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he increase in the percent of the population that is uninsured in both North Carolina 1 and across the nation 2 is driven by the increasing costs of health insurance premiums. Nationally, health insurance premiums increased 65% between 2000 and 2004. This rise was more than six times greater than general inflation (9.7%), and more than five times the wage growth (12.2%). 3 The increase in premiums makes it harder for employers to offer insurance to employees and for individuals to purchase healthcare coverage. Research indicates that for every 10% increase in health insurance premiums, the number of firms that offer health insurance to their employees falls by roughly 2.5%. 4 Most of the increase in health insurance premiums is due to the increase in the underlying costs of healthcare. 5,6,7,8 Healthcare costs increase for a variety of reasons, some due to the increased cost of individual services, some due to greater utilization of services, and some due to changes in overall disease prevalence. This commentary examines trends in personal healthcare spending in North Carolina between 1990 and 2000, changes in unit costs and utilization of different services, and the effects of changes in disease prevalence and demographic changes on healthcare spending. The commentary concludes with how these changes impact health insurance premiums and how employers and individuals respond to rising premium costs.

N THE EARLY 1980s, the traditional role of the health insurance industry was to provide a standard array of insurance options, and to administer those programs through claims review and payment. Employers who purchased coverage for their workers typically did not expect anything more of their carriers. However, during this time there was mounting evidence, both nationally and in North Carolina, that the use of hospitals varied significantly from one geographic area to another. 1-3 Patients in high use areas were not just spending more days in the hospital; they were spending more money for their healthcare. And, increasingly, analysis was showing that most of the variation was due to physician practice patterns, rather than differences in population demographics, health status, or underlying risk factors. Employers who had employees in multiple NC locations began questioning their greater financial outlays to cover employees in the high utilization locations, and wondered what additional benefits they and their employees gained for the extra expense. This led to the obvious question: How much could be saved if it were possible to reduce utilization in the high use communities?