Physicians shouldn't expect to see higher reimbursements next year even though some managed-care companies are raising premiums by double-digit percentages.
While reimbursements likely won't increase, the good news is that the reimbursement rates shouldn't decrease much either, one analyst says. The actual amounts will vary by region of the country and how well-organized a system is, analysts say.
In a recent study of about one-third of the HMOs in the country, Seattle-based consulting firm Milliam & Robertson indicated that nationwide, rates for 1999 increased 7% to 9%. A similar increase is expected next year. If that holds true, it will be the third consecutive year of rate increases, says Steve Cigich, consulting actuary with Milliam & Robertson, something that hasn't happened since the 1980s.
Aetna USHealthcare, the nation's largest insurer, announced that it will raise rates for all of its products by at least 10%. In January 1999, Aetna increased rates by at least 7%.
Between spring 1998 and spring 1999, health insurance premiums increased 4.8%, according to a Kaiser Family Foundation study of more than 1,900 employers.
The flow of more dollars out of consumers' wallets won't trickle down as increased payments to doctors.
Reimbursement likely will remain the same if rates go up, says Darrell Schryver, a principal consultant with the Medical Group Management Association in Englewood, Colo. If rates stay the same, reimbursement likely will decrease. But Schryver cautions against using a broad brush to paint the reimbursement picture. The payments will vary based by region of the country and how well organized physicians are. "Is there a general trend toward increasing reimbursement?" he says. "No."
Physicians tend to think that because the health plan gets a 9% increase in fees, they should get a 9% increase in reimbursement, says Peter Kongstvedt, M.D., a partner with Ernst & Young in the health consulting practice in Washington. "The math doesn't work that way."
The arithmetic does work like this: Increased utilization levels, a changing business landscape, ongoing lawsuits and the threat of future lawsuits, and increased federal legislation equal higher costs for health plans.
In the mid-1990s, insurers shifted the risk to physicians, worked to decrease utilization and recruited physicians, Cigich says.
"Now what you're finding is the easy gains in utilization reduction are harder to come by," he says. "The providers have consolidated and are proving to be tougher negotiators. They're less apt to take the (financial) risk. And prescription drugs are really starting to show signs of inflating the cost of healthcare."
In the mid-1990s, insurers competed for customers at the expense of profitability, Cigich says. Now weaker HMOs have been bought up and other companies have consolidated, eliminating much of the competition, he explains.
Also in the '90s, employers made a "conscious one-time shift to more restrictive products," Cigich says. "Instead of seeing rate inflation, they traded for decreased, tighter benefits."
So Americans are facing the third year of increased premiums, a trend that hasn't been seen in a decade. How much financial pain consumers will feel depends on whether they work for small or large companies and what product their company chooses.
Smaller businesses will have higher premium increases than large businesses. The less structured the health plan, the higher the rates. For example, a point-of-service plan will have higher rate increases than a capitated HMO.
"Utilization has gone up for more expensive things," Kongstvedt says. "You can't say, 'Provide more coverage and give me more money."'
Aetna USHealthcare expects to see its pharmaceutical costs surpass the 11 percent annual increase the company has seen over the past couple years, says Joyce Oberdorf, spokeswoman for the company. Pharmacy costs are the company's fastest growing expense, she says.
This year, the company raised premium rates by at least 7%, depending on the product. Oberdorf says the planned increases for 2000 are at least 10%, due to pharmaceutical costs and increased utilization.
She notes that the pending class action lawsuits against Aetna didn't affect the 2000 rates, which were set well before suits were filed in October (see November, page 3). However, the company has said that increased costs will be associated with defending the suits.
The pending and ongoing lawsuits are "only going to act to raise rates for everyone for the benefits of the few," Cigich says.
Physicians and patients both may have a hard time swallowing the low reimbursements and high rate increases as they come at a time when most major
insurers reported good third quarters.
Aetna USHealthcare's third-quarter operating earnings were up 26 percent. Aetna, Inc., the parent company, cited the completion of its purchase of Prudential HealthCare in August as one reason for a good quarter. Earnings for the entire company were reported as $165.3 million.
Cigna's earnings for the third quarter were $176 million. United Healthcare, the health insurance arm of parent company UnitedHealth Group, reported earnings of $144 million.
Oxford Health Plans did nearly twice as well as it had projected to do in the third quarter. The Norwalk, Conn.-based company had earnings of $39.8 million for the third quarter that ended Sept. 30.
Announcements such as these sent health plan stocks soaring in early November, a few weeks after the stocks took a beating because of news of pending or filed lawsuits and government investigations. Oxford's stock jumped 24 percent Nov. 2 and closed up $3 per share at $15.50.
Regardless of rates, stock prices and the the way all these factors will affect reimbursements, the big fight this year will be the inclusion of "all products" clauses in contracts, Kongstvedt says. That clause requires physicians who treat one patient in a health plan to treat all the health plan's patients, regardless of what products the patients have. The all products clauses have become a hot button in several states, especially Connecticut, where the attorney general has announced an investigation into Aetna's use of an all products clause (see November, page 20).
"This is a major, major dispute," Kongstvedt says. "Many physicians are willing to accept one type of plan but don't like the other type."