New state law will expedite HMO members' access to outside care.

Kaiser Permanente is just one of many health maintenance organizations applauding a new state law that makes it easier for HMO members to receive care outside the network.

The law, SB 1221, passed in September and is slated to take effect in January. It was authored by state Sen. Kenneth Maddy, R-Fresno, and was sponsored by the California Association of HMOs. It updates the Knox-Keene Health Care Service Plan Act under which HMOs in California are licensed and regulated.

HMOs, one of the fastest growing segments of health care, provide health care for a set monthly fee, but the care is coordinated through a primary care physician.

Employers have been putting increasing pressure on HMOs to offer "point-of-service plans" -- plans under which the cost of care is determined at the point of service. But California HMOs could only do this if they partnered with an indemnity insurance company.

Under a point-of-service plan, enrollees typically pay 30 to 60 percent more than they would under an HMO. Although more expensive for consumers, point-of-service plans allow enrollees to choose their physicians, which usually helps patients feel better about their health plan.

And for those leery about signing up with an HMO, a point-of-service plan can be a less-traumatic way of easing into a managed care system. Under President Clinton's health care reform, point-of-service plans would be mandatory because they offer consumers choice.

For HMOs like Kaiser, which hasn't paired with an insurance company, the bill was a blessing, said a Kaiser spokesman who asked not to be identified.

"Because of pressure from employers and other health carriers and the fact that the California economy is in the tank," the bill took on increased significance, he said. In essence, the bill is expected to help Kaiser compete better with other health plans in the race to lure employers.

Kaiser Permanente, headquartered in Woodland Hills and Oakland, dominates the market for HMOs in California, with 4.7 million enrollees. Because of the wave of HMO consolidations and increased market pressure, however, Kaiser saw its enrollment drop in Southern California by 70,000 between June 1992 and June 1993.

Meanwhile, enrollment in point-of-service HMOs grew by 50 percent to 2.4 million in 1992, according to the Group Health Association of America, a managed care trade group based in Washington, D.C.

Even for HMOs that already offered point-of-service plans, the bill is expected to cut bureaucratic red tape. Because HMOs in California, prior to the new law, could only offer a point-of-service plan if they teamed up with an insurance company, this created conflicting and overlapping regulations, said industry experts.

The Department of Corporations regulates the HMO industry and the Department of Insurance oversees point-of-service plans. This created two types of licenses, two sets of regulators and, for consumers, two insurers. "When you have two different agencies, things get lost in the middle," said Joe Criscione, a lobbyist for Woodland Hills-based Health Net.

Health Net, Kaiser's biggest competitor in the state, has been offering point-of-service plans to its 925,000 members for the last two years, said Tim Littlefield, vice president of sales for Health Net.

Under Health Net's point-of-service plan, members can select care from any physician in the world, but they must pay a deductible of around $300 and 30 percent of charges up to an annual maximum of $2,500, he said. No matter how large the medical bill, the enrollee would pay no more than the maximum out-of-pocket of $2,500.

Enrollees in Health Net's HMO typically pay a $5 co-payment, but they must get all their care coordinated through a primary care physician. Under Health Net's preferred provider organization, enrollees can see a specialist directly, but they must make a co-payment of around $25. If the person is hospitalized under the PPO, they must pay 20 percent of all hospital charges.

Another provision of the new law clears up confusion over when a newborn adopted child becomes eligible to receive health care coverage. The Knox-Keene Act requires that coverage for adopted children start when the HMO parent has "physical custody" of the child, but the act didn't define physical custody. When newborns required hospitalization, HMOs would argue that the newborn wasn't in physical custody of the parents and, therefore, was ineligible for coverage. The new law clarifies that, as soon as the parents have the legal right to control the child's health care, the child is covered.