WORKER HEALTH COSTS TO SURGE.

Byline: Milt Freudenheim The New York Times

Many working Americans will pay 8 percent to 20 percent more for health insurance premiums next year, the sharpest price increases since the early 1990s.

The rises in premiums follow several years of failed efforts by health maintenance organizations and other managed-care companies to stem growing medical costs. Chief among those increases are the costs of prescription drugs, advanced surgical devices and techniques and services to patients outside hospitals. Cost-cutting has also been thwarted by legislation in a number of states that prevent HMOs from restricting patients' access to specialists and diagnostic procedures.

As costs climbed, health plans for a time had trouble raising rates significantly because big employers and purchasing groups beat down their demands and even, in some cases, forced them to swallow lower premiums. But now, after a wave of mergers, acquisitions and departures of HMO companies from some communities, there is less competition, and the HMOs have found it easier to raise prices to try to restore profits.

As businesses and organizations from Sears and American Express and the federal government to law firms and gas stations face sharply higher premiums, many of them, reluctant to irritate workers in a tight labor market, are sharing the increases proportionately with their employees. But others are asking employees to pay more for out-of-pocket charges or to pay larger percentages of the premium costs.

Three thousand employees of J. Baker Inc., a retail shoe chain, will pay 9 percent more in premiums next year, reflecting a 9.2 percent increase, on average, in the company's overall premiums. Out-of-pocket charges to employees for prescription drugs, admissions to hospitals and visits to doctors and emergency rooms will also rise.

Dorothy Finigan, benefits manager at J. Baker, which is based in Canton, Mass., said that without the added out-of-pocket charges for drugs, physicians and hospital care, overall premiums for the company would have risen 20 percent.

Alltel Corp., a telecommunications company based in Little Rock, Ark., will pay 9.6 percent more, on average, to 80 health maintenance organizations, but the increases will be much steeper for many of Alltel's 17,000 employees because the company pays only a set amount for each employee.

Alltel pays about 80 percent of a $497 monthly premium for a family in an HMO. The company is raising its contribution for the first time in four years, by 4 percent, said Joe Meyer, manager of corporate benefit planning. Even so, some employees will pay 31 percent more, or $19.42 more each month.

Transfer of costs

Workers at other companies may soon face similar increases, including higher out-of-pocket charges for drugs, visits to doctors and hospital stays, benefits executives and consultants said. And a growing number of employers will be transferring even more of the costs to employees by 2000, said Tom Beauregarde, a principal at Hewitt Associates, a consulting firm.

Some medium-sized employers in Florida with 500 or 600 workers ``are getting killed,'' said Becky Cherney, president of the Central Florida Health Care Coalition, a group of large employers in Orlando. Her members have three-year HMO contracts with 3 percent annual increases, but some middle-sized companies are facing 20 percent increases, she said.

Costs are also sharply higher for small businesses, and some are considering giving up health benefits, which would add to the 43 million Americans who do not have insurance. Neil Caggiano, owner of the Glen Head Flower Shop in the Long Island community of Glen Head, N.Y., with nine employees covered, is waiting for notice of his 1999 rates, which take effect in February. ``If it goes up more, we may not be able to offer it,'' he said.

The two employees at Howes & Howes, a four-person law firm in Raritan, N.J., began contributing $10 a week last month. Tim Howes, one of the partners, said their payments would help cover an increase of $60 in the firm's monthly premiums. ``We had to switch to less comprehensive coverage and still pay an increase,'' he said.

Riverdale Texaco in Morris County, N.J., will face an 11 percent increase, to $720 a month, to cover the owner, Sal Risalvato, and two full-time employees. Risalvato joined an HMO offered by Aetna U.S. Healthcare when his former insurer left the state. ``If we had taken a comparable policy, the increase would have been 20 percent,'' he said.

Rise to continue

Even at the biggest companies, the increases have jolted corporate benefits executives, who fear a return to the fast-rising health costs of the late 1980s and early 1990s. Government economists say they expect the upswing will continue over the next few years, adding hundreds of billions of dollars to national health spending. Medical costs are now projected by consultants to rise 6 percent, more than three times as fast as the annual rate of inflation.

While information on next year's premiums is still being gathered, the trend is already clear. Medical costs are up 6 percent, and HMO premiums are rising 8 percent, according to a survey of 50 of the nation's largest companies and 1,000 medium-sized employers by BT Alex Brown Inc., a Wall Street firm.

Health benefits executives across the country confirmed the findings in interviews. Sears, Roebuck & Co. reported increases for next year averaging 8 percent to 9 percent, compared with 3 percent this year, at 200 HMOs that serve 136,000 Sears employees and early retirees. The company declined to provide an average amount of employee contributions, saying there were too many variations. American Express said it would pay 8 percent more, on average, for 33,000 employees in 150 HMOs next year, after paying virtually no increases in 1998.

Federal employees, whose health plan is the nation's largest, will pay 7.4 percent more, on average, next year. The government agreed to average increases in premiums of 10.2 percent, the biggest since 1989. The employees will pay only part of the increase because the taxpayers are absorbing part of it.

Consolidated Edison employees who are union members will pay 8 percent to 9 percent more next year for HMO coverage, under a three-year contract. Edwin Ortiz, director of employee relations for the company, said HMO premiums paid by the company were rising 5 percent to 13 percent, compared with 6 percent to 9 percent in 1998.

California employees

The California Public Employees Retirement System bargained rates down in each of the last four years. Now it has agreed to increases averaging 7.3 percent for 900,000 members, including a 10.75 percent increase for Kaiser Permanente. Thirty-one thousand state employees who have family coverage from Kaiser, for example, will pay $18.57 a month. Previously the full premium was covered by the state.

The premium increases have been welcomed on Wall Street, where most health maintenance organizations have been out of favor with investors during several years of small or nonexistent profits. Indeed, by last year, most health maintenance organizations were losing money, according to Interstudy, a managed care research center in Minneapolis, and many HMOs are still in precarious financial straits.

``I was really surprised and shocked that the price increases are coming through,'' said William McKeever, a health care analyst at Paine Webber Securities, who added that the year 1999 could be the ``best since 1993'' for HMO profits.

The HMO industry has benefited from rapid consolidation, which has left the surviving companies in stronger positions. Sixteen of the nation's 25 biggest HMOs were swallowed by other managed care companies in the last three years.

``There are only a few national carriers left: Aetna, Cigna, United Healthcare,'' Finigan of J. Baker said. ``Because the number is so limited, they are calling the shots.''