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."
The cost-shift charge prompted an irate response from Kerry, who called it "a completely bogus, completely illegitimate, false argument." Such criticism, he said, does not account for the likely efficiencies of scale and more efficient administration of a federal reinsurance pool. Nor does it factor in his other ideas for controlling spiraling costs, such as electronic medical records and disease management, which relies on early intervention for chronic illnesses.
Emory University health economist Kenneth E. Thorpe estimates the reinsurance program would save businesses and employees $288 billion in premiums over a decade but cost the government $257 billion because of administrative reductions. His computer model projects the catastrophic proposal alone would result in 3 million of the 44 million uninsured Americans getting coverage.
Hubbard and two colleagues calculate that for each percentage-point rise in the price of health insurance, the number of uninsured increases by 300,000.
Still, the Kerry team concedes it has chosen how to use tax dollars, opting to "provide relief" to workers and businesses that buy health insurance rather than giving the wealthy larger tax cuts, said domestic policy adviser Sarah Bianchi. That decision, Kerry says, would help U.S. companies compete in the global marketplace.
The idea is to "go after the big dollars," said Stuart Altman, a health policy expert at Brandeis University who helped develop the plan. In today's health system, less than half of 1 percent of private insurance claims hit Kerry's $50,000 catastrophic threshold. Yet this small fraction devoured 15 percent of all medical services provided in 2000, according to data collected by the federal Medical Expenditure Panel Survey.
It is not a new concept. Presidents Dwight D. Eisenhower and Richard M. Nixon considered reinsurance pools for the most extreme medical cases. Today, the federal government serves as the ultimate reinsurer for natural disasters and terrorist attacks.
Like Kerry, Bush is attuned to public distress over escalating medical bills. With the backing of the National Federation of Independent Business, he is touting a proposal allowing small firms to form larger insurance pools, known as association health plans.
"Small businesses should be able to band together and negotiate for lower insurance rates, so they can cover more workers with health insurance," Bush said in his State of the Union address.
Doug Badger, the senior health policy aide in the White House, said Kerry's approach would create "perverse incentives on effective disease management" because once the government began covering 75 percent of costs, there would be no financial reason to manage care or costs.
Anticipating that critique, Kerry said he would require employers to pay the remaining 25 percent "so they won't game the billing."
Mindful of the Clinton health care debacle in 1993-94, Kerry said he devised his health package to build on the current system rather than create an entirely new one. "There is no new bureaucracy; this is not a government plan," he said.
Kerry's approach, however, does envision a larger role for government in determining whether employers taking advantage of the catastrophic reinsurance had met the requirements to offer insurance to all workers and implement effective disease management. He has said he wants to leave the specifics to medical experts and lawmakers, though many corporate and legislative leaders say it is precisely the details that will determine the success of such a change in policy.
In Avon Lake, however, Arth, a self-described libertarian who voted for Bush in 2000, had a different perspective.
"In this environment, it is certainly worth looking at," he said. "Nobody would turn their back on this kind of relief, even if it only lasted a few years."