When Jerry Lorenzen moved to Utah seven years ago, his monthly health insurance premium was $55 a month, affordable for the retired IBM engineer and his wife.
Today, he pays nearly 10 times that, and his story is a cautionary tale about the rising costs of health care. There is no shortage of reasons to explain why the costs are spiraling -- but solutions remain elusive.
One thing is certain. For Lorenzen and millions of Americans like him, the danger of losing health coverage grows with every passing day.
It wasn't always that way. IBM had been generous to Lorenzen, who was 58 when his premiums were $55. The tech giant subsidized his health insurance by contributing $7,000 a year. If it hadn't, Lorenzen's expense would have been almost $640 a month.
Upon arriving in Utah, Lorenzen switched insurance companies. He signed up with SelectHealth, the insurance arm of Salt Lake City-based Intermountain Healthcare, and the monthly premium in 2003 went up to $63.
"I thought that was reasonable, and we were happy with the doctors and hospitals" affiliated with Intermountain, Lorenzen said.
In 2004, his premium nearly tripled, to $189 a month. The next year, it shot to $333, and in 2006 it soared to $476. Lorenzen was forking over 656 percent more for health insurance just four years after moving from New York.
The situation grew worse in 2007. SelectHealth socked Lorenzen with a premium of $830 -- even though IBM was still underwriting his insurance.
"It was scary because the premiums were becoming a significant percentage of our retirement income, and even worse, if the premiums continued to double every year, they would quickly exceed our annual income," he said.
Unwilling to pay more, Lorenzen transferred to United Healthcare, which billed him $503 a month for the same coverage.
It was a short respite. Lorenzen's premium today is almost $900 a month for a high-deductible plan. He turns 65 next month, qualifying him for Medicare. But his wife is three years younger, so private insurance is still a must. Last week, he turned to a third insurance company, Aetna. His premium will be $528 when the policy goes into effect Thursday.
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Who's to blame? » Lorenzen is in a temper, and he isn't alone. He criticizes insurance companies for the inexorable rise in his premiums. But he also heaps blame on hospitals and doctors who aren't sensitive to costs when prescribing medicines and procedures.
"If things keep going at this rate, I don't know if we can afford it, or how anyone can afford it," he said. With the number of uninsured Americans rising and the employers who provide insurance for their workers falling, the cost of health insurance is stoking the debate about health care reform.
Premiums for employer-sponsored insurance this year average $13,375 for family coverage, according to a widely cited Kaiser Family Foundation study. A decade earlier, employers and workers paid $5,791. But as insurance skyrocketed, the percentage of firms offering health benefits fell from 66 percent to 60 percent. Today, fewer than half of the smallest employers provide benefits.
There is some good news. Annual family premium increases have moderated in recent years. Premiums rose 5 percent in 2009, faster than inflation but slower than the double-digit increases earlier in the decade. Still, wages went up only 3.1 percent, leaving Americans with fewer dollars in their paychecks.
Trying to pin down why insurance costs so much isn't simple. Doctors blame insurance companies, who accuse hospitals and physicians, while consumers blame everyone but themselves. With so much blame going around, it's difficult to imagine Congress will craft a law that provides insurance to 46 million uninsured Americans and offers affordable coverage to everyone else.
But the effort is worth it, health experts agree. Greg Poulsen, senior vice president of Intermountain and a nationally recognized health policy expert, says if runaway health costs had been brought under control, average premiums might be 20 percent lower today.
"If you were able to get your arms around them, I think [the rate of premium increases] absolutely could be cut by half," Poulsen said. "But that's going to take a lot of work, not only by the health care providers and insurers, but by each of us as consumers and patients. We need to think differently."
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Who's to blame? » There seems to be no end to the reasons cited for why insurance is expensive. And although some are obvious, others aren't. On average, Utah businesses that provide health benefits pay a hidden 17 percent "premium tax" to cover the cost of care for the uninsured, according to the Utah Hospitals and Health Systems Association.
"There's a cost shift, and that cost shift in 2008 was $1,017 for family health insurance coverage and $368 for single coverage," said Kim Bailey, a health policy analyst for Families USA, a nonpartisan group working to bring about affordable health care.
