Insurance premium hikes likely on the horizon

Years of competitive pressures, earnings cuts, and increasing medical expenses are taking a toll on most managed care organizations, leading to a likely 4.6% premium hike, says one health care expert.

But practice leaders are holding their breaths as to whether premium hikes passed on to employers will translate to higher reimbursement for physician practices that contract with these insurers.

"We have not seen increases in our capitation rates as a result of premium increases," says Karen Buck, executive director of the San Diego-based Centre for Health Care Medical Associates. "The contract rate for our [employee] health plan has gone up 6% this year, but we have yet to see a penny more in our cap rate from this health plan," she says, noting that she is waiting to see how discussions with that payer will play out when the contract is up for renegotiation later this year.

The reaction among health plans will vary by market, predicts Robert Goldstein, chief executive officer of Metairie, LA-based Browne-McHardy Clinic. The clinic has not seen premium increases yet in its market, but is interested to see how market forces will play out later this year. "We’re anticipating an increase due to mergers, financial losses, and maintenance of a low premium dollar" due to competitive forces faced by managed care organizations, Goldstein says.

The 4.6% price increase is predicted by Philadelphia-based Sherlock Company, based on responses from 197 HMOs surveyed in fall 1997. The consultants say that translates into a 2.9% increase in payments to providers.

Peter Kongstvedt, a nationally known managed care consultant with the Washington, DC, office of Ernst & Young, says the size of premium hikes depends on the size of the employer. Companies with 1,000 employees or more are seeing little if any premium increase, primarily because of their purchasing power. Companies in the 250-1000-employee range should also be able to hold down rate increases, depending on the negotiating strength of the employer.

"We are seeing rate increases in smaller group markets. This is a different type of group, where people can and do change [carriers] frequently. And there often is more risk involved," he notes.

Kongstvedt says these premium hikes won’t necessarily translate into corresponding payment increases for practices that have percentage-of-premium capitation agreements.

"What we’re hearing is, if premiums are going up, I should get a lot more money. But that’s not necessarily logical, because rates are going up for a variety of reasons. It isn’t because MCOs are making unwarranted profits. It’s a matter of the cost of medical care going up," he explains. In other words, managed care organizations need to increase their profit margins during a time when earnings have been weak or nonexistent.

Following are names and telephone numbers of sources quoted in this issue:

• Browne-McHardy Clinic, Metairie, LA; Bill Graffagnini, director of business office. Telephone: (504) 889-5419.

• Hanebutt Consulting, Jefferson City, MO; Gordon Hanebutt, principal. Telephone: (913) 339-6255.

• Physician Reliance Network Inc., Dallas; Joseph Bailes, MD, national medical director. Telephone: (508) 799-2100.

• The Sage Group Inc., Newbury Park, CA; Judy Capko, senior consultant. Telephone: (805) 498-1789.

• The Centre for Health Care Medical Associates, San Diego; Karen Buck, executive director. Telephone: (619) 618-5810.

• Fallon Clinic, Worcester, MA; David Jarry, MD, medical director of pharmacy. Telephone: (508) 854-2000.

• The Groves, Independence, MO; Gary M. White, CPA, MBA, administrator. Telephone: (816) 254-3500.

• Milliman & Robertson, Seattle; David V. Axene, FSA, MAAA, consulting actuary. Telephone: (414) 784-2250.