HEALTH PREMIUMS: Californians Face Big Hikes
"The sticker shock is starting to spread," the Sacramento Bee reports, as companies and consumers around California brace for the steepest health insurance premium hikes in several years. Insurance brokers and HMO officials are predicting increases ranging from 6% to 12%, with members of less "restrictive health plans" such as preferred provider organizations facing the biggest increases. Kaiser Permanente warned in June that its 1999 rates would rise 10% for most corporate clients and 10.75% for the California Public Employees Retirement System after reporting $270 million in losses last year. This year's rate negotiations come on the heels of Kaiser's Friday announcement of a $111 million third quarter loss. The Bee cites several factors pushing prices up:
- Climbing drug prices -- up 15% this year in part because of new treatments for "everything from baldness to AIDS."
- The bottom line -- many HMOs are publicly traded companies and are focusing on boosting shareholders' earnings.
- Providers are pushing back -- the Bee cites Sutter Health's negotiations with Blue Cross as an example of a hospital that won higher rates "after threatening to drop the HMO."
- Regulation -- new laws have mandated minimum hospital stays and expanded insurance coverage.
No End In Sight?
"You add all those [factors] together and you have some substantial increases in costs" for HMOs, said Henry Loubet, CEO of United Healthcare of California. "The days of stable or declining costs in health care are without a doubt a thing of the past," said Watson Wyatt Worldwide analyst Glenn Smith, adding, "We would expect several years of rising costs." Smith noted that "many employers will pass along some or even all of the additional costs to their workers." Officials from Blue Diamond, a Sacramento-based almond producer, said they face a 6% increase and plan to "offset the increase by raising prices for their products." But Larry Dicke, CFO for Blue Diamond, said, "It's pretty hard to pass on the whole cost increase to your customer." But Wall Street smells profits in the premium hikes and HMO stocks are up 19% for the year. Greg Crawford, an analyst with Fox-Pitt Kelton, said premium increases "could lead to increased revenues and ultimately higher earnings next year." He added, "People are taking a slightly more optimistic look for next year's earnings. I would be surprised if I didn't see significant price increases over the next few years" (Young, Sacramento Bee, 10/31).