"Managed Care Update"

Insurance Premiums Climb 9.7% For Calpers in Calendar 2000

MORE VALIDATION that healthcare premiums will trend upwards at near double-digit rates came from California this week.

The California Public Employees’ Retirement System (Calpers) announced it will pay average rate increases of 9.7% to HMOs starting in 2000. This is significant because Calpers is considered one of the shrewdest buyers of healthcare in the nation.

The 9.7% increase for 2000 comes after average rate increases of 2.7% and 5.1% in 1997 and 1998, respectively. It is considered a sign that HMOs in other parts of the country will have better success in negotiating aggressive premium increases from employers.

Competition For Business

Will these aggressive premium increases help boost laboratory reimbursement? Probably not, for several reasons.

First, in most markets there are still laboratories willing to bid at low prices to acquire new business. This gives HMOs the ability to play one lab provider against another during contract renewals.

Second, many HMOs are financially-strapped. Large increases to premiums are necessary to offset significant losses suffered by these insurers during recent years.

For example, Kaiser Permanente negotiated an 11.7% rate increase with Calpers for the year 2000. Kaiser insures about 40% of Calpers’ beneficiaries and posted sizeable losses during the past two years. Kaiser extracted a 10.8% rate increase from Calpers for 1999 and is now one of Calpers’ higher-cost HMOs.

Modest Rate Increase

Those laboratories dealing with PacifiCare will be interested to know that PacifiCare’s rate increase to Calpers was only 6%, the third lowest among Calpers’ HMOs. PacifiCare also agreed to extend a long-term contract with Calpers by three years.

This is evidence that PacifiCare’s business plan may be relatively more successful than those of competing HMOs. If true, it means that PacifiCare could be evolving into a tougher competitor. Unburdened by the financial problems of other HMOs, it is free to concentrate on expanding its presence in many markets.

Because of the size and clout of Calpers, its announcement of premium rate increases for 2000 will set the tone in a number of other markets. With inflation still running about 2% per year, premium increases approaching 10% mean that HMOs will probably be criticized for their failure to control healthcare costs.

This improves the opportunity for clinical laboratories and pathology practices to increase their value to HMOs by demonstrating how lab services improve healthcare outcomes while reducing the cost of patient care.

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