Most California HMOs, Insurers Plan Rate Hikes

For the second year in a row, most of California’s HMOs and health insurers plan to raise their premiums 5% to 9% as they seek to recover from several years of price wars fueled by employers’ rapidly shifting into managed care to control benefit costs.

The average increases, although criticized by consumer advocates, hover fairly close to the rate of inflation for health-care costs, which the federal government has forecast as rising at a rate of 6.5% over each of the next two years.

Word of the increases Thursday came just two weeks after the nation’s biggest health maintenance organization, Kaiser Permanente, won an unusual 11.7% increase from the influential California Public Employees’ Retirement System, the largest buyer of health insurance in the state. CalPERS also gave approval to other insurers to raise their premiums, setting the stage for higher rates for private customers as well.

“The rate increases are the newest scandal,” said Jamie Court, who directs the advocacy group Consumers for Quality Care. “It’s a demonstration that HMOs have neither managed care nor managed costs.”

Premiums will continue to go up, Court predicted, unless the state steps in to regulate them.

It is not yet known whether the increases, aimed mostly at large employers and scheduled to take effect in 2000, will be passed on to individuals. But many employers had already begun charging workers more for their portion of health-care costs as premiums began to rise last year.

And although big corporate buyers of health care will probably be able to negotiate their fee increases at the lower end of the scale, individuals and small businesses are likely to see their costs creep toward the high end.

“I think everybody is doing at least a slight increase,” said Bobby Pena, spokesman for Aetna-U.S. Healthcare, the nation’s largest managed-care insurer. Aetna plans to increase rates for its California HMO plans from 5% to 9%, with slightly higher increases for less-restrictive plans, Pena said.

Kaiser, which provides health care for 8.6 million Americans, said it will raise premiums an average of 7% to 8% next year.

Cigna Healthcare of California will increase rates 5% to 8%, and WellPoint Health Networks, which owns Blue Cross of California, will raise premiums 5% to 8% in California and 7% to 9% in other parts of the country.

Several factors are driving the increases.

In California, where competition has kept rates as much as 30% below other parts of the country, severe financial strains have beset insurers and the doctor groups they contract with to provide care.

At the same time, the rate of medical inflation is increasing, caused in large part by high prices for pharmaceuticals.

And doctors, fed up with ever-decreasing fees and increasing workloads, have begun to rebel, dropping out of managed-care contracts and in some cases refusing to take on HMO patients.

By increasing rates, insurers believe there will be more money in the system to address those problems. Higher premiums will mean more money can be paid to doctors, pharmaceutical manufacturers and hospitals.

Indeed, after last year’s premium increases took effect, several publicly traded HMOs crowed in their quarterly financial reports this year that the higher rates had improved their bottom lines.

But rates cannot rise forever. Health-care consultants warn that employers, who purchase much of the nation’s health insurance, are likely to rebel if the trend continues much longer. Employers could decide to switch to other plans or pass on a bigger percentage of costs to their employees or quit offering health-care benefits altogether. And that could mean even more Americans left off the insurance rolls.

“We have to cover our costs and make a profit, but we’re well aware that every time we raise premiums, that prices some people out of the market,” said Jim Harris, spokesman for Cigna’s California operations.

Besides raising prices, Harris said, health-care companies need to operate more efficiently and learn to keep customers loyal by providing quality care.

“Premium increases are not a panacea,” said John Cygul, chief of investor relations for WellPoint. “Companies really have to pay attention to their customers and to provide quality outcomes while controlling costs.”

Typically, Cygul said, premium increases follow two- to three-year cycles.

At Kaiser, where the raises will range “from the high single digits to the low double digits,” the money will be used to help offset about $500 million in losses racked up by the nonprofit HMO over the last two years, and to offset health-care inflation, spokesman Matthew Schiffgens said.

“The 1999 rates really reflect for us the costs of providing care for our members and reflect the increases we have seen in utilization of services, and the growth of costs of pharmaceuticals and technology,” Schiffgens said.