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Rising costs, higher premiums hit businesses, insurance companies

| Saturday, Feb. 9, 2013, 9:00 p.m.
Steven Dietz-contributing photographer
Candace Smail inspects parts maunfactured at Penn United Technol0gies in Cabot, Butler County, on Friday, February 8, 2013. Steven Dietz | for the Tribune-Review
Steven Dietz-contributing photographer
Michael Gore, controller of Penn United Technologies in Cabot, Butler County, says the company has been able to keep health care costs in check with an employee-wellness program and other initiatives. The company spends about $4 million a year on health care for its 580 employees and their family members. Steven Dietz | for the Pittsburgh Tribune
Steven Dietz-contributing photographer
Scott Gaiser works on a press die at Penn United Technologies in Cabot, Butler County, on Friday, February 8, 2013. Steven Dietz | for the Tribune-Review

Alle-Kiski Industries Inc., an Allegheny Township contract manufacturing company, is paying 17 percent more this year to provide health insurance for its 38 employees, co-owner Kevin Hartford said.

“It's been a challenge,” Hartford said of keeping up with rising premiums. “We've gone to a high-deductible plan just to try and balance it, and that's actually helped.”

But he's concerned about what full implementation of President Obama's signature first-term achievement — the health care reform law known as the Patient Protection and Affordable Care Act — will mean for insurance costs next year.

“Based on what we've been hearing, Obamacare should be more expensive,” he said.

It's a concern shared by Highmark Inc., the state's largest health insurance company and provider of coverage for Alle-Kiski Industries and many businesses across Western Pennsylvania.

The Downtown-based nonprofit insurer expects the Affordable Care Act to trigger several across-the-board cost increases through a range of new fees and taxes on health plans and other parts of the health care system, said Deborah Rice, an executive vice president in charge of Highmark's core health insurance business.

“Our review and assessment of the regulations, at least to this point, would suggest there's a lot of additional cost that will be seen,” Rice told the Tribune-Review last week.

Those new costs, such as a 3.5 percent fee on premiums for individuals buying coverage through new marketplaces called exchanges, are on top of reimbursement increases that the insurer has negotiated with UPMC and West Penn Allegheny Health System, Rice said.

Adding new benefits required by the Affordable Care Act, such as not denying coverage for pre-existing conditions, will make it easier for the uninsured to gain coverage, but may add about 3 percent higher cost to premiums for individual plans in Western Pennsylvania, she said.

Those new costs also are on top of the ever-increasing cost of medical services. Rice said. But some of that extra cost could be eliminated and lead to substantial savings.

An estimated 30 percent of health care spending is duplicative testing, hospital readmissions, hospital-acquired infections and other unneeded or preventable procedures, Rice said.

“All those things add up to wasted costs,” she said.

All insurance companies, Highmark included, are trying to rein in unnecessary spending in an effort to control costs, said J.T. Shilling, principal in health and benefits for consulting firm Mercer in Pittsburgh.

“All the carriers are trying to focus on improving health and that will lead to more savings and more stable rates in the long term,” Shilling said.

Penn United Technologies Inc., a manufacturing company in Cabot, Butler County, has experienced some success in controlling its health care costs with an employee-wellness program and other initiatives, said Controller Michael Gore.

Over the past several years, health costs for the company's 580 employees plus family members have increased an average 3 percent to 4 percent a year, or about half the national average, Gore said.

“We've really pushed our wellness program, and I think it has an impact,” he said.

The company spends about $4 million a year on health care, he said. Some of the new provisions of the health care reform law, such as allowing young adults to stay on their parents' health plans, already has increased those costs by about 1 percent a year, or about $40,000.

A new fee included in the Affordable Care Act of $63 per individual will cost Penn United an extra $85,050 a year starting in 2014, Gore said.

“That's a decent cost for us,” he said.

Over the last year, rate increases by Highmark and other insurers in Pennsylvania have received public scrutiny because of provisions of the health care reform law. Highmark, for example, raised rates on small employers by 9.8 percent in the first quarter this year, a move affecting about 94,000 people. It also has raised rates on plans purchased by individuals because they don't get insurance from an employer.

Aetna Inc., a Connecticut-based for-profit insurer, in November proposed increases of 14.4 percent to 17.9 percent on 150,000 people who get their health insurance through small employers.

“Insurers around the country are trying to raise rates” ahead of full implementation of the Affordable Care Act, said Laurie Sobel, senior attorney with the Consumers Union, the nonprofit publisher of Consumer Reports magazine, and a health policy expert.

Because the law triggers greater scrutiny on rate increases of 10 percent or higher, she said, “we've seen a lot of rates come in at 9.9 percent, which is significantly lower than what was happening before.”

Rich Klavon, vice president of SMC Insurance Agency, a division of Churchill-based small-business advocacy group SMC Business Councils, said in general it seems that insurers in Western Pennsylvania have been keeping a lid on cost increases.

“I can honestly say I haven't seen big swings in the rates,” Klavon said. “Some big (increases) here and there ... but we're not seeing the increases like in prior years.”

Part of that moderation is linked to increased competition among insurers in the region.

Highmark is facing new competition not only from UPMC Health Plan, the insurance division of UPMC, the largest health system in Western Pennsylvania, but also from Aetna and three other national companies — Cigna Corp., United Healthcare, and HealthAmerica.

At the same time, Highmark is spending more than $1 billion to create a new integrated health system to compete against UPMC. It is trying to buy West Penn Allegheny Health System, Jefferson Regional Medical Center and St. Vincent Health System in Erie.

Rice said that spending is not leading the insurer to charge more for health insurance. A competitor to UPMC will have lower costs, she said.

“What we're building is intended to bring costs down in the future,” she said. “Without this strategy, costs will continue to escalate to the point where employers won't be able to provide coverage.”

But spending on West Penn Allegheny and other components of the new system is expected to decrease Highmark's earnings this year, according to estimates the company filed with the state Insurance Department. Net income in 2013 is expected to be $106.1 million, down from a projected $412.6 million in 2012.

Highmark has not released official financial results for 2012.

Rice said Highmark can absorb that spending and the lower results for a short period.

“I would say that I believe we are in a very healthy place,” she said. “I think we'll sustain the level of financial stability we've had for years.”

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or

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