Midsize Firms in Pacific Region Bear Brunt of Rising Health Costs
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home / healthcare / in the media

The Los Angeles Daily News
Jul 24, 2002

by Evan Pondel

Midsize Firms in Pacific Region Bear Brunt of Rising Health Costs

Double-digit increases in health benefit costs have hurt the state's midsize companies hardest because they lack the power of larger firms to negotiate better coverage or the ability of small businesses to cut benefits according to a new industry survey.

In the Pacific Region -- which includes California, Oregon, Washington, Alaska and Hawaii -- employers with 200 to 999 employees saw the cost of their health benefits rise 11.5 percent in 2001 to an average of $ 5,005 per worker, according to the Marsh/Mercer Mid-sized Employer Health Plans Survey.

"Midsize employers are in a double bind," said Mark Mathias, an employee benefits practice leader with Marsh in Los Angeles. "They need to offer a benefits package that is comparable to those offered by larger employers, but they don't have the purchasing power of large employers nor the resources to devote to benefits cost management."

In an era of soaring health insurance costs, those working for midsize companies are especially feeling the pinch. Employers have been forced to shop around to ease the burden, with many opting for health maintenance organizations as a lower-cost alternative.

Robert Goodman, chief executive officer of Box Brothers, recently dropped his company's health care provider. With around 200 employees nationwide, Goodman said, the company's former health plan was too expensive. The result: "We had to hit the pavement and look for an affordable plan," he said.

With the salaries of Box Brothers' employees significantly less than the average Fortune 500 executive, HMOs are the most popular choice for the Woodland Hills-based company. But even the costs of HMO plans differ.

"It's really scary out there right now," he said. "If I didn't choose a plan that was affordable and appealing, I bet a lot of my employees would go uninsured because of the rising costs."

The California Public Employees' Retirement System, a massive pension fund that sets the tone for health-insurance premiums in the state, recently approved a 25 percent increase in premiums for 2003, said Jaime Court, executive director of The Foundation For Taxpayer & Consumer Rights, a consumer watchdog group in Santa Monica.

"And the market is not being driven by claims or costs, it's being driven by greed," Court said. "These costs are the result of the same unaccountable accounting practices that we're seeing everywhere else."

The study, which surveyed 1,352 employers in the U.S., concluded that midsize employers across the country absorbed a 17 percent increase in total health benefit costs, to an average of $ 5,144 per employee. Larger employers haven't experienced nearly the same increases because their size helps them negotiate with providers, Mathias said.

Smaller employers are coping with cost increases simply by cutting benefits completely. At times, "the message becomes pretty clear, for some small employers, that the choice is to shift cost to employees or terminate themplan," Mathias said.

But that isn't an option for Spencer Karpf, chief executive officer and president of Software Management Consultants Inc. The Glendale-based company boasts around 260 employees, although only about one-third of that base is actually insured via the company. That's because most of Karpf's employees are free agents, who utilize his company's services to land information-technology jobs.

For those employees who are full-time staffers at SMC, Karpf closely scrutinizes each health care plan. A former executive in the managed-care industry, Karpf said he knows when a health care provider is factoring in extraordinary costs.

Karpf witnessed his premiums jump 28 percent last year. Instead of sitting idle, he began searching for a new plan. Eventually, he severed his health insurance ties with Principal Financial Service and signed up with Blue Cross of California.

"I took a look at my plan at one point and said yikes, we might have to reduce our benefit structure," he said. "We ended up leaving the plan, and found a much better benefits structure."

Karpf, who firmly believes a company should take responsibility for its employees' benefits as opposed to transferring the costs, isn't completely settled with his new plan, though. He said some companies lure employers by offering an attractive premium for the first year. "And then they jack the rates..."

Even companies that appear to have hefty bank accounts often find themselves frustrated by soaring premiums. Brent Reinke, a director with the law firm Crosby Heafy in Westlake Village, said most employees at his company probably partake in preferred provider organizations. "But I can understand the general frustrations with the coverage offered by HMOs, too," Reinke said, "so I end up paying more for my PPO to have greater freedom as far as choosing a doctor."

While many employers blame the managed care industry for the exorbitant cost of health care, Blue Cross of California and Health Net officials say rising premiums aren't driven by the desire to raise stock prices, according to Michael Chee, a spokesman for Thousand Oaks-based Blue Cross of California.

The three main factors affecting premiums are rising hospitalization costs, increasing pharmaceutical costs and the lack of using a plan efficiently, Chee said.

In terms of hitting companies with higher premiums after they sign up, "we're just too big to play that game," he said, alluding to the 6 million members Blue Cross has statewide.

Health Net is also not accepting responsibility for climbing premiums.

"It's the fact that the cost of prescriptions and hospitals are going up substantially," said David Olson, a spokesman for Woodland Hills-based HealthNet.

Providing coverage for around 2,000 companies in the state, he said, is "a challenge right now, and we'd like to see the hospitals be a little more responsible in terms of how they seek rate increases."


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