Sharp Premium Hikes on Way As HMOs Dig Out From Deep Hole

Health plan consolidation is giving the industry the mass it needs to do this year what was predicted last year, but didn’t happen: boost premiums substantially to prop up the bottom line.Hewitt Associates, the consulting firm, predicts nationwide premium hikes of 7 to 10 percent, up from last year’s average 3.7-percent increase.

Glimpses of what’s happening seem to back that up. The Federal Employee Health Benefits Plan faces a 10.2-percent rise. Kaiser Permanente is boosting premiums as much as 20 percent, depending on the customer, as it tries to stem a loss that reached $127 million during the first nine months of 1998. Kaiser’s Northeast division alone bled $40 million during the third quarter. Last month, Kaiser said it would phase out its international operations to retrench in the U.S.

Weiss Ratings says 68 percent of Blues plans lost money on underwriting during the first half of 1998; Highmark, of Pennsylvania, led the way with a $79 million six-month deficit. Four HMOs in Colorado lost $34 million during the first nine months of 1998, according to the Colorado Managed Care Newsletter. In Florida, HMOs broke even in the first half of the year, after posting $66 million in losses in 1997, according to Florida Managed Care Review by consultant Allan Baumgarten; even so, state officials tripled HMOs’ cash reserve requirement, effective Jan. 1.

A report, Beyond HMOs, prepared by the Corporate Research Group in New Rochelle, N.Y., says that premium hikes will spur revenue growth of 15 percent for health plans and point them toward recovery. The report also predicts further shedding of unprofitable Medicare and Medicaid contracts.

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