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Harvard Pilgrim CEO urges firms to change

Health costs to keep rising until workers get involved, he says

The head of one of the state's biggest health insurers told business leaders yesterday their health plan costs would continue to rise sharply if they do not make dramatic changes.

Charles Baker, chief executive of Harvard Pilgrim Health Care, told executives they need to get employees involved in their medical spending decisions. He urged them to offer plans with high deductibles or adopt other measures that induce them to do so. He also called for greater public disclosure of medical cost data by the government and private sectors to increase the competition among physicians.

''If everybody keeps doing what they're doing, we will probably never get our arms around the medical expense trend," Baker said at a breakfast sponsored by the Associated Industries of Massachusetts in Waltham. ''There really has to be some disruptive activity," he said, or ''it is unlikely the underlying trends are not going to go away."

Harvard Pilgrim, with 900,000 members, is the state's second-largest insurer after Blue Cross and Blue Shield of Massachusetts.

Alan Sager, a Boston University professor in the School of Public Health, said employees should not be responsible for lowering costs. ''We send doctors to medical school, so they learn what care we need," he said. ''You can't use patients as kamikaze pilots in a cost control war."

US employers are experiencing a fifth year of double-digit hikes in medical costs, which are especially onerous to small employers. Health premiums rose more than 11 percent in 2004 and are projected to rise at a similar rate this year. While most employers say these increases are unsustainable, Baker said a survey conducted by Harvard Pilgrim showed more than half have no plans to change their policy options.

Katherine Putnam, president of Package Machinery Co. of West Springfield, said too much ''healthcare spending goes to administration, not to providers of care," and said the health system has too much paperwork and not enough accessible information. Sager in a recent study found administration is the health system's second-highest cost.

Administration ''would be an easy thing to cut," Putnam said. ''The technology is there."

But Baker, who has been mentioned as a possible Republican gubernatorial candidate, argued that if structural changes are not made, higher costs will continue to be passed on to consumers. Harvard Pilgrim, Tufts Health Plan, and other insurers have rolled out new plans with higher deductibles and lower premiums.

Baker also proposed a more modest change: Employers could pay a fixed dollar amount of their plan premiums. Employers historically paid a percentage, say 80 percent, of premiums, with employees paying the remaining 20 percent. The result, Baker said, is that employees have little incentive to choose a lower-cost plan.

If they instead pay a fixed dollar amount, employees who choose low-cost plans would be rewarded by paying disproportionately less, Baker said. Those who choose a ''cheaper plan," he said, ''get the benefit."

In 2002, Esleeck Manufacturing Co., a premium paper maker in Turners Falls, began offering its nearly 100 employees a high-deductible plan, said its president, Charles Blanker. The company also put money into a private account for each employee, to cover most of the deductibles.

Esleeck's health costs are nearly $500,000 a year, but the new plan did lower premiums. ''It let the employees see what their costs are, and they get the bill for the deductible," he said. ''They see how expensive these services are."

Baker predicted that such cost sharing ''is going to become part of the game for everybody."

Kimberly Blanton can be reached at blanton@globe.com.

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