HEALTHY COST INCREASES; HMOS PLAN TO BOOST RATES IN RECOVERY MOVE.

Byline: Ben Sullivan Daily News Staff Writer

As benefit managers at companies across the Southland prepare for fall and winter open enrollment season, many have found themselves confronted with a bad case of sticker shock for employee health care.

Companies shopping for new health plans for their employees, or questioning current providers on the cost to re-sign up, are finding in many cases not the mild, 3 percent to 4 percent premium increases many plans predicted last spring, but double-digit rate hikes unprecedented in the recent history of managed care.

``I keep saying to my clients, the party's over,'' said Carla Magarity, a Woodland Hills-based insurance broker who negotiates health coverage for about 100 Southern California companies, including Simi Valley-based Eltron International.

Magarity said employers have for the last several years enjoyed remarkably low rates from plans such as Blue Cross of California, Kaiser Permanente, Prudential HealthCare, Health Net and CareAmerica. The plans have fought tooth and nail to gain market share, Magarity said, often by offering unsustainable low premiums. ``But that's all coming to a head now,'' she said.

Indeed, anecdotal evidence suggests that some of the biggest plans in the region are raising prices for the remainder of 1998 and into 1999, from 5 percent to a staggering 50-plus percent, with rate hikes of 10 percent to 20 percent for midsize companies not uncommon.

Leading the charge upward is nonprofit Kaiser Permanente, the nation's largest HMO, which recorded a devastating $270 million loss last year stemming largely from its unsustainably low prices. Now, for even some of its best clients - the California Public Employees Retirement System and the Pacific Business Group on Health cooperative, for example - Kaiser is raising prices up to 10 percent. For smaller customers, increases are averaging 12 percent and occasionally drift closer to the 20 percent mark.

Compounding the basic rate hikes is the company's policy of staggered prices depending on length of customership. In the first year of coverage, Kaiser typically offers customers a discount of up to 10 percent. That reduction shrinks in subsequent years until it's eliminated entirely in the fifth year of coverage. That means that on top of Kaiser's basic rate increase, continuing customers are seeing discounts shrink or disappear.

``When they get down to the nuts and bolts, some customers are getting hit with actual rate increases of anywhere from 10 to 20 percent. They're getting double-whammied,'' said Sacramento insurance broker Bob Reinwald, who contracts with health plans throughout the state for individual and group coverage.

At Blue Cross of California, the health plan operated by Woodland Hills-based Wellpoint Health Networks, premiums for large groups are set to increase up to 8 percent in the coming year, according to Blue Cross spokeswoman Elise Anderson.

That in itself is about double what the company said it expected a few months ago. But it pales next to the adjustment the company said it must make to premiums for many of its self-insured customers. For those policies, premiums are set to jump between 8 percent and 58 percent, with an average increase of 25 percent, according to spokesman Peter O'Neill.

So what's pushing everyone's prices up? The answer, industry officials said, is not simple. Premiums set three, four or five years ago with an eye toward boosting membership were arguably inadequate to cover costs in the early 1990s. Rising medical costs since then have only compounded the problem.

In addition, the state of medicine has marched forward. New procedures and drugs add to the cost of care - expenses that are only partially offset by improved administrative efficiencies.

That fact was hammered home this year when Pfizer Corp.'s anti-impotence drug Viagra took the nation by storm. While health plan members clamored for the $10-a-pill drug, many HMOs refused to include it in their coverage, alternately citing the high cost or claiming it was a lifestyle drug, not a medical necessity.

Physician groups are also pushing health plans for higher reimbursement rates to care for members. Past capitation rates put much of the financial risk on the doctor's shoulders by pegging their reimbursement rate to a patient's actuary profile. Those methods are now being rejected by physician groups in favor of true per-member, per-month fees that pay the same amount for a healthy 19-year-old man as for an 85-year-old woman.

``What's happened is that with all this feeding frenzy for extremely low rates, the medical groups have taken it in the shorts. Now they're saying, No way. We want a per-member, per-month fee and we don't care if it's a preferred individual or not,'' Magarity said.

Finally, several managed care companies have taken big financial hits this year after flirting unsuccessfully with other types of insurance, most notably workers' compensation. Foundation Health Systems Inc. of Woodland Hills, which operates the Health Net HMO, recently sold its workers' compensation division at a loss less than five years after acquiring it. WellPoint has also recently left the field.

The bottom line, brokers and managed care representatives said, is that health insurance prices are headed up significantly this year and will likely continue to grow at a comparable rate well into the next decade.

``Is this a (one-time) correction in the market? It does not appear that way,'' said Blue Cross' Anderson. ``Very likely, this trend will continue.''

QUESTION AUTHORITY

If you're considering changing health plans during your employer's open enrollment period, ask these questions of the plans to determine which is the best for you:

What does it cost to see a physician and how much must you pay for prescription drugs?

What does it take to see a specialist and how many may you choose from?

What happens if you disagree with a diagnosis, have a complaint with the treatment you receive or are denied coverage you consider essential?

How much of your money goes to medical care and how much is spent on administrative overhead?

Will the plan cover all of your pre-existing conditions? If not, how long must you wait before the plan will pay for their treatment?

Does the plan offer any alternative medicine treatment, such as acupuncture or chiropractic, and are there any other ``rider'' benefits you can add?

Is the plan accredited by the National Committee on Quality Assurance and have any consumer groups rated it?

Does the plan have reciprocal care agreements with plans in other states in case your grow ill while traveling?

Where are the plan's facilities and what hospitals can you use?

- Ben Sullivan

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Photo: (Color) Insurance broker Carla Magarity has been telling customers the party's over for premium rates.

John Lazar/Daily News

Box: QUESTION AUTHORITY (See Text)