The much-feared spike in health insurance premiums has arrived.
After several years of slowed growth in health care costs for California employers and an actual decrease of 6 percent in 1994 health care costs are again on the rise, according to Foster Higgins, a health care consulting firm.
Insurance brokers are reporting increases for next year, generally ranging from 3 percent to 12 percent, depending on the type of coverage selected by enrollees, the firm said.
That's up from the 2.1 percent increase that occurred from spring 1996 to spring 1997, according to a recent survey by KPMG Peat Marwick.
Less competition between managed care groups as a result of industry consolidation, and pent-up pressure to pass along the costs of expensive new pharmaceuticals and medical technology, are being blamed for the surge.
"Health care premiums are increasing," said Kari Schneider, vice president of Sedgwick James of California Inc., an insurance brokerage.
While brokers had been warning that premiums would be going up, many of them conceded that they didn't anticipate the magnitude of the increases that health plans are quoting for next year.
In April, the California Public Employee Retirement System announced a 2.7 percent rise in HMO premiums for its members starting next year.
The announcement sent a message of premium rate increases to come, but many brokers predicted at the time that most Southern California companies wouldn't see an increase above 6 percent .
But now, only the most stringent HMO plans are expected to hold the line at about 5 percent , whereas higher premiums are likely for point of service plans, which allows enrollees to choose an HMO doctor, or for an additional fee, a doctor outside of the network.
Currently, enrollees with various health plans are paying typically $100 to $110 per year for an HMO plan, $125 to $155 for a POS plan, and $250 to $280 for a PPO plan.
Sam Cunningham, executive vice president and chief benefits officer at Irvine-based Anderson and Anderson Insurance Brokers Inc., said they are quoting the following rate increases for next year: HMOs, a 3 percent to 5 percent increase; POS plans, a 6 percent to 10 percent increase; and PPO plans, a 10 percent to 12 percent increase.
"Rates are going up more by changes occurring in the industry than anything else," said Cunningham.
Consolidation is said to be a major factor, including the acquisition of FHP International Corp. by PacifiCare Health Systems earlier this year.
Observers said FHP and Take Care, which it had acquired, had been aggressive discounters in order to gain market share.
But now, PacifiCare is quoting higher rates to those plans' customers as their premiums come up for renewal.
"In the past, there was such a drive to get new members between the managed care groups, that rates went down, but that was a false rate," said Cunningham.
Jon Gabel, director of the center for survey research at KPMG Peat Marwick's Arlington, Va., office, said that the rate increases of today are actually in response to inflation of two years past.
"Profits have been low for HMOs and insurers," he said.
"Generally, there's a two year lag between losses they see and increases in premiums." While managed care groups have less competition these days that would help drive premiums down, both insurance providers and managed care groups say premiums need to be increased to keep up pharmaceutical and technology costs.
Cheryl Brady, a spokeswoman with PacifiCare, also said employers here were demanding lower premiums in the past.
"But now it's gotten to the point where we can only go so low before the quality of care is affected," she said.
Changes in legislation, such as the two-day hospital stay requirement for mothers after giving birth, and a widening criteria for mental health care coverage, is also having an effect.
"Providers are starting to say they are not able to deliver the quality of care that's being mandated with their current capitation rates," said Cunningham.
Another factor that's expected to drive up costs is HIPPA - the Health Insurance Portability Act, which went into effect in July of last year.
"That's going to require more employers to provide benefits for a longer period of time," said Schneider.
What's more, a crackdown by the California Department of Corporations on alleged poor quality of care by some medical providers this year, and the continuous wave of legislation by politicians who are concerned about quality of care issues, won't allow premiums to hold the line any time soon.
The recent years of modest or no increases in health care premiums follows the often double-digit increases in medical care that characterized the '70s and '80s.
Some observers worry about a return to those days.
"In five years, we are predicting chaos," said Schneider, who said they are bracing for consecutive rate increases for at least the next three years. "But it's very difficult to predict what premiums might be because of the possibility of national healthcare, meaning the passage of more and more mandated benefits."
Regardless, Cunningham said he's still optimistic about managed care.
"Before HMOs, employees were paying $250 a year for coverage. "I don't think we'll ever see that again."
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