RATE HIKES: Higher Costs Force Employers to ‘Fight Back’
Staring at a second year of double-digit rate hikes from insurers, some employers "are starting to fight back" by dropping expensive plans or negotiating directly with providers, the Los Angeles Times reports. In California, "more than a third of the businesses that belong to a key insurance-purchasing alliance say they will drop or freeze enrollment next year in health plans that do not offer improved care and service along with the higher prices," while in the Midwest, a business alliance is experimenting with eliminating health plans altogether in favor of direct contracting with physicians and hospitals. Many companies are skeptical of health plan claims that increases -- which allegedly go toward higher payments to providers or more expansive prescription drug coverage -- are needed to improve care. Instead, employers suspiciously note that after last year's rate hikes took effect, "the health plans crowed: they issued statements touting renewed profitability; they forecast double-digit earnings growth to Wall Street; they watched stock prices soar." When health plans "confidently raised prices again" last month, asking for hikes as large as 27 percent in some cases, some business groups protested. "We've seen reports of record profits for the first quarter of 1999, yet they're coming to us saying they need more money," said Emma Hoo, senior manager of the Pacific Business Group on Health. The group, whose members include some of California's largest employers, has "publicly castigate[d]" HealthNet and Cigna Healthcare of California, saying "they had 'fallen out of favor' with members." Already, employers and purchasers representing roughly 50,000 patients have dropped out of plans run by HealthNet, which has proposed rate increases of at least 10% for next year.
HealthNet President Cora Tellez argued that the insurer had no choice but to raise rates this year, even though officials knew the move would cost it some customers. Tellez asserted that when she took over the company in November 1998, many of its plans "were priced below market rates, requiring fairly hefty increases to keep up with inflation." Other health plan officials noted that the rapidly rising costs of prescription drugs has caught them by surprise. "By the time you see that it's there, you now have underpriced the product," said Wellpoint Health Networks President Mark Weinberg, who estimates plans are paying up to 14 percent more per year for prescription medications (Bernstein/Rosenblatt, 7/17).