Insurance companies pin some blame on consumers. They point to rising rates of obesity and other "lifestyle" diseases. In Utah, Regence BlueCross BlueShield increased premiums by an average of 17 percent, effective July 1. Depending on lifestyle, age and health, increases for individuals and families could be as little as 7 percent or as much as 27 percent, spokesman Mike Tatko said.
Kelly Francis is skeptical. He owns Aero-Graphics, a Salt Lake City photogrammetry firm with 30 employees. It's a young work force with few risk factors -- the average age is about 35. Most employees have college degrees. Only one is a smoker.
And yet SelectHealth raised Aero-Graphics' annual premium by 16 percent this year. Francis pays $11,000 a month. Rates have increased by more than 10 percent annually for a decade. Each year, he shops for a better deal, but ends up sticking with SelectHealth because everyone else is more expensive.
"We are almost to the point of not being able to provide it anymore. We haven't (decided to end health benefits). But if we see another 16 percent increase, it's going to be close," Francis said.
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Pricey care » Insurance companies contend that hospitals often charge exorbitant prices for treating patients. David Leo, CEO of Salt Lake City-based Western Mutual Insurance, sent a letter earlier this month to President Barack Obama. In it, he said health insurance is expensive because health care is expensive.
As proof, Leo offered examples of "out-of-control and unregulated medical and prescription drug costs," including a $58,000 bill from a surgical center for treating a broken foot and 23 hours of follow-up observation care, a $42,000 air ambulance bill to transport a patient 180 miles, and a $250,000 bill for a patient's back surgery and two-day hospital stay.
"When insurance companies are forced to pay such wildly inflated amounts ... the cost of health insurance rises for everyone. Over time, these skyrocketing costs push many employers out of the insurance market and into the ranks of the uninsured," Leo wrote.
A U.S. family of four with an employer-based, preferred-provider organization will average $16,771 in health care costs this year, 7 percent more than last, according to Milliman, a national consulting firm.
But the report shows wide geographic variations in costs. Care for Miami families will average $20,282, the highest of 14 metro areas studied by Milliman. By contrast, Phoenix families average $14,857. No figure exists for Salt Lake City, but lower-cost areas generally are in the West, said Lorraine Mayne, a Milliman principal and consulting actuary in Salt Lake City.
Intermountain's Poulsen said the easiest way to reduce costs is to cut back on the huge geographic disparities. It's an argument Obama buys. Several times, he has singled out Intermountain's cost-containment efforts as a model for health reform.
Harder to control is cost-shifting, which Poulsen said includes Medicare and Medicaid reimbursements that are below the cost of service, as well as the shifting of costs to care for the uninsured.
"Close to 50 percent of total health care expenses are incurred by Medicare, Medicaid and the uninsured. So when those three categories don't pay the full cost of their care, those are shifted to people who are buying commercial insurance," he said.
Poulsen said a third to half of the premium increase can be traced to medical technology and pharmaceutical advances that improve survival rates and extend life expectancy.
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Incentive lacking » Other experts fault consumers who demand expensive drugs instead of generics and expensive but unnecessary procedures that doctors are willing to perform. Once deductibles are met, patients have little incentive to be cost-conscious because insurance will pay the bill. And physicians can rest easy, knowing they probably won't be sued if the patient sickens further or dies.
"There's no accountability. The competition [for a doctor or hospital] to provide a low service isn't there because the insurance is the middleman," said Aero-Graphics owner Francis.
Although he doesn't advocate eliminating insurance, Francis thinks premiums would plummet if no one had coverage because doctors would be forced to go head-to-head for patients. "They would have to compete, just like we do in our business."
Short of that option, Francis will support whatever reduces the cost of health insurance. If that's a government insurance option, he's for it. Ditto for Lorenzen, a registered Republican who thinks the GOP is "extremely negative" to any meaningful reform.
"I think something needs to be done, and I also say that as I get closer to 65, I'm very glad that Medicare is available to me," Lorenzen said.
