Bay Area Firms Win HMO Rate Rollbacks : Health care: Premium reductions are expected to set precedent for future employee health coverage in California.
Amid cutthroat competition in California’s health care industry, a consortium of major state employers has won rate reductions from 17 health maintenance organizations ranging from 5% to 10%.
The premium rollbacks announced Tuesday for the 11 member companies of the Bay Area Business Group on Health is expected to set a precedent for new employee health coverage contracts that will be negotiated with thousands of other California businesses later this year.
That could mean that many workers who belong to HMOs will see some reduction in what they pay for medical coverage receive through their employers.
“We knew that whatever (premium changes) were established for the Bay Area group would be the predominant pattern for our marketplace,” said Jerry Fleming, associate regional manager and vice president of Kaiser Health Plans, Northern California Region, in Oakland.
The consortium, an insurance-purchasing group formed by Bank of America, Pacific Telesis, Safeway Inc. and other large statewide employers, negotiated the rate reductions with health insurers, such as Kaiser Permanente, Health Net and PacifiCare Health Systems. The groups’ members provide health care coverage for 300,000 workers, their families and retirees.
Wall Street, apparently concerned that rate rollbacks would spread throughout the industry, pummeled the stocks of HMOs, even those without operations in California. Health Systems International, the parent firm of Health Net, dropped $3.50 to $28 on the New York Stock Exchange. PacifiCare Health Systems’ A shares slumped $5.625 to $51.375.
The agreement demonstrates the growing assertiveness of corporations to reduce medical costs even as national health reform proposals bog down in Congress.
“What you are seeing is very, very aggressive pricing in the marketplace,” said Kurt Davis, a spokesman for Foundation Health Corp., a Rancho Cordova, Calif.-based HMO. “Hardly a day goes by when we don’t get a call from a group of radiologists and anesthesiologists offering to provide services we need at a lower cost than whoever is doing it now.”
Added Roger Greaves, chairman and chief executive of Health Net: “Industry is saying to us, ‘You should be able to go out there and make better agreements (with hospitals and doctors) because it’s a buyers’ market.’ ”
The 5% to 10% reduction achieved by the Bay Area group is the second rate rollback won by a California organization that pooled the purchasing power of many employers. The concept is included in some reform proposals in Congress, although President Clinton has said he may drop the mandatory insurance purchasing pools opposed by many businesses.
The California Public Employees Retirement System, or CalPERS, earlier this year negotiated a 1.1% rate reduction in health premiums on behalf of more than 900,000 state workers and dependents.
The Bay Area group said the agreement establishes a standard benefits packages for all HMOs and also places a strong emphasis on improving the quality of care. The group also got assurances from the health plans that the agreement would not result in higher costs for other groups.
