HMOs in state losing low-cost advantage

California consumers continue to pay lower premiums with health maintenance organizations than with other forms of health insurance. But the state’s HMOs may be losing their ability to contain prices and are no longer much cheaper than their counterparts elsewhere in the country, according to a report released Wednesday.

After years of consistently paying less than HMO members in other states, California consumers in employer-sponsored HMO plans now pay about the same as the national average -- about $340 a month for single coverage, according to the California Healthcare Foundation, an Oakland-based nonprofit. Five years ago, a California consumer’s average premium was $196 versus $233 for the country. Premiums for family coverage, however, are still cheaper in California.

HMOs, also known as managed care, continue to be much cheaper compared with other health plans in the state, on average more than $1,000 less per year. In the rest of the country, HMO premiums cost about the same as other health plans.

But HMOs’ price advantage in California is due more to the rapid rise in costs of other plans than managed care’s ability to keep premiums down, and that could be a sign of trouble, healthcare experts and officials said.

“I am very concerned,” said Cindy Ehnes, director of the state’s Department of Managed Health Care, which regulates HMOs. “We are losing something that is of important value” in containing rising healthcare costs.

Managed-care plans keep costs down by encouraging preventive care and limiting access to a close network of hospitals and specialists. They gained popularity in the 1980s as an alternative to more costly health plans -- such as preferred provider organizations, or PPOs -- that allow members to manage their own access to healthcare. But HMOs lost favor in the 1990s across the nation as consumers began resenting the lack of choice and control.

Even in California, where HMOs got their start, managed-care plans have gradually lost their share of consumers covered by employer-sponsored health insurance. It went from 54% in 2001 to 50% this year. About 17 million Californians are covered by employer-sponsored plans, by far the largest block of the insured.

Experts aren’t sure why HMO premiums are rising more rapidly in California than in the rest of the country. But a likely reason is that the plans are more tightly regulated in the state.

In other states, HMO plans have contained premium increases by shifting other costs to patients, such as introducing deductibles for costly surgeries, said Ed Cymerys, a senior vice president with Blue Shield of California, which has about 2.5 million members, 40% of them in HMOs. In California, HMOs are prohibited from charging deductibles. Members generally pay $10 to $15 for doctor visits but are virtually covered for most other treatments.

“There are a lot of constraints on HMOs,” Cymerys said. Managed-care plans have raised co-pays for doctor visits by a few dollars in recent years, but savings from such cost-shifting is minimal compared with what hundreds or thousands of dollars in deductibles could save the plans, thus lowering the pressure to raise premiums, he said.

Another reason premiums may be increasing is that HMOs have traditionally appealed to younger, relatively healthier workers. They do not expect to be chronically sick and therefore care less about restricted access to specialists and hospitals, said Paul Haderlein, a benefits expert with Aon Consulting, which advises companies on employee benefits.

As those members age, they may be consuming more healthcare services and thus driving costs up, Haderlein said. In that sense, California’s HMOs may be victims of their own success. Because managed care insures a higher percentage of the population in the state compared with the rest of the country, HMOs in California may be feeling a bigger hit from an aging population, he said.

Premiums have risen for all types of health plans, about 9% in 2006, according to the California Healthcare Foundation, which publishes several other research papers on healthcare costs in the state. But California’s average HMO premiums are still considerably lower compared with the state’s PPO plans, which are some of the most expensive in the country.

Average monthly premiums for an employer-sponsored PPO plan in the state is $1,149 for family coverage, up from $601 in 2001. Nationwide, the average is $980, about the same as HMO plans, which cost $940 a month. California HMO rates for family coverage is $885, up from $464 five years ago.

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