One of the world's most memorable curses is the admonition to live in interesting times. Such a period began for purchasers and payers of healthcare insurance in the latter half of 1997, and they should expect 1998 to be as dull as a Picasso painting.
The reason is simple: As turbulence continues, the last thing the disgruntled shareholders of many publicly traded health plans wish to hear is that rates won't go up.
There is almost unanimous agreement among benefits consulting firms that the years of 1% to 3% annual premium hikes are coming to a close. HMO increases likely will remain modest, in the 2% to 6% range, but purchasers of PPO policies could experience double-digit hikes. A bellwether might be the recent 8.5% increase in premiums for federal government employees. Across the board, premiums are expected to go up about 5%, according to New York-based benefits consulting firm William M. Mercer.
Here's why: Most experts agree the golden age of managed care is over. Powerhouse health plans triumphed over the turmoil caused by the healthcare reform proposed in the first term of the Clinton administration, but now they are ailing. Some are being haunted by rising pharmaceutical costs and the popular strategy of ceding premium increases to gain critical market share. Others, which could mask mediocre management during growth years, have seen the bubble pop with the gentility of a hydrogen bomb.
The results: Oxford Health Plans, tabbed by the Economist magazine just three months ago as a good long-term stock pick, is hemorrhaging money about as fast as it can be printed. Healthier plans, such as PacifiCare Health Systems, are struggling with flat earnings.
Add to that the cumulative damage wrought on stock prices (Oxford has lost 80% of its stock value in the past year; PacifiCare nearly 50%), and proposed federal legislation, such as the Patient Access to Responsible Care Act, that would dictate the coverage that must be offered.
The reactions of employers likely will range from mundane to very creative. Expect to see greater outsourcing of benefits management by small- to medium-sized firms and increases of employee copayments and deductibles everywhere. Larger firms might take more healthcare responsibility in-house by constructing on-site primary-care centers, which in some instances can slash the costs of doctors visits and prescriptions by up to 25%.
Meanwhile, purchasing coalitions probably will shift their focus to quality issues as they find it more difficult to negotiate lower rates.
There also are creative solutions on the horizon for individual consumers, who are expected to see out-of-pocket costs. In an interesting idea for interesting times, a few small, regional firms have begun offering credit cards to employees for healthcare-related charges only.