UNDERSTANDING THE COSTS OF BENEFITS

by Sue Mills

"Average premium increases for health maintenance organizations are rising 8% this year" reported the Orange County Register on Wednesday, January 6, 1999 after Towers Perrin, a human resource consulting firm released their latest survey. This is twice the increase of 4% for previous years. Another study released the same week conducted by a New York consulting firm and based on a survey of 25 health insurers, predicted a 5.6% increase in health benefit cost for HMOs. Dale Buss of the Wall Street Journal Interactive Edition stated that "premium increases in health policy renewals for 1999 are running as high as 50% for some small competitors."

In nearly every news outlet whether print, television or internet, there is daily news about increasing health care costs, health care provider consolidation or bankruptcy, new technology and consumer outrage at the restrictions imposed by managed care.

Medical insurance companies, including HMOs, are being forced to become profitable after years of losses or marginal profits. The starkest example is Kaiser Permanente. A year ago Kaiser startled it members and employer groups by announcing a $270 million loss for 1997, even as it expanded membership by 19%. Recently announced 1998 results are as dismal, $288 million loss with much of it coming from California. Therefore, Kaiser premium increases of 9% to 12% are common.

Kaiser isn't alone. Most HMOs are either marginally profitable or losing money. Now the quest for membership growth that has marked the past few years is transformed into the quest for profit. The net result is across the board premium increases.

Some health care providers have taken a different route, either merging with other companies or being purchased outright. Several years ago Aetna merged with US Healthcare then gobbled up NylCare. Recently, Aetna announced the proposed purchase of Prudential. Here in California Pacificare purchased FHP who had previously purchased TakeCare.

The number of large carriers capable of nationwide coverage has shrunk to a handful while the number of regional HMOs also continues to decrease. Less competition in the marketplace leads to upward pressure on premiums.

Adding to the conundrum is technology. New treatments have prolonged life for many people. Transplants are a common procedure which in themselves are expensive, but for each transplant patient antirejection drugs are a way of life. In one liver transplant case the annual drug cost is $6,000, a cost that continues for the life of the transplant recipient.

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