Managed Care Premium Costs Likely to Increase

California workers likely have seen the end of recent annual cuts in premiums for managed health care plans, and experts predict costs will head upward in the next five years.

As health maintenance organizations increase the cost of their services, they said, the burden will fall on workers, who depend on employers for health insurance options.

“Even if the employer is paying it, [the increase] will show up in lower increases in wages,” predicts Stuart Altman, a Brandeis University professor who specializes in health policy.

The experts’ comments come as two major purchasing groups for companies statewide are reporting they didn’t win any big price concessions recently in new HMO contracts.

In past years, both the Pacific Business Group on Health, representing big employers, and the state-sponsored Health Insurance Plan of California, representing small ones, had negotiated substantial cuts from HMOs.

Two of the larger Southland HMOs acknowledged that there would be no overall premium cuts next year.

Cypress-based PacifiCare Health Systems Inc. expects rates on its commercial contracts to be up 1% to 2% nationally. FHP International Corp. of Fountain Valley expects average premiums to remain flat going into next year.

Even with rates ready to rise, HMOs will continue to be a bargain when compared to the increasingly high cost of conventional health insurance and preferred provider organizations.

Employers had used their strength in numbers to persuade HMOs to stop setting their prices by simply discounting those of their higher-priced competitors, said James Robinson, professor of health economics at UC Berkeley. HMOs now set their prices more in line with their own costs--a change that resulted in the premium cuts in the last few years.

“Now, it gets harder to keep reducing premiums year after year,” Robinson said.

The two major employer negotiating groups have learned that.

The state-sponsored Health Insurance Plan, which serves 112,425 workers at 6,000 companies, slashed rates an average 15% in 1993, and followed that with 6.2% in 1994 and 5% last year. But renewal rates, effective July 1, were flat.

“You can only have decreases for so long,” says John Grgurina, deputy director for the plan.

While rates on average are flat, Grgurina said that increases were pushed through by about half of the 28 health plans across the state.

In Orange, Ventura and Santa Barbara counties, for instance, rates went up 1% on July 1. In Los Angeles County, by contrast, rates slipped a slight 0.3%.

Similarly, the Pacific Business Group is scheduled to announce this week that renewal premiums for its contracts, effective next Jan. 1, will be flat compared to this year. The group negotiates for 18 large companies with about 500,000 workers, dependents and retirees.

Pacific Business won a 9% cut in rates two years ago and a 4.3% cut last year, according to Patricia Powers, its executive director.

But she doubts such big cuts will be seen again any time soon. As Powers puts it: “A lot of our companies would say that the low hanging fruit has been picked.”

Future cost savings will be difficult to come by partly because of union and consumer activities. Though many hospitals around the state are barely half filled, unions representing hospital workers are trying to stall closures, Robinson said. In addition, consumers, who pay the premiums and receive the care have been complaining that managed care has gone too far in cutting delivery of needed services.

“Consumers want lower premiums, but they don’t want less health care,” Altman said. “Ultimately, they can’t have it both ways.”