HMOs’ Strength Grows as Medical Costs Zoom : Insurance: Forty percent of Orange County’s workers now belong to such plans as many employers drop the option of fee-for-service health coverage.

Helen Crichton suffered a heart attack just a few weeks after enrolling in a health maintenance organization. Joining an HMO had not been a matter of choice, and she had not counted on testing the quality of care so soon and in such dramatic fashion.

But Crichton was pleasantly surprised by the HMO plan she had joined. Not only did she get the top heart specialist at Hoag Hospital in Newport Beach, she said, but her 10-day hospital stay cost her only $15. If she had kept her traditional fee-for-service insurance coverage, she said, she would have been obliged to pay $10,000 to $20,000 in insurance co-payments.

Whether by choice or force of circumstance, more and more Orange County residents are joining HMOs as the cost of medical care soars. A few, like Crichton, are joining because their employers no longer offer traditional medical insurance. Many more are being persuaded by economics to forfeit the privilege of choosing their doctors and hospitals.

As indemnity insurance becomes more expensive for employers, many of them are requiring their workers to finance more of the insurance premium out of their paychecks or pay higher deductibles and co-payments for the health care they receive. In contrast, employees like Crichton are finding that they can get medical attention with little out-of-pocket expense by becoming members of HMOs.

“In Orange County over 40% of all employees now belong to HMOs--and that is a staggering number,” said Mike Turpin, manager of the employee benefits consulting practice for the Costa Mesa office of Johnson & Higgins, a medical benefits consulting firm. Nationwide, enrollment in HMOs burgeoned to 33% of all employees in 1988 from just 19% in 1986, according to the firm.

Health maintenance organizations control costs by employing physicians and operating their own clinics and hospitals or by contracting with physicians who agree to treat members for a fixed monthly fee. By contrast, traditional indemnity insurance reimburses doctors selected by the insured at a percentage of whatever the doctor charges, while the insured patient picks up the difference of 20% or more.

The reason for the big jump in HMO enrollment, medical insurance experts say, is that the cost of fee-for-service insurance in the last few years has increased much more steeply than the cost of managed care insurance. And, although Kaiser and other health maintenance organizations this year are planning larger rate hikes, they still lag behind the indemnity carriers.

“Medical costs in Orange County next year should increase 22% to 24% in the fee-for-service sector,” Turpin said. “HMOs at the same time are expected to increase on the average 16% to 18%.”

In the last year HMOs throughout the country have emerged from a difficult period of intense price competition that forced some to take large losses or be absorbed by stronger firms. The industry’s travails, including the bankruptcy reorganization of Maxicare, a Los Angeles-based HMO that also serves Orange County, has made employers more wary of the finances of the HMOs that they contract with, according to employee benefit consultants. But it has not scared them away.

While HMOs are growing in popularity nationwide, they are taking hold even faster on the West Coast, insurance consultants say, largely because medical costs are higher. Also, some of the nation’s largest HMOs are well-established in the region and familiar to the public.

Many health maintenance organizations, both large and small, are marketing hard in Orange County to capture its growing employment base.

Kaiser Permanente is the largest health maintenance organization in California as well as Orange County. Dr. Kenneth E. Bell, regional medical director for Kaiser, said Kaiser has expanded 15% in the past year in Orange County, where it now claims 164,000 members. Bell projects that number at 250,000 enrollees by 1995.

To accommodate the growth, he said, the company plans to add at least seven more medical centers to its current six in the county. Also, Kaiser, which has a hospital in Anaheim Hills, says it has been looking to acquire a hospital in South Orange County.

PacifiCare Health Systems, based in Cypress, has more than doubled its Orange County enrollment to 36,033 members from 17,583 members in a year, partly by picking up business from Maxicare when it went into bankruptcy reorganization. PacifiCare’s total membership over the past year has increased 71% to 553,165 from 324,138. Its service area includes Southern California, Oklahoma, Oregon and Texas.

Fred Schmid, vice president of marketing and sales at FHP Health Care in Fountain Valley, said the company has about 100,000 enrollees in Orange County, where it has been growing at a rate of 15% to 20% a year. FHP, which operates in Southern California, Utah, Arizona, New Mexico and Guam, has seen its membership increase 22%, from 392,000 to 479,000, over the past year.

Helen Crichton joined the rolls of PacifiCare when her employer, J.C. Carter Inc., a Costa Mesa manufacturer of aerospace components, decided to drop its fee-for-service plan when faced with a doubling of its indemnity insurance rate. The company instead gave its employees a choice of three HMOs.

Crichton said 21 of the firm’s 300 employees refused the HMO plans and so were given $200 a month--the amount that the company otherwise would have paid for their HMO memberships--toward the cost of purchasing indemnity insurance on the open market.

While J.C. Carter’s solution to rising medical insurance premium costs was unusual, many companies in Orange County are encouraging their workers to join health maintenance organizations. They do so by offering a wider menu of HMO plans and often by making workers pay substantially more in deductibles and co-payments and premium contributions for the privilege of continuing to see the doctors of their choice.

“You have to go with what you can afford,” said Cynthia Franklin, benefits administrator at Printonix, a computer printer company in Irvine with 73% of its 675 employees enrolled in HMO programs. The rest, who are mostly executives, contribute a large chunk from their salaries each week to retain indemnity insurance, Franklin said.

Managed health care organizations say Orange County is a ripe market, despite the unusual affluence of its population, which might thus be more willing to pay the cost of indemnity insurance.

“As affluent as Orange County is, people here are much more receptive to the managed care concept than they ever have been,” said Mark Besch, sales manager for Cigna Employee Benefits Group in Orange. “We believe Orange County offers tremendous growth potential because of the number of jobs that are being created.”

Another boon for health maintenance organizations, he said, is the mobility of the county’s population, which means they are less likely to be emotionally attached to a particular doctor.

“The person not willing to join an HMO has a longstanding relationship with a doctor and wants to maintain that,” Besch said.

HEALTH MAINTENANCE ORGANIZATIONS IN O.C. Here are the major health maintenance organizations operating in Orange County and the number of members, physicians and hospitals associated with each:

Members Physicians Hospitals Kaiser Permanente 164,000 175 1 FHP 100,000 150 14 Health Net 85,000 135 22 Safeguard Health Plans 73,000 80 (dentists) -- CIGNA Healthplans of Calif. 67,139 601 9 PacifiCare Health Systems 36,033 650 18 The Health Plan of America 21,000 530 5

Source: Companies listed.