While managed care was able to hold premiums flat during much of the 1990s, it wasn't able to restrain the underlying growth in health care costs, particularly in prescription drugs and hospital costs.

Where HMOs once threatened to exclude individual hospitals that didn't meet their pricing demands, now hospital groups are threatening to exclude HMOs.

But rising premiums are not the only element in the health insurance storm.

The unemployed often lose their health insurance or are unable to afford temporary insurance plans. The most recent figures show unemployment at 6 percent nationwide, but higher for some groups.

Families USA, an advocacy group for broader insurance coverage, recently estimated that the major corporate layoffs during 2001 resulted in 2.2 million more workers losing insurance coverage.

That means there are about 41 million uninsured Americans, said the group's executive director, Ron Pollack.

In a paper published in November, the National Coalition on Health Care predicted that the weakened economy, exacerbated by the impact of the Sept. 11 terrorist attacks, might result in 6 million more Americans losing health insurance by the end of this year. Over the three-year period of 2001 to 2003, 86 million Americans could temporarily lose their health insurance coverage, the coalition predicted.

"We think the perfect storm is upon us and may be getting even worse," Schoeni said. "If this was not a bad recession -- if this was a small blip and we're doing this badly -- I don't know what a big blip would do to us."

Many workers will pay more

Businesses are responding to the premium increases in a variety of ways, but the bottom line is likely to be higher costs and more choices for workers and retirees.

Employers generally refrained last year from asking workers to assume a greater share of the premium costs, deductibles or co-payments, said Paul Fronstin, director of health research costs for the Employee Benefits Research Institute.

But he noted growing indications that employers are forcing workers to carry a greater share of the costs.

A survey of employers conducted by Hewitt Associates, a global management consulting firm, found that employers are expecting an average annual premium increase over the next few years of about 13 percent, but they're only willing to pay 8 percent of that increase.

"You look at that kind of gap and ask who is going to pay for it, and the answer is the employee," said Ken Sperling, Hewitt's health care practice leader.

A Hewitt report last October predicted that many companies this year will pass on at least 25 percent to 30 percent of their premium increases to employees, which means increases ranging from $186 to $463.

Businesses also are considering passing along higher deductibles and co-payments to make employees aware that prescription drugs and doctor visits cost far more than the $5 or $10 that many workers pay.

Dave Romans, a senior consultant with the consulting firm Watson Wyatt Worldwide, noted that "63 percent of employees underestimate the total cost of health care, and 69 percent overestimate how much of a share of health care they are paying."

One way of making employers realize the cost is to shift from co-payments to co-insurance, says Jamie Robinson, a professor of health economics at the University of California, Berkeley.

A co-payment is a fixed fee, such as $10 for a doctor visit. Co-insurance requires the patient to pay a fixed percentage of a medical service's cost. That puts the burden of selecting services based on price more squarely on the patient.

Writing in the March edition of the health policy journal Health Affairs, Robinson said the shift to consumer-driven spending is designed to promote the view that "health care is a scarce resource in need of priorities rather than an unlimited entitlement for which someone else can be forced to pay."

Choosing coverage

An even broader shift may be coming regarding the way workers choose health care coverage.

Instead of "defined benefit" plans in which employers buy a health insurance policy and employees pay a share of the premiums, there is a growing movement toward "defined contribution" plans.

Under such plans, the employer puts up a certain amount of money, and workers buy health coverage and services from a menu of options.

One consumer-directed model is a medical spending account.

Under this model, an employer contributes a fixed amount into a worker's accounts. During the year, the worker pays all medical bills out of this account. When the account is exhausted, the employee is responsible for all subsequent expenses up to some "catastrophic" level, above which insurance takes over.

Workers who do not exhaust their account in one year roll the remaining money into next year's account.

"I would estimate we're going to see 5 to 10 percent of the Fortune 500 companies implement" such plans next year, said Romans of Watson Wyatt.

"It's gaining a lot of traction just because of what is happening in the health care world. Employers are looking for a solution, and this is one of the solutions that is floating out there."

Another model allows workers to buy "multi-tiered" coverage under which the amount of their co-payments depends on the cost of hospital treatment and drug treatments they receive. High-cost hospitals and name-brand drugs require a higher co-payment.

Sperling, of Hewitt, said "employers are interested in the new models, but they're not interested in throwing away" their managed care and other insurance plans. Instead, they're offering the new plans to workers as an additional option.

He noted that "the market is not convinced yet that these models will be effective in lowering costs."

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