State Health Plan OKs 14% Kaiser Increase

A California program that provides health insurance for small businesses has granted Kaiser Permanente--the state’s biggest HMO--a rate hike of up to 14% next year while negotiating more modest increases with many other health plans.

Employers statewide are bracing for the largest medical premium hikes since about 1993. The increases will be felt throughout the economy, experts said, and the rate hikes for small businesses could result in some employers dropping coverage for their workers.

The disclosure by the Health Insurance Plan of California comes weeks after two of the biggest health purchasers in the nation, the California Public Employees Retirement System and the Pacific Business Group on Health, which represents large private employers, denounced Kaiser’s requests for double-digit rate hikes.

HIPC purchases health insurance on behalf of about 8,000 California companies with fewer than 50 workers and serves 137,000 employees. The program’s purpose is to make medical insurance more affordable for small businesses by using its greater purchasing clout to negotiate lower premiums with insurers.

Since its formation by state legislation five years ago, HIPC has been successful at keeping a reign on medical costs for small businesses. But now, like other health-care buyers, it is facing pressure from managed-care companies that are seeking heftier rate hikes to offset rising medical costs and other factors.

The state program said it negotiated an average premium increase of 4.3% for 20 health plans for the 1998-99 year. But that figure is somewhat misleading because significantly higher rate hikes are being imposed on far more workers.

For example, Kaiser, which represents 37% of all employees enrolled in the HIPC, received rate hikes of between 11.5% and 14% in California. Other larger rate hikes went to Pacificare Health Systems (8%), Health Net (8%) and Cigna (15%), which, combined, account for another 22% of enrollees.

In contrast, the state program negotiated modest 2% increases from the Aetna U.S. Healthcare and Blue Shield of California HMOs, which together account for 19% of HIPC’s enrollees.

“We have several success stories, but we’re obviously not pleased with the Kaiser rate increase,” said John Grgurina Jr., chief deputy director of the California Managed Risk Medical Insurance Board, which administers the health insurance plan.

Even with the rate increase, Kaiser’s premiums remain on the “low to mid-rung of the ladder” among the 20 health plans, he said.

Still, Grgurina said he expects Kaiser to lose enrollees next year because the employees of small businesses tend to gravitate to the lowest-priced medical plans.

Kaiser has already informed small businesses throughout the state that its rates will be going up about 11%, said Jack Hudes, a Kaiser vice president.

Kaiser has said that the rate hikes are necessary to cope with rising medical costs and the HMO’s inability to accurately forecast industry pricing trends. The state’s largest HMO lost $270 million in 1997.

“We probably should have raised our rates a year ago but we didn’t,” Hudes said.

Small businesses outside HIPC will probably see heftier rate increases from Kaiser, because health plans that participated in the program are required to offer lower rates than they do in the open market, Grgurina said.

HIPC is set up so that workers at any of the member companies can choose from any of the 20 health plans, provided they are available in their community.

Earlier this month, CalPERS, the giant state pension fund, and the Pacific Business Group blasted Kaiser’s demands for double-digit premium increases, calling them unjustified. CalPERS has threatened to freeze Kaiser’s enrollment unless it lowers its request for a 12% premium increase. But Kaiser has insisted that the rate hike is necessary to maintain medical quality.

If no agreement is reached, Kaiser’s 12% increase would go into effect for the 340,000 CalPERS members who belong to Kaiser. CalPERS and Kaiser officials said Friday they are still at an impasse.