L.A. workers may soon be hit with higher out-of-pocket health care expenses and cuts in benefits as a result of major premium increases recently announced by managed care companies.
Those increases including double-digit hikes by Kaiser Permanente and PacificCare Health Systems Inc. were announced following huge losses that the plans suffered in 1997.
The losses have been caused by slowing managed care membership, rising drug costs and longer hospital stays by more patients.
“Higher costs mean the employers who were considering offering health benefits won’t be able to anymore,” said Willie Washington, director of human resources for the California Manufacturers Association, whose membership includes thousands of L.A.-area employers. “People who were about to become insured won’t become insured. It is a real problem.”
Benefits consultants estimate that health care premiums overall will increase by about 5 percent in California next year. However, some of the larger health care plans will ask for more.
“It seems several of the big health plans have not been able to show profits that their investors would like to see,” said Glenn Smith, a benefits consultant at Watson Waitt Worldwide in San Francisco. “They have to make up for the loss somehow.”
Smith said that Kaiser, in particular, was not charging enough for its product and therefore must make up for the shortfall by sharply raising rates.
“Rising premiums will put pressure on our ability to offer family-friendly rates.” said Kendra Walker, a spokeswoman for Beverly Hills-based Hilton Hotels Corp. She added that the company plans to work with the managed care companies to make sure employees are not hit with a big out-of-pocket expenses.
In fact, negotiations with the health maintenance organizations are so intense that many large L.A. corporations, including SunAmerica Inc. and Northrop Grumman Corp., declined to comment.
Smaller employers like Montrose Travel and Los Angeles-based Goldmine Software Corp. said the rate hikes are, in some cases, seven times higher than last year’s increase.
“If (Kaiser) is going to raise its rate by 12 percent, I am going to have to look for other options,” said Julie McClure, chief financial officer for Montrose Travel.
McClure said the company currently pays 75 percent of its employees’ benefit expenses, but that would have to be reduced if the 12 percent premium hike were imposed. Last year, the increase was 5 percent.
Some larger employee groups are already capitulating. Two weeks ago the Health Insurance Plan of California, a program that provides health insurance for small businesses, agreed to a 14 percent increase for next year. HIPC purchases health insurance on behalf of 8,000 California companies with fewer than 50 workers.
A group representing some of L.A.’s largest employers also expressed alarm over the premium increases.
“We are shocked,” said Pat Powers, a spokeswoman for the Pacific Business Group on Health, which represents 400,000 employees for companies like BankAmerica Corp., Chevron Corp. and Bechtel Corp. “We are very upset with the spike in Kaiser’s rate.”
Powers said the organization is currently negotiating its rates and declined to comment further.
The state’s largest purchaser of health benefits the California Public Employees Retirement System has not escaped the hikes either. Kaiser is raising premiums for CalPERS by more than 12 percent in 1999.
“(The increase) is outrageous,” said Bill Branch, a spokesman for CalPERS. “Last year they were granted a 1.2 percent increase, now they want 10 times that amount. It is totally unreasonable for our members.”
Branch said the increase means that CalPERS members with families would be forced to pay $300 more per year. For the other nine HMOs with which it contracts, CalPERS accepted an average rate increase of 5 percent for 1999.
CalPERS officials have said they may have to close health benefit programs to future members if they cannot come to an amicable agreement with Kaiser.
Kaiser and other plans instituting double-digit premium increases argue that the hikes are necessary to stem serious losses. In February, Kaiser reported a $270 million net loss for 1997. PacificCare, which is also seeking a double-digit increase from CalPERS, reported a net loss of $114 million for the fourth quarter alone.
“Clearly, there are some steps we need to take to improve our overall financial picture,” said Kaiser spokesman Jim Anderson.
Other factors fueling the need for rate increases, Anderson said, are a nationwide nursing shortage that is driving up payroll costs, higher charges for drugs from pharmaceutical companies, and longer and more frequent hospital stays by patients.