THE CHANGING HEALTH CARE INDUSTRY : HMO Bandwagon Rolls On, but Not All Are on Board : Managed care: Rest of nation follows California's example. But small companies are squeezed and the army of uninsured still grows.

By ROBERT A. ROSENBLATT

Feb. 21, 1995 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

California may have pioneered the move into the new world of managed health care, but the rest of the country is now rushing to keep pace, as big companies propel increasing numbers of employees into health maintenance organizations and other limited-choice networks.

Membership in HMOs has doubled in just nine years to 50 million, and another 6 million Americans are expected to enroll this year. Saving money is the drawing card for American business; HMO charges to business this year are actually expected to fall 1%, according to the Group Health Assn. of America, the HMO industry trade group.

Only 37% of U.S. workers covered by health insurance are enrolled in traditional indemnity plans, which give them unrestricted choice of any doctor or hospital, according to a major survey of corporate America by Foster Higgins, a benefits consulting firm. Just three years ago, a majority of workers had the indemnity coverage that was a standard for corporate America for five decades.

The bigger companies--those with more than 500 workers--are leading the rush to managed care, a move that helped trim their average spending for health benefits by nearly 2% last year, according to an annual Foster Higgins study that drew widespread attention last week.

The general savings by big business on health care bills means there is little chance that major national health legislation will emerge from Congress in 1995.

“The big shift to managed care has eased the pressure” for any legislative solution to the perennial problem of rising costs, said Kristin A. Bass, who represents a health care coalition of 25 of the nation’s biggest firms.

But the good news for corporate America’s balance sheet also disguises some of the continuing health care problems confronting the nation.

For example, small companies, lacking the economic clout and buying power of the bigger corporations, are still being hit with big rate increases when they renew their health insurance policies.

The army of uninsured, now 40 million Americans without health coverage, also keeps increasing, because the fastest-growing parts of the economy--start-up firms and service sector businesses--are less likely to provide health insurance.

What’s more, the giant government health programs, Medicare and Medicaid, which account for nearly 40% of all health outlays, continue to be plagued by high rates of inflation. The programs provide medical care for the elderly, disabled and poor.

The Clinton Administration expects Medicare outlays to climb at an annual rate of 9.3% for the rest of the century. In sharp contrast, the current general inflation rate is a scant 2.7%.

Indeed, this is the paradox of the current health care system: Individual companies are driving hard bargains with hospitals and doctors, getting discounts and trimming their costs, while the nation’s overall health bill keeps climbing, consuming an ever-growing share of the American economic output.

Managed care has spread rapidly because “there is tremendous pressure from the employer to contain the rate of increase in their health care premiums,” noted Ron Williams, executive vice president for group services at Blue Cross of California.

The Foster Higgins survey indicated that more than 90% of workers at firms with more than 500 employees are enrolled in some form of managed care, compared with 63% nationally.

At Nynex, a giant telephone and telecommunications firm serving New York and New England, managed care enrollment has jumped to 45%, from 40% a year ago, and just 20% as recently as 1990, a sign that employees “are embracing the concept,” said Barbara A. Brickmeier, director of health care plans. “They understand what an HMO means and can work within the system.”

General Electric’s health care preferred program, an HMO-based system, also has enjoyed dramatic growth, with enrollment soaring from 16% in 1991 to more than 60% this year.

Workers pay $15 for an office visit “and don’t have to go through the hassle of forms and reimbursements,” said spokeswoman Phyllis Piano. The company’s annual increase in health care spending has declined from double digits to “nearly flat,” she said.

An increasingly popular variation in managed care is the “point of service” program.

The HMO typically requires members to get approval from the “gatekeeper,” a primary care doctor, before going to a specialist. A broader network, called a preferred-provider organization (PPO), allows the member to pick from a larger group of doctors, including specialists, without getting a gatekeeper referral.

Point-of-service combines the benefits of the other systems, allowing a person to make a financial decision before each visit to the doctor--stay in the HMO network and pay just $5 or $10 for an office visit, or go to a doctor outside the network and pay deductibles and co-payments. It preserves freedom of choice--at a higher price.

With managed care already well established in California, there is especially intense competition for corporate accounts, notably in Southern California, where insurance firms and HMO networks are slashing their margins to win business.

“The trend is fascinating,” said Dr. Jacque J. Sokolov, president of Advanced Health Plans, a Los Angeles firm that helps hospitals and insurers develop managed care plans.

But the financial blessings are generally restricted to bigger firms, usually those able to self-insure, setting aside money to cover their workers’ anticipated medical bills. They depend on insurance companies to put together the networks of doctors and hospitals and to process claims.

Smaller firms can’t afford this and must buy regular medical coverage directly from insurers. They are “experience rated,’ meaning if an employee needs major surgery, the health insurance premium could soar the next year. The Foster Higgins survey showed that smaller firms had a 6.5% hike in health costs at the same time the big companies enjoyed reductions in their outlays.

“We’re still seeing a lot of small employers receiving hefty rate increases,” said Gary Kushner, chairman of National Small Business United, which represents 53,000 small firms.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Health Care Costs

Employer health care costs fell in 1994, ending years of sharp increases, but health care costs overall still rose nearly twice as much as consumer prices.

EMPLOYER COSTS

1993 1994 Average Cost Per Worker all firms $3,781 $3,741 Large Employers (500 or more) 4,117 4,040 Small Employers (10 to 499 workers) 3,240 3,452 Workers enrolled in Managed Care* 52% 63%

* Health Maintenance Organizations, Preferred Provider organizations, Point of Service plans

ENROLLMENT BREAKDOWN Traditional indemnity (pick any doctor)

1993: 48%

1994: 37%

HMO (limited list of doctors)

1993: 19%

1994: 23%

PPO (approved list of doctors, broader than an HMO)

1993: 27%

1994: 25%

Point of service (can use an HMO, or go outside at any time)

1993: 6%