KAISER PERMANENTE: Plans Double-Digit Rate Increases

      Kaiser Permanente, hit with "a huge loss last year and a costly nurses' strike and new contract," is raising its health insurance rates by as much as 11% for some businesses. The San Francisco Chronicle reports that it is "the biggest hike in a decade and comes as a huge jolt to employers who have been used to stable rates the past few years." Carl Martin of the Health Insurance Plan of California said, "Everyone in the industry knew there would come a time when there is no more fat to trim" (Sinton/Russell, 3/31). According to the San Francisco Business Times, Kaiser is "shooting the moon," trying to "phase in rate increases of up to 30% over the next three years." Kaiser, the state's largest HMO, is warning 20,000 members "to expect a surprise 6% increase starting July 1" (Rauber, 3/30 issue). Rates for Kaiser's small business members already "soared" 5% in January; coupled with the new 6% increase, some customers "will be hit by an 11% total increase in insurance rates for their employees," the Chronicle reports.

Scapegoats
      Kaiser "blamed the increases in part on a surge in the cost of medical care for members at non-Kaiser facilities and higher drug costs" (3/31). According to Jack Hudes, a Kaiser vice president, the company is seeking the increased rates because of its $270 million loss for 1997 (see CHL 2/17). He said the HMO expects to have another "poor financial year" because it did not raise rates this year (Business Times, 3/30 issue). "Premium increases will be in the high single digits or low double digits," said Hudes, who added that "rates will still be lower than five years ago even with the increases." Other reasons Kaiser cites for raising rates, the Chronicle reports, include the fact that Kaiser "is no longer able to cut use of hospital beds by 10% a year" and it has suffered from "six recent one- or two-day nurses' strikes which cost it $10 million a day." Kaiser also saw pharmacy costs rise "35% between 1993 and 1996," and these costs "continue to go up at 10% to 15% annually." The Chronicle also notes that Kaiser's contract with Medicare "allows for only 2% annual increases in federal payments," a cap that will hurt the HMO because Medicare "accounts for more than 25% of Kaiser's revenues" (3/31).

CalPERS Clash
      The Business Times reports that many large companies contracting with Kaiser may "have been able to hold the line on health care prices for several years, in large part because that fit Kaiser's strategy," but now "many experts expect the log jam to break in the current negotiations" (3/30 issue). "We know Kaiser had a $270 million loss, and we expect them to have to make it up," said Pacific Business Group on Health Executive Director Pat Powers. However, Powers said, "We certainly hope we are not going to see a big spike" (Chronicle, 3/31). According to the Business Times, Kaiser's proposed rates for the California Public Employees Retirement System "include double-digit increases designed to match the jacked-up premiums other HMOs are requesting, along with 'a major catch-up' element to recoup lost opportunities." Watson Wyatt Worldwide health care analyst Barbara Wachsman said, "Kaiser feels they have not been at the market (rate) for a while. They think the market will tolerate it, but we'll see" (3/30 issue).

Direct Contracting
      According to the Chronicle, both CalPERS and PBGH are looking at other alternatives to avoid surging HMO rates: "contracting directly with the hospitals and medical groups that provide the care." Powers said, "All of us are exploring direct contracting as an alternative arrangement. The dilemma is we can't contract directly with every physician in California. There needs to be more organization at the physician's level." California Medical Association CEO Dr. Jack Lewin said, "Direct contracting is going to happen in California" (3/31). Earlier this month, CalPERS officials said they would not mind cutting out the "middleman" and directly contracting with doctors if it meant higher quality health care ( see CHL 3/23).