MANAGED CARE REFORM: How Much Would Task Force Recommendations Cost?
Some of the managed care reforms that Gov. Pete Wilson's task force has recommended would only "modestly" increase health premiums, according to a new Kaiser Family Foundation study. Conducted by Price Waterhouse, the study analyzed the direct and indirect costs of task force recommendations in the areas of "access to care and specialists, information disclosure and dispute resolution," or third-party review of denied treatment. While the governor's task force has made 77 recommendations, the study analyzed those "that appear to carry the force of law." Basing cost analysis on the estimated average monthly California HMO premium of $120, the study found that these managed care reforms would together increase HMO premiums by 62 cents per month per person or $1.84 for a family. Direct costs of the provisions were estimated to be about 28 cents per person and 85 cents for a family, while the inclusion of indirect costs, which included loss of management efficiency by managed care plans and adverse selection, resulted in a total increase of 62 cents per person per month and $1.84 for family plans.
According to the study, providing chronically ill patients with standing specialist referrals or allowing patients with certain health conditions to continue to see their current providers if they involuntarily change plans or their provider is terminated would cost about 18 cents per person per month. If health plans and other providers were required to disclose designated information to consumers, the cost would be about seven cents per person per month. And if the state set up a third-party review system for consumers to contest their HMOs' treatment decisions, the estimated cost would be about three cents per person per month.
The study found that the indirect results of managed care reform would likely drive up premiums more than the direct costs. The passage of some managed care legislation could cause HMOs "to deny care less frequently, especially when the savings are not great enough to offset the costs of fighting appeals," the report states. "The net effect of this type of behavior is higher utilization of services, lower discounts from providers and higher premiums." And "the fact that managed care legislation ... increases premiums may drive out some of the healthier enrollees, leaving a sicker, more expensive pool," the report says, resulting in "even higher premiums." However, the report concluded that even indirect costs combined with direct costs of managed care legislation "would be very small in magnitude," ranging from an increase of $8 a year for an individual to $22 a year for a family (Kaiser release, June 1998).