Healthcare plan premiums for Orange County employers could rise at a faster pace in 2006, outpacing a predicted 10% increase nationally.
Early indications are that local health insurance premiums are set to jump at least 10% next year and could come in 12% to 15% higher than for 2005, according to market trackers and brokers.
As in past years, larger employers are set to see less dramatic increases with small and midsize companies seeing bigger jumps.
Premiums are seen growing at a faster rate after expanding less sharply in 2004 and 2005,still the fifth straight year of double-digit increases.
Last year, local premiums grew at an 11.3% clip. That outpaced the national average of 9.2%, according to Kaiser Family Foundation.
Nationally, 2006 premiums are set to grow about 10%, according to Mercer Human Resource Consulting, part of New York-based Mercer Inc.
Premiums are rising for familiar reasons, including higher medical costs and less competition among insurance providers, according to brokers and market trackers.
“We don’t have a lot of insurance carriers left here in California,” said Debra Lambert, president of the LBL Group, a Los Alamitos insurance brokerage and benefits consulting company.
Consolidation is about to sweep up Cypress-based PacifiCare Health Systems Inc., which is being acquired for more than $8 billion by Minnesota’s UnitedHealth Group Inc. in a deal expected to close in 2006.
Advanced Medical Optics Inc. of Santa Ana said it expects a 5% healthcare cost increase for 2006. The company employs about 430 people in OC and 3,500 in all.
Overall, Advanced Medical is making “minor plan changes to our benefit designs, and the cost increases will not be passed along to the employees,” said Francine Meza, senior vice president of human resources.
Wahoo’s Fish Taco Inc., a Santa Ana-based restaurant chain with some 450 local workers, expects a rate increase, “although we have yet to see,” human resources manager Chris Lee said.
“If the increase is not severe, we will try to keep the employee premiums the same and we will bear the difference,” she said. “If the rate increase is substantially higher, then we can expect to adjust employee premiums to diffuse the cost a bit.”
2006 increases have varied, broker Lambert said, depending on employer size and whether the business is able to negotiate down a proposed increase.
She cited a company with 3,500 local employees that offers health maintenance organization and preferred-provider organization plans.
“On average, those (rate hikes on the) combined plans on that particular company was 11% initially, but we were able to negotiate it down to 6%,” Lambert said.
The company used proprietary competitive data to negotiate the rate down, she said.
LBL’s clients generally haven’t passed on costs to their workers, Lambert said.
“What they tend to do is that they’ll look at making some plan changes like, maybe, increasing co-pays and deductibles, and increasing drug co-pays, that sort of thing,” she said.
Greg Haack, a broker with Pacific Group in Laguna Hills, said he’s seeing overall increases of 12% to 15% for his local clients for next year, whether they offer HMOs or PPOs.
“What they’re doing is reducing the benefits on the same policy,” he said. “You still may be on a program with $20 office visits, but the deductible, which in 2005 was $250, might be $500.”
Most employers are sticking with HMOs and PPOs, brokers said.
So-called “consumer-driven” plans, which typically include a medical savings account and high deductibles, aren’t much of a factor, according to brokers and analysts.
Consumer plans seek to make workers aware of the cost of healthcare and make them better consumers.
“My impression is that consumer health really has not caught on in Orange County like it has in other spots of the country,” said Michael Wilson, healthcare practice principal with the Newport Beach office of Mercer Human Resource Consulting.
Consumer plans can’t compete with HMOs, according to Wilson.
“HMOs still remain so competitively priced compared to PPO plans,” he said. “Consumer health plans are built around the PPO model.”
There’s one exception, according to Wilson: PacifiCare’s “self-directed health plan,” which came out last year and now counts about 85,000 members and 5,000 employers.
The plan “actually is competitive, very competitive with the price point of HMOs,” Wilson said.
PacifiCare’s plan, aimed at small to midsize businesses, is geared toward younger, relatively healthy workers. A typical premium for a single worker under 30 is $111 a month, with a $2,000 deductible. That’s 40% cheaper than a standard HMO.
A family of four would pay about $375 in monthly premiums, about 50% less than conventional plans.
Still, brokers said they aren’t seeing a rush to consumer plans, particularly among larger employers.
“Not here in Southern California, no,” LBL’s Lambert said. “It’s being presented. It’s being looked at. Most employers are kind of circling around it.”
Wahoo’s looked at consumer plans and passed, according to Lee.
“We have tossed around the idea of consumer-driven healthcare, although we have not instituted it yet and have no plans to do so in the year 2006,” she said.
Advanced Medical also isn’t considering consumer plans for its workforce, according to Meza.
Consumer plans have “had an effect, but it is fairly modest because there has been so little enrollment,” said Sander Domaszewicz, Mercer’s OC-based national consumerism practice leader.
Other things that have helped keep healthcare costs from rising even faster include upping what workers pay for plans, lower usage of healthcare, better administration and disease management programs, according to Domaszewicz.
Consumer plans have gained elsewhere but haven’t been able to crack the hold of HMOs here, Domaszewicz said.
“We’ve got a fairly well-managed HMO environment where a lot of the consumerism responsibility has been put on the shoulders of medical groups to try to make sure people are getting the appropriate services and coordinated care,” he said.
And selling workers on consumer plans takes effort by employers, Domaszewicz said.
“That’s the understatement of the year,people don’t like change,” he said. “It really is one of the biggest challenges (for) folks moving in this direction, to break the inertia of doing things the way folks have always done.”
