Price Hikes May Ease Pressure–Temporarily

It is ironic and instructive that HMO stock prices are climbing in the expectation that the industry can return to profitability and give investors what they want.

Common sense says that the best way to give owners what they want is for the industry to give its customers what they want, or to look at it negatively, at least not to give them what they don’t want. The game is that the larger-than-customary premium hikes being negotiated this year will not be so large as to infuriate employers. As of press time, CalPERS, representing California public employees (our interview with Margaret Stanley, CalPERS’s health benefits administrator, begins on page 39), was infuriated over Kaiser Permanente’s proposed 12-percent premium boost, but was putting out the word that some kind of compromise was in the offing.

The Big Squeeze, this month’s cover story, refers primarily to the squeeze on health plan profits that, author Peter Wehrwein suggests, may be letting up. Make no mistake: The pressure may slacken, but it won’t disappear. Cost, not quality, is uppermost in purchasers’ minds, and they will not easily settle for higher health care cost inflation, even if it means better care. They want their cake, and want to eat it too.

The industry knows it must deliver better care (not just the perception of better care, which it has failed miserably to do) that will reduce employers’ indirect costs, if it is to get away with price hikes. It can no longer rely on muscling doctors around, because now that inpatient days are down and physician compensation levels have been cut, it needs their creative, positive participation. Physicians do want to be involved that way, but many have a bad taste in their mouths from past dealings with the system. We all understand the concepts of managed care now. In one form or another, managed care is our future. If HMOs can satisfy their constituencies, they’ll survive the squeeze. If not, managed care will reinvent itself.

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