ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Tuesday, January 21, 1997 TAG: 9701210088
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: NEW YORK
SOURCE: STEVE SAKSON ASSOCIATED PRESS
HMOs and other managed care plans have helped rein in health insurance inflation for the third year in a row, according to a widely watched survey, but these same plans may soon be partly responsible for reigniting price increases.
The survey of 3,200 employers being released today by the consulting firm Foster Higgins says the total cost of providing health coverage for their workers and retirees grew 2.5 percent last year to $3,915 per person.
However, health maintenance organizations, whose rates have been flat or declining for two years, are planning increases in 1997, Foster Higgins said.
``And I think the picture for 1998 is a little nastier because of several converging factors,'' added John Erb, the study's chief author.
For one thing, a public backlash against limitations on care imposed by HMOs is prompting legislation across the country mandating benefits.
Hospitals and doctors, tired of having their fees cut by HMOs, are banding together to get more bargaining clout.
Federal and state governments, hoping to ensure the solvency of government health programs for the elderly and poor, are planning to trim the rate of increases in payments for Medicare and Medicare.
As a result, employers expect costs to increase 4 percent in 1997, and inflation could get worse after that, Erb said.
For 1996, however, the picture remained somewhat benign as more companies switched their workers from traditional health insurance to managed care, which covers 75 percent of the Americans who get their health benefits through their jobs.
Average costs for large employers with 500 or more workers rose 3.6 percent, while smaller employers with less than 500 workers saw a decline of 2 percent. These smaller companies had been slower to accept managed care, but are catching up, the survey showed.
Erb explained that the mere fact that most employed Americans are in managed care plans is one reason that costs may now head back up.
``The easiest, most readily available way to save in health plans is getting people out of traditional indemnity insurance and into managed care. That's a kind of low-hanging fruit. Every one you pick, you save bucks, and most of the low-hanging fruit is gone.''
HMOs, eager to sign up business and facing increasing competition, have kept their premiums stable even while their payments to doctors, hospitals and drug companies have increased.
That caused HMO profits to drop in 1996. Under pressure from investors to restore profit growth, most HMOs are demanding premium increases of between 3 percent and 6 percent this year.
HMOs also are increasing efforts to cut medical costs, which may bring greater restrictions on specialists, hospital stays and medication choice.
Such moves raise the risk of worsening the public backlash against HMO restrictions that already has prompted an avalanche of legislation across the country mandating certain coverage. In 1996, most states and Congress passed laws mandating a 48-hour hospital stay for new mothers.
This year, state and federal lawmakers will consider a variety of bills including those giving patients easier access to specialists such as gynecologists, prohibiting HMOs from limiting drug choices, and curbing the power of HMOs to restrict experimental treatments. HMOs contend that these mandates all drive up the cost of health care.
``None on their own is a significant hemorrhage, but put them all together and you're looking at a couple of percentage points [of inflation],'' Erb said.
Hospitals and doctors also are reacting to the lower fees they get from HMOs. Nonprofit hospitals across the country are merging or selling out to for-profit companies in order to grow larger so they will be able to demand higher fees when it comes time to renegotiate contracts with the HMOs. Doctors who once practiced in one-or two-person offices are banding together in larger groups or selling their practices to professional management companies.
LENGTH: Medium: 76 linesby CNB