THE PRESSURE IS RISING WORKERS WILL BEGIN TO SEE EMPLOYERS TAKING BIGGER CHUNKS OF THEIR PAYCHECKS TO OFFSET THE EVER-INCREASING PRICE OF HEALTH CARE INSURANCE.

Byline: Barbara Correa Staff Writer

Workers in Southern California can expect more of their paychecks to go to health-care plan contributions in 2004 - and for years to come.

With health-maintenance organizations and other providers hiking their rates amid steeply rising medical costs, employers across the region are gearing up for this fall's open enrollment season to inform employees that the time has come for them to shoulder more of the cost of health care coverage.

``We are looking at trying to develop a strategy that says we're going to pick up a certain amount (of the increases) but the employee is going tp pick up a larger share,'' particularly of HMO rate increases, said Dr. Pamela Hymel, vice president of benefits at Hughes Electronics, which employs about 2,000 people at its El Segundo location.

She said rates from HMOs for 2004 went up from 11 percent to 23 percent, forcing the company to move from covering about 82 percent of the premiums today to around 75 percent next year.

Hughes also plans lunch-and-learn sessions and e-mail question-and-answer campaigns during fall open enrollment to educate employees on the new realities.

Almost all employers offering health insurance to their workers cover the majority of the premiums. But in recent years, with rising medical costs and declining profit margins, employers have begun to shift more of the burden to the employee.

``Everyone's feeling this pain, and it's a matter of how much they are going to pass on to their employees,'' said Erin Holve, a senior policy analyst at the Kaiser Family Foundation.

Businesses are loath to discuss their specific plans, but industry experts say workers can count on higher co-payments for doctors' visits and for prescriptions.

In June, the California Public Employees' Retirement System - the largest purchaser of public employee health benefits in the state and a benchmark that typically foreshadows rate changes across the country - approved HMO rate increases of 16.7 to 18.4 percent, depending on the plan. That follows a 25 percent increase last year.

The agreement also raised emergency room co-payments to $50 and co-pays on prescriptions that can't be filled on site to $75.

Last year, the rate increases resulted in California public employees' paying 8 percent more in contributions in 2003, said Clark McKinley, a spokesman for CALPERS. But this time around, because of the state's budget deficit, CALPERS may be forced to pass more of the cost onto the 1.2 million people it insures, he said.

``Nobody has a crystal ball, but given the size of the deficit, I think a pretty neutral observer could say contributions are going to go up significantly,'' he said.

``We're all facing challenges with the rising costs with how we can offer the best for the least cost,'' said Rick Rossignal, director of human resources at Ventura Distribution Inc., a DVD and video distributor in Thousand Oaks.

Since his company grew in the last year from fewer than 50 to 130 employees, he was able to negotiate a better deal this time with his HMO, so he ended up saving money despite a 12 percent rate increase. But had his staff remained below 50, he'd have been in trouble. ``We would be dying here if we hadn't grown,'' Rossignal said.

In 2001, employees nationwide were paying on average $768 a year toward their medical insurance, or about 16 percent of the total, according to a survey of several hundred major employers - each with more than 5,000 on the payroll - by Hewitt Associates, a human resources consulting firm. By last year, employees were paying $927 a year, 17 percent of the cost. This year, the contribution shot up to $1,196, or 19 percent of the total cost of the health plan.

In a separate survey by Harris Interactive for the California HealthCare Foundation, California employers said health costs would jump 14 percent this year and would continue to increase at double-digit rates for at least the next three years.

Two-thirds of respondents said they would react to the hikes by boosting employee cost-sharing, including increasing premium contributions for dependents and individuals. It's up to each company to decide if and how much of the cost increases will be passed on to their workers. Most companies begin negotiating rates over the summer, inform employees of changes during fall enrollment, and make changes effective Jan. 1 of the next year.

The strategy behind most of the changes in employee contributions and elimination or reduction of services is to involve the employees directly and educate them on the real costs. Employers hope that will encourage workers to approach health care as consumers, seeking out the best value for services they really need.

``Consumers have been shielded from the real costs of health care over time,'' said Glenn Melnick, a health policy professor at the University of Southern California and resident consultant at Rand. ``People have no idea what heath care costs. Consumers have to become better informed ... if they are going to behave more cost-effectively.''

Come fall open enrollment, when many employers present changes in their benefits packages, employees may get their first exposure to what, in the industry, are called consumer-driven health care plans.

Unlike an HMO, where employees pay a paycheck contribution and varying co-payments for service, the consumer-driven model is typically a personal medical account of, say, $2,000. The account is used to pay medical expenses, with the patient responsible for finding a doctor and comparing prices. Once that $2,000 is spent, then a deductible kicks in. After the deductible is met, major medical-type insurance coverage comes in to cover possibly 80 percent of services.

``This turns the HMO upside down,'' said Michael Rivera, a Los Angeles senior consultant with human-resources consulting firm Watson Wyatt. ``It's all about behavior modification.''

Health Net Inc. plans to offer employers this fall a consumer-driven plan called USelect, a defined contribution model in which employees pick their own doctors, co-payment levels and monthly contributions.

The idea behind such plans, which currently insure a small minority of employees, is that workers who use them will be empowered to make better purchasing decisions because they will see the actual costs of services, which are hidden behind co-payments of $10 and $20 under the HMO model.

While such plans won't become the norm anytime soon, they are the wave of the future for companies squeezed between insuring their workers and turning a profit, said Rivera.

Aside from introducing new plans, employers may be looking to eliminate multiple plan offerings to get a better deal with a single health care plan provider.

And workers will also see co-payments for specialists to rise much higher than co-payments for primary care doctors.

``Come open enrollment, we'll hear a lot of noise,'' said Rivera.

The reasons behind rising heath care costs are complex and controversial, but employers point to two broad drivers, said Erin Holve, the Kaiser Family Foundation analyst. One is rising drug prices. The other is increasing costs of hospital services.

Part of those increases are built in, as technological advances make more drugs and treatments available to more people.

``New drug and therapy development is definitely one driver,'' said Jill Yegian, senior program officer at the California Healthcare Foundation. ``Several years ago you wouldn't do an intensive surgery on someone who is 85. But now that anesthesia has gotten so good, you can operate on a 85 year old,'' said Holve.

A lack of competition is another big factor.

In the 1990s, costs were not growing as rapidly, and there was a lot more competition among plans, said Melnick. By the last of the 1990s, consolidation in the managed-care industry had reduced the options, premiums started to spike, and employers started to see their profits whittling away.

But as long as the labor market stayed relatively competitive, employers had to continue to shoulder the bulk of health costs to keep employees happy. The upswing in unemployment, with the tightening of the job market the last few years, is freeing employers to ask their workers to carry more of the load.

``Our prescription costs have gone up 80 percent in the last three years, the majority in the last 18 months. Medical costs are up 50 percent in the last 18 months,'' said Jack Brown, president and chief executive officer of Colton-based Stater Bros., one of the largest employers in the Inland Empire. For now, the company will continue to eat those increases. But that could change at any time. ``As these costs continue to rise, we, along with other supermarket companies, are going to have to start looking at our options.''

Barbara Correa, [phone]

barbara.correa(at)dailynews.com

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HEALTH CARE HIKES

SOURCE: Hewitt Associates

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