Are HMOs To Blame for Health Costs Rising Again?

IT was largely due to the spiraling healthcare costs of the mid-80's that managed care, and HMOs specifically, became the popular method of health coverage. Since then, HMOs have been instrumental in keeping costs to a minimum while providing patients access to quality care and treatment. In recent months, however, there have been renewed rumblings about rising health care costs. Only this time the rising costs are coming in the form of hiked HMO premiums. With premiums rising among most California HMOs, affordable medical care has once again become concem for most Californians.

What is causing the current increase in health premiums? Are HMOs -- the very entities designed to keep costs down--to blame for these new increases?

Upon close inspection of the trends and events leading to the current rate increases among HMOs, it quickly becomes evident that HMOs are in fact not the culprits in this case, but rather, service-oriented businesses that are often forced to raise rates in order to continue functioning due to a number of factors beyond their control.

HMOs have somewhat unfairly earned the reputation among hospitals and some consumers as the driving force behind the recent cost hikes. In fact, HMOs have actually struggled to keep costs down in recent years in the face of excessive demands of increased government regulations (which lead directly to added administrative costs) and the soaring prices of pharmaceuticals while trying to keep their members happy and their providers paid at a level the market can bare.

For many years, there were no premium increases at all despite growing costs of everything from drugs and supplies to salaries. Even with the recent cost increases, California's health costs remain substantially below the rest of the country. The cost increases which do exist in California are largely due to a number of circumstances beyond HMOs' control that Plans have been forced to incorporate to remain fiscally viable.

Rising Cost of Drugs Has Forced HMOs To Raise Premiums

One of the principal factors that has forced health plans to raise their premiums is the soaring costs of prescription drugs. Most plan members with prescription drug benefits don't realize that drug costs can impact them directly and significantly. Pharmaceutical costs increased nearly 15 percent in 1998 and nearly 18 percent in '99, making pharmacy costs the single largest cost-raising factor facing health plans. And the cost of drugs continue to escalate this year.

A number of factors have contributed to the rising costs of prescription drugs. A large number of new medications is one factor that has caused prices to skyrocket -- many of these new drugs are prescribed long-term for chronic illnesses and cost more than almost all other drugs. An aging California population is another contributor to the rising cost of drugs -- on average, seniors fill more than 20 prescriptions each year, compared to the seven prescriptions per year filled by average non-senior health plan members.

Pharmaceutical companies pouring money into direct-to-consumer advertising has also played a major role in drug cost (and ultimately, health plan cost) inflation. Drug manufacturers spent $3 billion last year to persuade consumers to ask their doctors for specific brands of prescription drugs, when, in many cases, generic drugs with exactly the same ingredients can cost as little as one third the cost of the brand name product.

Frivolous Lawsuits Clog The System and Hike Premiums

Litigation is another issue causing cost inflation. With legislation regularly favoring patients over insurers, the bottom lines of many a California HMO has suffered in recent years. Several decades ago, the cost of malpractice insurance for doctors skyrocketed as a lawsuit-happy public went after doctors who either failed--or seemed to fail--their patients. With the rise of managed care penetration across the country, what used to be anti-doctor anger has been transferred to HMOs. The media has boosted antiHMO sentiments by often painting one-sided portraits of all HMOs as large, faceless, big-business entities.

While much rhetoric regarding patient's rights can be expected during campaign 2000 from candidates of both sides, it should be noted that many of the extreme patient's rights issues being raised stand in direct opposition to cost control issues, and some middle ground must be reached. Many of the best HMOs, including non-profit Inter Valley Health Plan, had implemented fair and balanced patient's rights practices long before such rights became political buzz words.

While many fingers of blame point in the direction of HMOs regarding current cost hikes, perhaps a more realistic assessment of the situation needs to be made. An assessment which includes a review of factors such as rising pharmaceutical costs, the growing number of lawsuits, and the demands of physicians and physician groups.

Most HMOs remain whole-heartedly dedicated to keeping premiums to a minimum. Since much of the focus has been on these plans' sudden raising of premium price tags, a fair assessment of the state of the market must be made. Rather than blaming your HMO for the current rate increases, it is time to take a hard look at unwarranted litigation, overpriced medications and other factors that are out of the HMO's realm of control. When such obstacles are addressed by lawmakers and consumers, the HMOs can get back to their efforts of quality care AND cost containment.

Chuck Nickel is Vice President of Sales and Membership for Inter Valley Health Plan, a non-profit HMO that has now served Southern California for twenty years.