HEALTH BENEFITS: Costs Up 3.3% From Last Year
The cost of employee health benefits is up 3.3% from last year, "defying -- at least, so far -- predictions of a return to much higher health care inflation," according to a survey of more than 1,500 employers conducted by KPMG Peat Marwick. But with managed care plans pushing for rate increases and new medical technology being developed, the Wall Street Journal reports that health costs could begin to escalate next year (Winslow, 6/16). Jon Gabel, who directed the study for KPMG Peat Marwick, said employers have strongly opposed health plans' attempts to raise rates, accounting for the modest increase in costs this year. "There's a real stiffening on the part of employers," Gabel said. He predicted a 4.5% to 8% increase in costs next year, however, due in part to managed care's inability to contain "the underlying cost of medical care" (Hilzenrath, Washington Post, 6/16). Observers say they are still uncertain whether an increase in costs is on the way. "Everybody's holding their breath," said Blain Bos, a benefits consultant at William M. Mercer in Chicago. "The ability of HMOs to really manage costs in being tested," Bos added (Armour, USA Today, 6/16).
HMO Enrollment Plunge
The KPMG Peat Marwick survey also found that HMOs "lost market share this year": HMOs had "30% of employee enrollment," down 3% from last year. The Journal reports that the decline is due to employers switching to point of service and preferred provider plans, which offer more flexibility than HMOs (6/16). USA Today reports that "companies vary on whether they pass the additional costs" of higher-cost managed care plans on to workers, "who may pick up as much as 40% of the cost." For instance, AT&T is expecting an average rate increase of 8%, but says "it's too early to know how increases will be passed along to employees" (6/16).
Employers said cost was their top consideration in choosing a health plan, the Washington Post reports, with 73% saying it was "very important." Twenty-seven percent listed a health plan's accreditation as "very important," and 8% said the same about a plan's score on standardized performance measures (6/16).
According to the survey, health care "premiums rose a more brisk 4.2% in California, where managed care is more dominant and HMOs weakened by stiff competition are seeking sharp premium hikes." The Los Angeles Times reports that the 4.2% increase "is largely in line with recent price increases announced by several of the state's most influential purchasers of health care." For example, CalPERS announced in April that average HMO premiums will rise 5% next year, and the Health Insurance Plan of California has "negotiated an average rate hike of 4.3% for 1999" (Olmos, 6/16).