Staff Reporter

Health care premiums are expected to rise 5 percent or more this year as the managed care industry once credited with keeping costs down begins passing on its higher expenses to employers.

Health maintenance organizations say the price increases are largely beyond their control.

"Newly mandated benefits such as a minimum two-day maternity stay, and rising drug costs, are the main reasons for prices rising this year," said Myra Snyder, president and chief executive of the California Association of HMOs.

But analysts say there are other factors working to push up prices. Some HMOs that have gone through acquisitions are encountering efficiency problems that have proven costly to solve, according to Mike Dwyer, a principal and managing director for health care at BDO Seidman LLP.

In addition, analysts say that prices had been kept down in the last few years as a marketing maneuver to gain more patients a strategy that has about run its course.

Perhaps just as importantly, the stronger economy has given HMOs the confidence to demand higher payments in the belief that companies can afford to pay more for health care.

The escalating cost curve may get even steeper under proposed state and federal proposals to tighten regulation of HMOs and require them to provide more benefits to policy holders.

"The concern in the industry is that (government) micromanagement and mandated benefits could bring us back to double-digit cost rises like we had in the 1980s," said Lisa Haines, a spokeswoman for Woodland Hills-based Foundation Health Systems Inc. "HMOs provide appropriate care at the most efficient cost, but if more benefits are required, then someone has to pay for them."

The upward pressure on managed care prices is expected to be especially acute in California, where there have been growing calls for tighter government controls.

More than 50 HMO-reform bills are pending in the state Legislature after being carried over from the last session, and a state-appointed task force in early January submitted more than 100 recommendations to Gov. Pete Wilson on how to better regulate the companies.

The proposals focus on broadening services covered and giving policy holders easier access to specialists and prescription drugs. The task force is also recommending the creation of a new state oversight body for HMOs, which are currently regulated by the Department of Corporations.

The passage of government mandates that would force HMOs to provide certain types of care is expected to have a definite impact on costs.


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