Health care costs: at rest or on the rise?

Health care costs may be heading Up again - by 4 percent this year and as much as 10 percent in 1998, predicts one benefits consultant in a recent Wall Street Journal article.

But Sol Barth, assistant general manager of finance and administration for the Metropolitan Transit Authority in Houston, disagrees with the 1998 projection, at least for his company.

"Ten percent is not a realistic number for us," he responds. "In our case, we negotiated with our insurance provider for a rate plus 'escalation factor' that wouldn't exceed 75 percent of the local, medical consumer price index. Therefore, I'm expecting our health care costs to be relatively stable for the next two years. In the current environment of federal pressure on Medicare pricing, I don't believe the doctors or hospitals will be able to escalate prices much beyond the national inflation rate."

Not surprisingly, an opposing view comes from Robert Patterson, a senior consultant with Pennsylvania Blue Shield in Camp Hill, Pa.

"It's probably true that prices are going to move up considerably and consistently, and we're going to experience a 'catch-up' period - especially since health care premiums have been flat for the past two years," he says. "My estimate is that health care premiums will increase approximately 2 to 5 percent in 1997, but I can't say what will happen beyond that."

As reasons for Patterson's short-term prediction, he offers intense competition in his central Pennsylvania area, increased utilization due to a strong cold and flu season, and an increasing number of people who are opting out of provider networks. "People are making the distinction now between 'managed care' and 'managing care,' and that makes it difficult to estimate what percentage will stay within the network."

And, of course, any return to higher costs is certain to vary by market and probably have a bigger effect on smaller employers, which have less negotiating clout.

Backing that statement is Tom Kinstle, vice president of benefit finance and administration for the Lockheed Martin Corporation in Bethesda, Md. There, Kinstle is responsible for overseeing the delivery of benefits to more than 100,000 employees in essentially all 50 states.

"In terms of rising health care costs, our view at this point is regional and mixed," says Kinstle. "In some areas of the country, the cost shift downward hasn't bottomed out. The trend is regionally driven. There's still a lot of overcapacity in hospitals and sufficient competition in some specialty areas and HMOs to keep costs stable. So I agree that it's not a matter of if costs go up, but when."

"The pressure to raise prices is being felt mostly by 'for profit' companies that were hit hard when earnings trailed off in early '96," adds Blue Shield's Patterson. "Variations on those increases will absolutely depend on region and competition because, ultimately, health care delivery is a local phenomenon. Decision-making can be centralized for greater efficiencies, but we must be equipped to deliver care at the regional level and recognize idiosyncrasies of the local market."