Two national benefits studies find that Orange County businesses should prepare for double-digit increases in health insurance costs for their employees.
Hewitt Associates LLC, a Lincolnshire, Ill.-based management consulting firm with a Newport Beach office, projects OC’s annual healthcare costs per employee will hit $4,237 in 2001, an 11.7% jump from this year’s $3,793.
OC’s increase in healthcare costs is expected to be in line with the national trend, according to Hewitt.
The firm projects U.S. annual healthcare costs per employee to reach $4,707 in 2001, up 11.5% from this year’s $4,222.
“Orange County’s not that much different than the rest of the country,” said Johan DeKeyzer, a principal in Hewitt’s Newport office.
Hewitt’s study projects employers nationwide will see average increases of 10% to 13%, depending on the type of health plan selected, compared to last year’s average increase of 9.4%. The biggest bump is expected at health maintenance organizations, where costs are seen rising 13%. For preferred-provider organizations and point-of-service plans, the projected increase is 10%. For traditional indemnity plans, the figure is 12%.
Another healthcare cost survey, Milliman & Robertson Inc.’s 2000 HMO Intercompany Rate Survey, projects similar increases next year. Five OC health plans that responded to Milliman & Robertson’s rate survey anticipate that their renewal rates will increase 8.98% for groups of 50 or more employees and 9.18% for groups of two to 50 employees on Jan. 1.
Nationally, the Seattle-based actuarial consulting firm, which has an Irvine office, predicts that HMO renewals are going up 11.3% on groups of 50 or more employees and 12.3% on smaller employee groups next year.
Health plans are being urged by investors to focus on profitable membership, rather than blanket growth, DeKeyzer said. Locally, that’s played in contract talks that broke down last month between PacifiCare of California, the county’s largest HMO, and Orange-based St. Joseph Health System, the biggest provider network.
“There’s been quite a revolt in the provider community, with the St. Joseph situation,” DeKeyzer said. “The providers are pushing hard and that’s driving up rates.”
Officials of the Cypress-based health plan said the issue was a double-digit rate request by St. Joseph, while St. Joseph officials replied they were more concerned with sharing costs on prescription drugs and other high-cost items.
DeKeyzer said clients he’s talked to about the situation are “worried and angry. St. Joseph has a significant hold on the marketplace.”
Indexes such as Hewitt’s and Milliman & Robertson’s are used by human resources and benefits executives as a barometer of what’s happening in the market. Other issues, such as the group’s size and its healthcare risk experience in previous years, may affect actual premium rates.
Wall Street’s also weighing in on healthcare costs. In a recent report, PaineWebber Inc. analyst William McKeever said he sees employers’ overall HMO premiums going up 12% in 2001. McKeever predicted large employers’ HMO premiums would go up between 11% and 12%, while medium-sized employers should expect a 13% to 14% increase. His survey included responses from more than 100 large and medium-sized employers representing approximately 1.5 million employees.
“The premium increases are sticking since employers can no longer play health plans against each other,” McKeever wrote. “The nonprofits and the for-profits are both willing to walk away from business unless appropriate premiums are in place.”
Even so, one large OC employer said it’s dodging the double-digit increase bullet.
“We haven’t experienced cost increases that large,” said Valerie Morris, assistant vice president of employee benefits for Newport Beach-based Pacific Life Insurance Co. The company expects its 2001 healthcare costs to go up in the high single digits, she said.
Pacific Life, with around 2,200 Orange County employees, offers a self-funded co-payment plan and PacifiCare of California HMO, Morris said, adding her company’s contracted with PacifiCare for 15 years. Pacific Life’s been able to control its HMO rate increases because it’s a large employer that had “a lot of leverage,” Morris said.
Pacific Life is negotiating to add a second HMO to its benefits package, though Morris said no contracts have been signed yet.
Don Goldmann, president of the Orange County Association of Health Underwriters, also expects carriers to raise their rates in 2001. But Goldmann said he suspects Hewitt’s Orange County projection is “a fairly aggressive guesstimate” and added he thinks market pressures would keep rate hikes between 7% and 8%.
Goldmann told a story about Santa Ana-based PacifiCare Health Systems Inc., PacifiCare of California’s parent, and Woodland Hills-based WellPoint Health Networks. The two companies have seen their Wall Street fortunes diverge in recent weeks.
Goldmann said despite PacifiCare’s financial difficulties, he believed it would be hard for the managed care company to raise premium rates because Well Point, a darling of the investment community, decided to hold the line in a competitive market.
“If you’ve got WellPoint holding pat, how can you raise rates? That’s going to be extremely difficult to do,” Goldmann said. WellPoint, owner of the Blue Cross of California name, recently decided against raising rates on some of its plans.
A PacifiCare of California spokeswoman said late last week that she didn’t yet have 2001 premium rate numbers. She said that last year the HMO’s premiums went up approximately 6% to 8% on large-group business and 9% to 10% for small groups.
Employers may not want rate increases, but they are accepting them, according to Goldmann. He attributed that to a combination of the strong economy, tradeoffs between rate increases and benefit cost modifications, and “a good sales force.”
Meanwhile, Hewitt’s Health Value Initiative study found that while some companies will absorb the majority of next year’s rate hikes, many plan to pass along at least 25% of their premium increases to employees. Using Hewitt’s national projection as a benchmark, affected employees will pay around $125 more for their healthcare coverage in 2001.
Besides HMO business pressures, Hewitt’s study also pegged prescription drugs as a key factor in premium increases. n
