By JENNIFER NETHERBY

Staff Reporter

Among the few things that HMOs and HMO reformers agree on about the health care reform package passed by the Legislature is that employers will pay for increased service and accountability.

But neither side expects costs to skyrocket at least not yet.

“Employers should anticipate new services will have a cost attached,” said Walter Zelman, president of the California Association of Health Plans, which represents statewide HMOs. “It’ll be gradual and vary by plan, but overall this package is going to increase costs.”

The three main bills passed by legislators give consumers the right to sue HMOs; require employers to provide coverage for mental health care; and mandate that HMOs pay for most second opinions concerning the diagnosis of health problems.

If signed by Gov. Gray Davis, the bills would take effect over the next two years. Davis was expected to support the measure allowing lawsuits against HMOs because last-minute compromises brought it close to a version he supported. But HMO groups are lobbying the governor to veto the measure.

The governor has been ambiguous about his position on the other two bills.

Assemblyman Martin Gallegos, D-Baldwin Park, who has fought for health care reform for the past three legislative sessions, said the legislative package was crafted after considering Davis’ position. “We negotiated with the governor, and he was looking for a middle-of-the-road course,” Gallegos said.

Consumer groups that lobbied for the bills believe costs would have gone up regardless of new legislation.

“I don’t think it will be any worse than last year, and in the long run it will save the system,” said Jamie Court, executive director of Consumers for Quality Care. “When you look at Texas, (similar) reforms saved money. Health premiums there rose only 2 or 3 percent. The average (increase) in California last year was 9 percent.”

Along with cost increases, the legislation could have significant effects on the quality of health care. If consumers believe care was improperly denied, the legislation would allow them to file a complaint with their HMO, which would then have to be considered by an independent private-sector review panel.

If the panel decides the care in question is appropriate, the HMO would have to comply.

Legislation before Davis also calls for the creation of a state Department of Managed Care, which would advise consumers about their rights with regard to HMOs but won’t review individual medical cases and make decisions on care.

However, it would oversee the general operation of HMOs. If it finds violations of state regulations, it would have the authority to issue fines and other penalties. The head of the department would be appointed by the governor, who has indicated he will sign the bill creating the agency.

Michelle Paras, executive director of Health Access of California, a consumer group, said the external review system and the right to a second opinion are major victories for the public.

“Consumers are in a very different situation now,” she said. “In the past, if insurance decided not to pay, there was no recourse.”

HMOs and other health care providers have fought a number of legislative reform proposals over the past three years. Now they say the package passed by the Legislature should be used as a model for the rest of the country.

“With few exceptions it will provide greater insurance without greatly increasing the price,” Zelman said. “Hopefully it will give consumers more assurance that they will get the care they need and some of their concerns will diminish.”

Some HMOs, however, are still wading through the bills, trying to determine what they would mean if signed by Davis.

“It’s still unclear what the impact will be,” said Jim Anderson, a spokesman for Kaiser Permanente.

If Davis signs the bill allowing lawsuits, some HMOs said they will consider pushing for additional legislation in the next session that would put a cap on liability. There is also talk among HMOs of a possible court challenge to the proposed law.

But most of the laws passed by the Legislature target employers, who in the past could choose to cut costs by not buying mental health or contraceptive coverage. Under the new laws, those provisions would have to be included in benefit plans.

Paras said many employers will likely fight higher costs.

“It’s an enormous pressure for companies to have to decide whether to pass it on to employees. The job market is so good, and it’s uncompetitive to charge employees (for premiums),” she said. “We’re going to see consumers challenge the issue of price.”

Jim Lott, executive director of the Healthcare Association of Southern California, said doctors’ groups and hospitals will also feel economic pressure from HMOs that may try to cut payments for services as a way to control costs something they have already started to do.

“We’ve got a lot of unfunded mandates coming forward and limits by employers on premium increases,” Lott said. “And we’re the end of the food chain. We’re the ones that take it when these mandates are put on.”