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HMOs again will raise rates 13, to 20,
Star Tribune: Newspaper of the Twin Cities
September 15, 1988
Author: Gordon Slovut; Staff Writer

For the second straight year, Minnesota's health maintenance organizations are increasing their rates 13 to 20 percent and more, and the end of major rate increases isn't in sight.

"I think we'll have double-digit increases at least next year, too," said George Halvorson, president of Group Health Inc., the only major HMO in the state that did not lose money last year.

The first indication of the size of 1989 rate increases came this week when
state employees began receiving a list of premiums for single and
family coverage that will be effective Jan. 1. About 50,000 state workers are affected.

The HMOs, Blue Cross and insurance companies don't necessarily follow the state employee pattern when they set rates for other employer groups, but the state employee rates are considered to be an indicator of what is to come for other policyholders.

Group Health, which already covers about half of the state employees in the Twin Cities area, will be the lowest-cost plan offered, largely because its increases were only 13 percent, from $78.20 to $89.94 for single coverage, and from $192.86 to $221.80 for family coverage.

Because its rates are the lowest, they become the basis for the state employee contributions for other health plans. The state will pay all of the single coverage cost and 90 percent of the lowest-cost family plan coverage, which is Group Health. Employees who pick other plans will have to pay the difference.

The major Twin Cities HMOs aren't available in all counties of the state, so the state's contribution will vary throughout the state based on what plans are offered.

Blue Cross-Blue Shield's Aware Gold Limited, the least expensive for 1988, will be the most expensive of the plans in the Twin Cities next year, according to the list distributed by Council 6 of the American Federation of State, County and Municipal Employees. Its rates will rise from $77.72 for single coverage to $130, and from $177.30 to $288.44 for family coverage, an increase for family coverage of 38.6 percent.

Among the other major increases for family coverage: Physicians Health Plan, up 27 percent; Share Health Plan, up 16 percent; MedCenters Health Plan, up 17 percent, and First Plan, a preferred-provider organization that is run similar to an HMO, up 17 percent.

Pat Drury, a health-care economist who is executive director of the Minnesota Coalition on Health, said she expects sharp increases to continue indefinitely until enough pressure builds to force doctors and others to get rid of the kind of "waste and unnecessary care" that's been reported in a joint study by UCLA and Rand Corp. researchers.

"Public and private employers will rebel," she said.

Kent Peterson, director of the Minnesota Health Department's HMO section, said the department doesn't consider the huge rate increases to be surprising.

"They had been having significant losses since 1986," Peterson said. "They have to get onto a correct rating system."

HMO executives said the increases are largely caused by inflation in the cost of providing health care and new state requirements that they build up financial reserves and contribute, along with health insurance companies, to a fund to support a high-risk health insurance pool.

But Peterson said he doesn't think those factors alone account for soaring premium schedules.

"I don't think medical care inflation is any different than it has been for some years," he said. "Setting up reserves required by state law is a very small factor, probably accounting for 1 to 2 percent of the rate increases. They have to build up to a total of 8.33 percent (of annual premium revenue) over a period of five years, so they will have to set aside 1 or 2 percent a year to accomplish that. And the contribution to the high-risk pool will account for less than 1 percent of the increase."

He said the Health Department is encouraging the HMOs to stay solvent by becoming more efficient as well as by increasing rates.

Health care economists have said HMOs were using artificially low premiums to compete for members and market share. Peterson said he thinks those days may be over in the Twin Cities, at least.

Don Gerhardt, executive director of MedCenters Health Plan, said he thinks the rate increases will begin to "tail off" in 1990, at least for his HMO. He and Group Health's Halvorson said the rapid increase in the use of magnetic resonance imaging (MRI), a new, expensive way to study the inside of the body without X-rays, has contributed to the escalation of health care spending in the Twin Cities.

"It hasn't replaced X-rays," Halvorson said. "People are getting the X-rays, and as a result of the X-rays a doctor says he wants to get a closer look at this and he orders an MRI. The street price on the procedure now is $1,000 an examination."

Halvorson said improved technology also is driving up health spending on premature infants and heart attack victims. The technology enables premature infants who would have died two years ago to survive and go home, leaving the HMOs to pay hospital bills ranging from $100,000 to $1 million.

And TPA, a new drug that can interrupt some heart attacks by dissolving a blood clot in a coronary artery, "increases survival in the emergency room, sending more people to expensive intensive care where some people survive to go home and some don't."

He said that he favors those medical advances and, for example, would want TPA used on him if he had a heart attack, but that they do drive up costs.

Malcolm Mitchell, executive director of the Metropolitan Council's Health Planning Board, said he expects the 1989 Legislature to look into the problem of rapidly rising health insurance costs.

Dave Lutes, chairman of the health board, who is benefits manager for the Minneapolis public schools and a former benefits manager for the state, said the board will study the health insurance premium problem.

"It's a national problem," Lutes said. "The state of New York is having 60 percent increases. The state of Washington is having increases of the same magnitude." Section:  NEWS
Page:  01A

Correction:  The percentages of increases in HMO and Blue Cross-Blue Shield premiums for Minnesota state employees effective Jan. 1 were reported incorrectly in this article. The correct percentage increases for family coverage, in all cases higher than those listed, are 15 percent for Group Health, 62.7 percent for Blue Cross-Blue Shield Aware Gold Limited, 37 percent for Physicians Health Plan, 19 percent for Share Health Plan, 20 percent for MedCenters Health Plan and 27.8 percent for First Plan, according to John Klein of the Minnesota Department of Employee Relations.
Copyright (c) 1988, 2001 Star Tribune: Newspaper of the Twin Cities