Health-Care Costs Expected to Rise in ’98

Employers’ health-care costs in the United States remained flat last year as businesses moved their workers into lower-cost managed- care plans more quickly than expected, according to a new national survey.

But employers, who have enjoyed four years of very low medical cost growth, are bracing for a significant increase in 1998, said the study by consultant William M. Mercer Inc.

“We are starting to see increases, even in HMO plans, in the neighborhood of 6% to 8%, and those are pretty big numbers,” said Kirby Bosley, a Mercer consultant in Los Angeles.

That is in line with previous projections for 1998.

In the Los Angeles area last year, health-care costs rose 1.1%, compared with a 0.2% increase nationally, the study found. That was a slight change from the last couple of years, when health costs in the region fell, Bosley said.

Managed care has long been popular with employers in Los Angeles, where 98% of people who get their insurance through their employers belong to an HMO or some type of managed-care plan. Only 2% belong to traditional fee-for-service plans.

Employers are concerned that a number of major mergers and acquisitions among California HMOs last year will lead to accelerating premium increases in 1998 and beyond.

“HMOs and managed-care organizations continue to pay for their merger and acquisition activity,” Bosley said. “And employers are concerned that the resulting decline in the number of players in the marketplace will make their negotiations more difficult in 1998.”

Competition, merger costs and rising prices for medical services and prescription drugs have reduced profits for many managed- care companies, increasing pressure on them to boost premiums to employers. Many HMOs “lost money, and margins were slim for most of the rest,” said John Erb, the study’s chief author.

The study also found that public concerns about the restrictions many HMOs place on access to doctors and services is causing some employers to offer less-restrictive managed-care plans.

The difference was striking in the West, where enrollment in HMOs that tightly restrict access to doctors did not grow at all between 1993 and 1997, the study found. In contrast, enrollment in preferred-provider organizations and point-of-service plans--both of which offer freer choice of doctors--soared from 35% of all workers in 1993 to 53% last year.

The study notes that many managed-care plans have loosened their policies on physician referrals and emergency room treatment in response to public criticism. Those moves, however, “throw into question the managed-care industry’s ability to control costs over the long term, despite recent successes,” the study said.