Orange County employers who had to dip into the till to pay more for health insurance for their workers last year will have to dig much deeper in 2002, brokers and benefits professionals warn.
Next year’s premium increases are “much worse than anticipated. We’re looking at around 20%,” said Mike Wilson, a principal in the Orange office of the William M. Mercer Inc. consulting firm. Mercer’s clients are primarily large companies.
“For the overall package, HMO, PPO and dental, we’re seeing (increases) in the 15%-to-35% range. It’s not nice,” said John Nicoli, a vice president in USI of Southern California Insurance Services’ Irvine office.
At Santa Ana-based PacifiCare Health Systems Inc., 15% to 17% price hikes on renewal business for the rest of this year “should give you a clue to what we’re pricing in 2002,” said Howard Phanstiel, chief executive and president, during a conference call after releasing second-quarter earnings last week.
PacifiCare, particularly in its core California market, has been affected by a market shift to so-called shared-risk contracts where it absorbs part of the cost increases that occur. PacifiCare also was involved in one of last year’s seminal healthcare events, when it severed ties with Orange-based St. Joseph Health System after disagreeing on reimbursements.
Meanwhile, at Woodland Hills-based Health Net, “we clearly have seen in our premiums and renewals the cost impact of the St. Joseph partnership scenario,” said Christopher Ciano, the managed-care company’s senior vice president and Southern California general manager.
“(St. Joseph) had been doing business with the majority of all HMOs. They then decided to do business with six HMOs,PacifiCare, Health Net, Blue Cross, Blue Shield, Aetna and Cigna. For all the others, they canceled their arrangements,” Nicoli said. The hospital demanded shared-risk contracts and higher reimbursement rates from its so-called “partner plans,” causing PacifiCare to drop out.
Health Net clients with St. Joseph-affiliated members are facing premium increases of 15% to 25% in 2002, according to Ciano. “Clearly, the employers are footing the bill, feeling some of the cost impact.”
However, Health Net is ending its business relationship with St. Joseph in 2002.
Discussions of healthcare premiums in Orange County can’t avoid St. Joseph, analysts said, because some estimates have that network providing about 30% of the total healthcare in the area through its three local hospitals and several affiliated medical groups.
But St. Joseph’s negotiating tactics aren’t driving up healthcare costs, according to Joe Randolph, the system’s chief financial officer. The hospital firm is just reacting to increasing costs of technology and supplies, he said.
Among those are pharmaceuticals.
“We’re seeing roughly 20% (increases) on Rx, which makes up about 15% of the healthcare dollar. About 3% of the overall increase itself is strictly due to Rx,” Wilson said.
California State University, Fullerton, which employs around 4,100, expects its healthcare costs to go up in 2002, said Denise Johnson, a benefits manager. “CalPERS estimates that our HMO plans are going up 6%, while our two PPOs will have a 24% premium increase.
“But the state contribution is also increasing,” Johnson said.
The California Public Employees’ Retirement System is responsible for negotiating healthcare benefits for Fullerton and other California State University System campuses.
University faculty and staff will be asked to pay more out-of-pocket, according to Johnson.
“Our HMOs, for this year, have $5 office visits and $5 for prescription. That will change in 2002,” she said.
Nicoli said his brokerage’s clients “have two reactions. In one case, some, if not all of the rate increase is being passed on to workers. Secondly, there’s a knee-jerk reaction: sticker shock.”
Mercer’s Wilson said he found that its clients “are accepting it. Everybody saw it coming.” But he warned that he didn’t necessarily think employers would be as understanding if they were hit with a large increase in 2003.
“There’s a broad acceptance of the market correction for two reasons,” Wilson said, noting that businesses have had five or six “glory years” of flat premiums and that there’s very limited choice among plans. “Right now, the health plans are more interested in profitability than membership,” Wilson said. “Employers ask me if (plans) are buying business. I tell them no.”
Some managed care companies have raised rates in order to boost profits and maintain favor on Wall Street.
Orange County’s HMO and healthcare market also is getting more attention from outside observers, such as the Center for Health System Change, a Washington-based think tank.
In a new report, the center wrote that some area employers are trying to hold down increases in the short term through benefit modifications, such as increasing worker co-payments and deductibles and instituting three-tiered prescription drug benefits. Three-tier plans are designed to encourage the use of generic drugs when they are available, rather than pricey name-brand pharmaceuticals.
“Employers worry that the higher payment rates obtained by St. Joseph and other providers, along with increased utilization rates and prescription drugs costs, will push premiums up even faster over the next few years,” the center said in the report. The center based its report on a January site visit and interviews with more than 80 OC representatives of providers, plans, employers, policy makers and consumers.
As for the future, businesses will have to face an even wider range of treatments and diagnostics that will be covered by health insurance.
One example cited by Nicoli was full-body diagnostic scanning. Full-body scanning, while gaining in popularity around the country, is also expensive,sometimes running around $1,500,and some insurers have balked at covering the procedure.
That will change, Nicoli predicted: “I guarantee you that it will be covered, either by legislation or by pressure from large employers” n
