Are HMOs To Blame for Health Costs Rising Again?

It was largely due to the spiraling healthcare costs of the mid-80's that managed care, and HMOs specifically, became the popular method of health coverage. Since then, HMOs have been instrumental in keeping costs to a minimum while providing patients access to quality care and treatment. In recent months, however, there have been renewed rumblings about rising health care costs. Only this time the rising costs are coming in the form of hiked HMO premiums. With premiums rising among most California HMOs, affordable medical care has once again become concern for most Californians.

What is causing the current increase in health premiums? Are HMOs the very entities designed to keep costs down,to blame for these new increases?

Upon close inspection of the trends and events leading to the current rate increases among HMOs, it quickly becomes evident that HMOs are in fact not the culprits in this case, but rather, service-oriented businesses that are often forced to raise rates in order to continue functioning due to a number of factors beyond their control.

HMOs have somewhat unfairly earned the reputation among hospitals and some consumers as the driving force behind the recent cost hikes. In fact, HMOs have actually struggled to keep costs down in recent years in the face of excessive demands of increased government regulations (which lead directly to added administrative costs) and the soaring prices of pharmaceuticals while trying to keep their members happy and their providers paid at a level the market can bare.

For many years, there were no premium increases at all despite growing costs of everything from drugs and supplies to salaries. Even with the recent cost increases, California's health costs remain substantially below the rest of the country. The cost increases which do exist in California are largely due to a number of circumstances beyond HMOs' control that Plans have been forced to incorporate to remain fiscally viable.

Rising Cost of Drugs Has Forced HMOs To Raise Premiums

One of the principal factors that has forced health plans to raise their premiums is the soaring costs of prescription drugs. Most plan members with prescription drug benefits don't realize that drug costs can impact them directly and significantly. Pharmaceutical costs increased nearly 15 percent in 1998 and nearly 18 percent in '99, making pharmacy costs the single largest cost-raising factor facing health plans. And the cost of drugs continue to escalate this year.

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