgery. Some health plans are seeking deductibles of $7,500 and more.

Next year will be the fifth straight year of rising health insurance premiums. A survey by the Hewitt Associates consulting firm found that HMO rates increased an average of 15.3 percent this year and could increase 20 percent in 2003. That's a hefty price bump (if not a pay cut) when most wages are going up a mere 3 or 4 percent.

In the 1990s, it was a different health care scene. HMOs tried to control costs by requiring patients to get pre-approvals before they saw expensive specialists or got high-priced tests. When patients got fed up, that scheme failed. As costs rose, businesses chose to absorb the extra charges because the economy was strong and good workers had plenty of job choices in a tight labor market.

By 1998, companies spent about $4,000 on health for each of their workers. Last year, that figure rose to $5,162. This year, according to the Mercer benefits consulting firm, employers will spend close to $5,700.

A recent health care survey of executives from 460 U.S. companies, conducted by the UCLA Anderson Forecast, found that 76 percent raised their health care plan co-payments or deductibles.

You can thank today's weaker economy. Larger companies are eager to push more of their health plan costs on to employees. And, as Times reporter Kris Hundley explains in her accompanying story, smaller businesses that still bother to offer health plans to their workers now are confronted with unusually hefty cost increases.

Among the country's smallest businesses, 70 percent do not provide any type of health care coverage to eligible employees. It's too expensive.

Among lower-income workers, the figures paint a bleak picture. More than 9-million U.S. families spend more than one-fifth of their total income on medical costs. Unpaid medical bills account for about 200,000 bankruptcies annually. And 40-million Americans can't get or afford health coverage and simply live uninsured.

Sky-high deductibles are also gaining popularity among insurers of homes and vehicles. Insurance companies insist larger exposures -- including damage from hurricanes in Florida, earthquakes in California, and (soon enough) toxic mold everywhere -- must fall under separate riders and be covered only after customers pay high-dollar deductibles.

In Florida, as well as Texas and California, premiums for homeowners coverage are rising on average more than 15 percent a year. That rate of increase is another reason many policyholders are opting for higher deductibles.

Boosting the deductible on basic home or vehicle coverage from $250 to $500 can save between 10 percent and 15 percent on the premium. Going from $500 to $1,000 can cut costs by almost 25 percent, according to the Insurance Information Institute.

Higher deductibles also offer a silver lining. They help prevent policyholders from filing too many petty claims with wary insurers looking for a good excuse to cancel marginal customers. That's especially important in Florida, where homeowners coverage is hard to find and where No. 1 home insurer State Farm has stopped selling new homeowners policies.

Businesses also face similar pressures to accept higher deductibles. The Risk & Insurance Management Society, which represents corporate risk managers, says its members are now being forced to pay the first 5 percent of the insured value for hurricane damage. They used to pay only the first 2 percent.

"People need to think of insurance as a policy for catastrophe," says Jeanne Salvatore, vice president for consumer affairs at the Insurance Information Institute, and not something that pays for routine needs.

That's a sobering message in a struggling economy. Down the road, insurance coverage -- high deductibles and all -- may end up as little more than the helper of last resort.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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