CHANGES—Employers’ Rising Tab

0



After rejecting managed care, businesses again face spiraling premiums

When it comes to health care costs in California, it’s back to a future that employers would rather not revisit.

Once again, businesses are facing spiraling, double-digit premium hikes similar to those of the early 1990s, only this time it comes after employees endured the bitter pill of managed care for the past decade.

Indeed, an open revolt against HMO restrictions on health-care access the mechanism successfully employed to hold down costs is a key factor behind the recent run-up in premiums.

But it’s far from the only one.

Doctors, whose personal incomes are slipping, and hospitals, whose bottom lines are often sicker than their patients, are demanding greater reimbursements while nurses mount an unprecedented campaign for higher pay and better staffing.

And as always, there’s the pressure of skyrocketing pharmaceutical costs, while lurking in the background is pressure from Wall Street for insurers to post ever-better quarterly earnings.


The prognosis?

The managed care gatekeepers who kept patients from seeing the doctors of their choice are in their death throes, and it’s going to cost employees dearly to bury them, as businesses seek to pass on much of the premium hikes in a slowing economy. But don’t expect a full return to the fee-for-service model that dominated the industry before managed care arrived on the scene.

“Having just gotten away from tightly managed care, we are not going to go right back,” said Paul Ginsberg, an economist and founder of the Center for Studying Health System Change, a Washington, D.C.-based think tank. “But employees will no longer have the luxury of employers absorbing more than their share of premium increases.” The evidence that premiums are rising is unmistakable.

A survey released last month by the Kaiser Family Foundation found that the overall cost of health insurance rose by 6 percent in California in 2000, to $192 for a month of single coverage and $492 a month for family coverage.

Even with the significant premium increases, however, the cost of health insurance remains lower in California, the birthplace of managed care, than in the rest of nation. The Kaiser study found that the national average cost for single coverage is $202 and $529 for families.

Added to all this was the news that the California Public Employees’ Retirement System faced stiff health insurance premium rate hikes that totaled 13 percent for its 2001-2202 fiscal year. In an effort to cushion the blow for its 1.2 million members, the health plans lowered that increase to 6 percent but only after Calpers agreed to equivalent benefit reductions in the form of higher co-payments for office visits and drugs.

“If Calpers is facing double-digit cost increases, you can pretty much bet everyone else will be facing the same thing,” said Larry Levitt, vice president and director of the Changing Care Marketplace Project for the Kaiser Family Foundation.

Analysts say that by far one of the most significant pressures on the health care dollar are consumers themselves, who had naively believed the hyped up advertising claims of HMOs that prepaid plans with fixed costs would take care of all their medical needs.

Instead what consumers ran into was the dreaded gatekeeper, who halted access to common specialists without a first visit to the primary care doctor. And then came even uglier stories of patients with life-threatening conditions who were being prevented from undergoing operations that might save their lives.

Legislators reacted with proposals for various versions of a patients’ “bill of rights,” but more importantly, perhaps, so did the health plans, loosening up restrictions in the hopes of heading off the political fixes they feared.

“In some cases, restrictions were applied to people who were ill and had trouble getting needed care,” acknowledges Leonard Schaeffer, the high-profile CEO and chairman of Wellpoint Health Networks. “But I think it’s much more the case (of patients complaining), ‘You are making me go back to the primary care doctor to get access to a dermatologist, and I don’t like that.’ And appropriately so. Why should (the patient) have to do that?”


Health plan coalition

Thus, Wellpoint was among 22 health plans serving 100 million Americans that banded together last July calling themselves the Coalition for Affordable Quality Health Care. The promise? Easier access to doctors and emergency rooms and a greater emphasis on customer service.

Critics said it wasn’t enough, that many of the reforms had already been individually implemented, but the mere formation of the coalition was an indication that the heyday of managed care had passed.

At the same time, hundreds of physician groups which had accepted low “capitation” payments (fixed monthly per-patient fees) from insurers were failing in California. The problem drew national headlines with last November’s failure of KPC Medical Management, the largest such failure to date, with 38 clinics.

Meanwhile, hospitals have been in a similar boat, with a state study finding that more than 60 percent of the facilities statewide were losing money from operations, and administrators pointing to low reimbursement rates from insurers as a key factor.

Hospital chains like Sutter Health Corp. and Catholic Healthcare West which have grown in recent years and now exercise more market clout struck back by threatening to drop low-paying Blue Cross contracts. The chains ultimately got Blue Cross to up its rate, but not without ugly disputes that were closely watched by the industry.

“Hospitals have reached a point where they can’t take very, very low reimbursement rates any longer and are willing to walk away from a contract,” said Jan Emerson, vice president of external affairs for the California Healthcare Association, the statewide hospital trade group.

No posts to display