In the last few years, HMOs have raised the price of health care plans. This means tough decisions for employers and the employees who depend on them for insurance. Betty Ann Bowser looks at what lies in store for managed care recipients.
BETTY ANN BOWSER: Like millions of Americans, Roberto Garcia worries about his employer's health plan and the medical care it provides him. Garcia depends heavily on medication to regulate the epileptic seizures that once ruled his life. A little over a year ago, he began receiving regular, affordable medical care from a health maintenance organization paid for by his employer. Garcia says that improved his life dramatically.
ROBERT GARCIA, HMO Member: I'm at a point now where I'm the most lucid I've ever been in my life for the last decade. I'm a functioning, productive individual in society.
Rising prices shock employers and scare employees.
BETTY ANN BOWSER: But now, his HMO Kaiser Permanente Health Plan, says it will raise premiums approximately 11 percent this year for small businesses like the Ace Mailing Company where Garcia works. Garcia's employer, Gwen Kaplan, says Kaiser hasn't told her how much her rates will increase but they already went up 5 ½ percent in January, and that makes it harder for her to provide health coverage for her 38 employees. But she also does not want to cut back on the benefits her plan provide.
GWEN KAPLAN, Owner, Ace Mailing Company: I mean, I don't want a health plan where for myself or anybody else that the only thing that's covered is when you're half dead. What good's that to anybody? I mean, we're suppose to be
maintaining health, right? So, I'm very concerned about if the price keeps going up, can we afford and can our employees afford the question of the increase, and would we be able to continue with medicine?
Kaiser blames steeply rising costs for new drugs and technology.
BETTY ANN BOWSER: Kaiser Permanente officials say they must raise rates significantly because their company lost $270 million last year. Kaiser's CEO, Dr. David Lawrence, blames steeply rising costs for new drugs and technology. He also says hospital use has gone up significantly, made worse by an unusually harsh flu season last year.
DR. DAVID LAWRENCE, CEO, Kaiser Permanente Health Plan: We probably waited a year too long before we started raising rates again. But these are the lessons that I think come out of it. First of all, doing health care is extremely expensive and extremely difficult. And I think it calls out just how difficult the changes are to make in health care that we're dealing with, and how volatile this economic environment is that we're dealing with. It's extremely volatile.
BETTY ANN BOWSER: In the 1980's, HMO's were touted as the cost-cutting solution to rampant medical inflation, and in the early to mid 90's, they seemed to be just that. Over the past four years managed care costs have risen only slightly, an average of about 1.6 percent, but now most HMO's feel the same economic pressures as Kaiser and are raising their rates as well, fueling concern about a new round of medical inflation. A survey in January by the William M. Mercer Company predicts an average increase this year of 6 to 8 percent. And Mercer's John Welch says it could go even higher next year.
JOHN WELCH, William M. Mercer Company: The actual cost increases for '99 aren't yet out. But the indication is
we're going to see cost increase of the 7 to 10 percent range, which is significantly higher than the last three to five years.
BETTY ANN BOWSER: A new survey by Peat Marwick shows the cost of health care benefits has already risen 3.3 percent nationwide this year, and the increase is even greater in California, 4.2 percent, in a state that has traditionally had lower health plan premiums in much of the rest of the country. As the nation's oldest and largest HMO, Kaiser is often seen as a benchmark for prices. And that's why the 
industry closely watched Kaiser's recent negotiations with the California Public Employees Retirement System--or CAL-PERS. Kaiser and CAL-PERS eventually negotiated a 10 3/4 percent increase for CAL-PERS' 338,000 Kaiser members. CAL-PERS spokeswoman Pat Macht says the jump in rates shocked her and other negotiators, and she thinks some of the fault for Kaiser's $270 million loss rests with Kaiser's management..
PAT MACHT, CAL-PERS Spokeswoman: We felt that it was too much in one year. And we felt frankly that they
had to take some responsibility and be held accountable for the business mistakes that they had made--a $270
million loss. Obviously, someone needed to take responsibility for that, and why should that all fall on the
shoulders of purchasers?
Critics charge that HMOs underpriced their products to gain customers.
BETTY ANN BOWSER: Some analysts say Kaiser and other HMO's underpriced their products during the early and mid 1990's in an effort to increase membership and gain market share. And low rates did increase membership dramatically. Last year, 70 million Americans, or about 85 percent of the insured work force, belonged to a managed care health plan. That's up from 45.2 million workers just four years earlier. Some polls show as membership has risen, so has dissatisfaction with managed care. A Louis Harris poll last March showed only 45 percent of those surveyed felt managed care companies were doing a good job. And the sound of that frustration has echoed in the halls of both the state capitols and the US Congress.
JOHN WELCH, William M. Mercer Company: There are certainly a managed care backlash. There is legislation
that is trying to open up parts of managed care, and that will lead to increased costs
BETTY ANN BOWSER: In the California legislature alone more than 100 bills on this issue are in committee. And in Washington, DC, Congress is considering a number of measures as well. Health care analyst Roberta Walter of
Merrill Lynch says bills that mandate services will help drive up the cost of managed care.
ROBERTA WALTER, Merrill Lynch: I think the best estimates out there, which are by Milliman and Robertson,
which is a very well respected actuarial firm, were that you'd be looking at a range of 20 to 25 percent. They
were using 23 as their midpoint. And I think that's probably a fair expectation.
BETTY ANN BOWSER: Michigan Congressman John Dingell--
REP. JOHN DINGELL (D) Michigan: I don't know what they're smoking but I suspect it's something geared at scaring and deceiving the American people. Our studies have indicated that the real increase of cost is less than
0.7 of a percent. That's not very high.
BETTY ANN BOWSER: But Republican Congresswoman Ann Northup says she was in the Kentucky legislature when it passed mandates on services.
REP. ANN NORTHUP, (R) Kentucky: John Dingell's response reminds me a lot of what the legislators in Kentucky said when we talked about what about premiums, they just didn't want to face it. They didn't want to admit to it, they hoped it wouldn't happen, but the fact is the prices escalated far more than anybody ever predicted.
Are health care expectations too high?
BETTY ANN BOWSER: Wall Street Analyst Kenneth Abramowitz says some of the blame lies with the American people, who have come to expect the highest quality health care at the lowest price.
KENNETH ABRAMOWITZ, Health Care Analyst: Now that health care costs are starting to inflate again at five to seven and will continue to do that for the next three to five years, the employer in about a year or two will go back to
their employees and say to them remember the 4 percent increase that I was going to give you, well it's now
1 percent because they sent 3 percent to Dr. Welby, to which the employee will say, so give it to me. And
they say no, no you don't understand, your the one who asked me to send it to Dr. Welby, you asked for the large
freedom, the large access; you asked for the broader networks.
BETTY ANN BOWSER: Not only do most of the experts predict health care costs to increase, now a new study done by the UCLA School of Public Health shows more and more Americans are opting out of health insurance, because they cannot afford their share of the cost, even at current rates.
A RealAudio version of this segment is available.
