Kerry Plan Could Cut Insurance Premiums

Catastrophic Relief Garnering Support

All it took was one cancer case and one chronic illness -- two employees out of 50 -- and the health insurance premiums of an Ohio faucet company jumped from $200,000 to $350,000 in a year.

Raymond Arth, who owns Phoenix Products in Avon Lake, Ohio, said he could not blame his insurer, Medical Mutual of Ohio, for the increase; for every $1 he had paid in premiums, the insurance company had paid out $2.08 in claims. Medical Mutual could not afford to take that kind of risk again and Arth could not afford the higher premium, so he went searching for a new policy.

Such catastrophic claims account for less than half of 1 percent of all claims but generate 20 percent of the nation's health care costs, according to the latest federal data. To cover those costs, insurers such as Medical Mutual boost premiums, often forcing companies and individuals to dig deeper in their pockets or go without care.

For more than a decade, the health care debate in America has focused on the millions of people without insurance. Now, Sen. John F. Kerry (Mass.), in an unconventional twist for a Democrat, is focusing on the 162 million Americans who are purchasing insurance and what can be done to ease the double-digit premium increases paid by employers and their workers.

At the center of Kerry's ideas is his proposal to have the federal government reimburse employers 75 percent of medical bills over $50,000 that a worker runs up in a year. The reimbursement would, in effect, make the government a secondary insurer and ease costs for employers, workers and private insurers.

In exchange for the benefit, Kerry would require employers to offer insurance to every worker and to provide health programs that detect and manage chronic illnesses such as high blood pressure early enough to prevent the diseases from worsening.

Kerry's catastrophic-illness relief plan is the only new health care proposal -- and the most expensive -- of this campaign season. It marks the first time in 12 years that a political leader has attempted to reorient the insurance market away from dodging the costliest patients and in the direction of implementing higher quality of care.

The concept of a national reinsurance pool has garnered support from a wide spectrum of players from labor unions and former Vermont governor Howard Dean on the left to former House speaker Newt Gingrich and former Bush economic adviser R. Glenn Hubbard on the right.

Creating a federal reinsurance program would reduce the sort of uncertainty that makes it difficult, if not impossible, for small businesses such as Phoenix Products to afford insurance, Kerry said.

"What's creative here is to broaden the risk sharing beyond an individual company or individual insurer to the society as a whole," said Len Nichols, vice president of the Center for Studying Health System Change, a research organization funded largely by the nonpartisan Robert Wood Johnson Foundation.

"It clearly would allow us to be more price-competitive," said Bruce Bodaken, chairman of Blue Shield of California. Two independent analyses found that the policy could reduce annual premiums by 10 percent, or nearly $1,000 per person.

"How do you reduce costs for Americans as well as cover the uninsured?" Kerry said in an interview. "Mine is the first and only plan that has sought to do both. In fact, we've found a way to do them." He envisions a chain reaction in which lower premiums entice more individuals and companies to buy insurance, and as more people are covered, costs come down again.

Critics say Kerry's plan does little more than shift costs from ratepayers to taxpayers. Because he intends to pay for the voluntary program by rolling back President Bush's tax cuts for people earning more than $200,000, analysts such as Jack A. Meyer call it a "surcharge on the rich."

Meyer, president of the Economic and Social Research Institute, said: "You are really asking high-income earners to bring some relief to middle-class earners."