Health care costs outpace inflation

Health insurance premiums for families in Hawaii are rising nearly twice as fast as inflation.

Family premiums soared 53 percent between 2003 and 2010, outpacing Honolulu’s 27.3 percent inflation during the same period, according to a study released last week by The Commonwealth Fund, a New York-based philanthropic research group.

This is putting pressure on families as well as businesses, which in Hawaii are required by law to provide medical insurance to full-time workers and pay the majority of the premium. Family coverage is not mandated, though most local employers pay a portion of the costs for dependents.

"Our hands are tied — we can’t not offer medical to our people, we are forced to do it," said Robyn Oshita-Vranesevic, administrative director for T&T Tinting Specialists Inc. "We just work harder and get more business to offset the increases. It’s a necessary evil."

The state-by-state analysis found that insurance costs are outpacing income growth in every state, with out-of-pocket costs consuming a larger share of workers’ income.

Hawaii’s average family median income declined 1 percent since 2002-03, while premiums as a percentage of income grew to 17.8 percent from 12.3 percent, the report showed.

At the current pace, the annual premium for family coverage in Hawaii is projected to skyrocket to $20,690 by 2020, while individual rates are expected to grow to $7,366.

On the bright side, Hawaii has among the lowest health insurance premiums in the nation.

The report ranked Hawaii third lowest for family-plan premiums at $12,062 in 2010, compared with the U.S. average of $13,871.

Hawaii has the second-lowest premiums in the nation for single coverage, $4,294 in 2010 compared with $4,940 nationally.

One reason: The 1974 Prepaid Health Care Act, which requires employers to offer coverage to full-time employees, has led to Hawaii having one of the lowest rates of uninsured in the nation. Only 8 percent of Hawaii residents have no health insurance.

Premiums are lower when fewer are uninsured, as there is less "uncompensated" care driving up medical costs, said Sara Collins, a co-author of the report.

"One of the ways in which you deal with (uncompensated care) is by charging more to privately insured plans. You’re just going to have less of that in Hawaii," she said.

Health benefits consultant Paul Tom, president of Benefit Plan Solutions Inc., said Hawaii is unique in that insurers are able to spread risk over a larger cross section of both young and old.

"In other states there’s no mandatory coverage, so young people don’t take coverage," he said. Rather than spread the risk over the entire population, "it’s getting isolated to the older population or those who need the care. Here in Hawaii we’re covering everybody — you cannot opt out."

Out-of-pocket deductibles are the lowest in Hawaii, where the average was $519, and highest in Wyoming at $1,479, according to the study.

The average Hawaii employee getting individual coverage pays less than half of what a mainland worker pays for their share of premiums — 10 percent, or $436, in 2010 — the lowest in the nation — compared with the U.S. average of 21 percent, or $1,021.

That is also due to the state’s Prepaid Health Care Act. It limits workers’ share of premiums to no more than 1.5 percent of gross wages, leaving companies to bear the brunt of the costs.

"Employers are contributing a larger share — at least for single coverage — so if they’re paying 10 percent on average, that leaves 90 percent for their employers," Collins said, adding that employers in the rest of the country are paying an average 79 percent for single workers.

The average island worker with a family plan pays $3,155, or 26 percent, of the premium, compared with the national average of $3,721, or 27 percent.

The report notes that the federal Affordable Care Act should bring about reforms that lower premium growth in Hawaii over time.

Health insurance exchanges that in 2014 will begin offering health plans varying in cost and coverage should increase the number of insured in the islands and further reduce premiums, Collins said.

"Even though premiums are rising faster than incomes, people (in Hawaii) are protected in terms of what they pay out of pocket," Collins said. "Hawaii is so much lower than the rest of the country … but obviously it needs to address the underlying growth trend."