The anxiety employers suffered at the beginning of the year over rising healthcare premiums has abated somewhat. For many companies, the 7%-plus increases forecast for 1998 failed to materialize.
In fact, a recently released study by KPMG Peat Marwick and the journal Health Affairs pegged the average increase at 3.3%. The study credited the continued shift of employees into managed-care plans and provider cost-cutting for holding the line on premium hikes.
But there's a dirty little secret behind those numbers. The smaller increases apply mostly to larger companies, those with 500 or more employees. In healthcare bellwether California, for example, smaller businesses have experienced a much larger bite.
Health Net, a subsidiary of Woodland Hills, Calif.-based Foundation Health Systems, raised premiums 8% to 12% this year for its clients with two to 50 employees. By contrast, larger employers received increases only half the size of their smaller counterparts-just 4% to 6%.
Across the street from Health Net, at Blue Cross of California, an affiliate of WellPoint Health Networks, premiums for individual coverage will jump as much as 58% for 1999, with an average increase of 25%. Premiums for large employers are expected to increase only 5% to 8%, according to Blue Cross spokeswoman Elise Anderson. Premiums rose 5% in 1998. Blue Cross evaluates rates for small firms on a case-by-case basis, and an average fluctuation for 1998 premiums was unavailable.
Kaiser Permanente also initiated large increases for its small-business clientele. Rates for firms with 50 to 100 employees increased 11% on July 1. Kaiser has deferred a similar increase for its larger customers until at least January 1999.
Observers agree that smaller businesses are targeted for higher rate increases because of the maxim that bigger is better.
"Small businesses just don't have the purchasing power to deal with a rise in premiums, and they're really getting it from all sides," says Barry Cockrell, a Jackson, Miss.-based healthcare attorney and partner in the law firm Baker & Donelson.
"The guys with over 500 employees have their own pricing history-dictated by them," says Fritz Mutter, president of Golden Pacific Insurance Services, a Pasadena, Calif.-based insurance brokerage. "The clients who are under 500 are dictated to."
Adds Pat Carrigan, Golden Pacific's benefits manager: "I think health plans have held the line as long as they could. We used to see renewals come in flat, even reductions in some instances. Now they're at 10% or more."
Health plans apparently are willing to part with a few 30- or 40-employee clients that bristle at a steep rate increase. After all, it takes a couple of dozen of such losses to match the devastation of losing a single client with 1,000 employees.
It's also more expensive to administer small-group clients, says Michael Close, Health Net's senior vice president for sales and marketing. "You're processing a lot more billing statements and dealing with a lot more paper," he says, explaining that smaller firms often don't take advantage of electronic claims processing. "Brokers also take a larger commission for small-group business."
Such baggage is hardly popular at a time when health plans have been besieged by sagging profits and depressed stock prices.
In California, five years of nearly continuous integration also has begun to pay off for providers, as evidenced by Blue Cross' recent bruising battles over reimbursements with regional systems such as Sutter Health and Catholic Healthcare West (Aug. 10, p. 62).
Health plans are also being haunted by the long-time practice of taking on money-losing clients to gain market share. "Plans that were giving premiums away aren't playing that game as much anymore," says David Neikrug, president of the Hakol Benefits Group in Chicago. Neikrug estimates his small-business customers are now facing premium increases of 10% to 15%.
Unfortunately, there's not much small businesses can do. Some have the option of trimming benefits and raising out-of-pocket costs, but Health Net's Close noted that benefits packages for small firms have historically been less generous than those for larger employers. And employees at smaller firms are already paying a tidy sum for their coverage. Another study conducted last year by KPMG and Health Affairs noted that employees at smaller firms shoulder at least 35% or more of the cost of their own coverage, double what they paid a decade ago, and more than 40% higher than out-of-pocket costs for employees at large firms (Sept. 29, 1997, p. 34).
Healthcare attorney Cockrell predicts a rise in healthcare purchasing coalitions for smaller businesses. But their initial results have not been heartening. The Health Insurance Plan of California, a purchasing pool formed for small employers in 1993 that covers a total of 130,000 people, recently received rate increases as high as 14% from Kaiser.
That leaves one option that has long been popular for small businesses: switching to a lower-cost health plan. But few believe that practice can continue much longer, given that health plans are under pressure to shore up their bottom lines.
"It's not that hard to change healthcare companies," Golden Pacific's Mutter says. "But there really isn't one around these days that's any cheaper."