Cost of Health Care Slams business, workers.

The price of freedom just got too high for Elyas Balta.

The single engineer had enjoyed the flexibility of belonging to a preferred provider organization, at a cost of $20 a month. But when his Monrovia employer, Integrated Micromachines Inc., recently informed him that his health plan premium had soared to nearly $100, he bailed out to the HMO.

"I see the pricing going up, but I don't see the service improving' grumbled Balta, 25.

Balta's employer seems equally distressed.

"We want to provide as many good benefits for employees as possible. It's very competitive out there," said Carol Ross, the company's human resources manager. "But (the rate hike) was huge."

Specifically, the company's health plan, Aetna Inc., instituted a 30 percent rate hike at contract renewal time last fall.

Balta and Micromachines can at least take solace in this: They are not alone.

Across Los Angeles, and nationwide, employers are being hit with double-digit health care premium hikes not seen since managed care emerged as a large-scale antidote for out-of-control medical inflation a decade ago. As might be expected, the rising premiums are triggering a public outcry and flurry of finger-pointing.

Critics charge that health plans are gouging their customers to pocket fat profits. But the health plans contend the hikes are coming from underlying medical inflation, fueled by big jumps in pharmaceutical costs and new technology, as well as demands by doctors and hospitals for more money.

Whatever the cause, the rate hikes, as high as 50 percent for some small companies, are hitting employers and employees who already are struggling to cope with the economic downturn.

A few employers are just swallowing the new rates, while some are passing them on to employees or even dropping benefits altogether. Others are searching for new carriers, or handling it as Integrated Micromachines did, by sharing the rate hike with employees.

While the manufacturer of fiber-optic switches continues to subsidize HMO coverage 100 percent, it passed along much of Aetna's rate hike to employees enrolled in the PPO. For example, an employee with a family monthly premiums skyrocket from $385 to $594.

At the same time, benefits have been reduced at many companies. Employers are switching to cheaper plans wholesale, while employees are downgrading from PPOs to HMOs. Also common are steep hikes in the co-payments employees must make for office visits and drugs.

"HMOs were going to fix everything. Ten years later, we are back to where we were," said Tom Morrison, L.A. office manager for Segal, a benefits consulting firm. "This time the employer is turning to the employee and saying, 'I don't have the solution,' and it's coming out of the pockets of both of them."

The current set of cost increases have not come out of nowhere.

Employers got a taste of what to expect last February, when the 10 health plans bidding for fiscal 2002 contracts with the giant California Public Employees Retirement System submitted premium hikes averaging 25 percent.

Calpers, whose $1.65 billion in annual healthcare benefits business is second only to the federal government, decided to throw some weight around. It rejected all the bids, and instructed the health plans to re-bid - but this time the three highest bidders would be dropped.

The tactic worked, even though it forced some of its 670,000 members to switch health providers. Calpers members ended up with average premium hikes of 15 to 18 percent, rather than the 25 percent average increase they would have faced.

Other health plan customers don't have anywhere near the negotiating clout of Calpers, but they are doing what they can.

Take the Employers Group, a non-profit human resources association based in downtown Los Angeles with 85 employees. It got hit with a proposed premium rate hike of nearly 50 percent when it came time to renew its 2002 health insurance with Blue Shield of California.

That was too much for it to bear, so it went shopping. It settled on Health Net Inc., but was still forced to accept a 17 percent hike, said association spokeswoman Sydney Kamlager.

The Employers Group did not pass the increase on to its employees. And while the benefits within the HMO and PPO were the same, and office visit and drug co-payments didn't change, in-patient hospital visits, formerly without cost, now carry a $300 co-payment requirement.

"When I was listening to the orientation, I heard that employees would have to take more responsibility for their medical issues. I thought that (meant) employees are going to have to pay more," Kamlager recalled.

Fortunately for Kamlager and her colleagues, that is only the case if they are hospitalized.

Kamlager should count herself lucky. She could be working at Flanigan Farms, a small Culver City-based producer of nuts, seeds and trail mixes that is less able to absorb the hikes.

Flanigan offers a Blue Cross of California HMO plan to its 17 employees. Last April, Blue Cross sought a 17 percent rate increase when the company sought to renew coverage. The company stayed with Blue Cross but decided to lower benefits, going from its existing HMO plan to one with fewer benefits. That allowed the company to continue covering 100 percent of its employees' premiums.

"What (reducing benefits) was able to do for me was maintain our costs and keep our cash outlay the same," said Catherine Flanigan, vice president of operations.

However, the company does not pay premiums for employee dependents. So company receptionist Renee Hardy, a mother with three dependent children under 18, saw her monthly premium rise from $80 to $130 a month.

Then, when she went to pick up some prescription cold medicine, she was shocked to discover the plan carries a deductible that she hadn't met, requiring her to pay $50 for the medication.

She dropped the coverage over the summer, and this fall found out her children qualified for Healthy Families, a state health insurance program for those who make too much to qualify for Medi-Cal but can't afford private insurance.

"For the amount we were paying, I would have kept (the Blue Cross plan) if it was the same type coverage, but it really wasn't," Hardy said.

Adding insult to injury, Flanigan said, Blue Cross hit the company with a 9 percent rate hike on its cheaper HMO plan in October, just six months after downgrading. Flanigan paid up.

Benefits consultant Morrison said he has seen companies respond to the benefit hikes in three general ways:

* Accept the plans as they are and pass on cost increases in the form of higher premiums;

* Reduce benefits by going to a more affordable plan;

* Institute "defined contributions," in which employees' total insurance coverage is capped at a given amount.

"Nobody has a remedy that is really working," Morrison said.

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