Kaiser Planning 14% Rate Hike in 1991 : Health care: The HMO is struggling with the cost of its explosive growth. It boosted charges 17.5% this year.

California participants in the Kaiser Permanente Medical Care Program will see double-digit rate increases for the second year in a row in 1991 as the nation’s largest health maintenance organization continues to struggle with the cost of managing its explosive growth.

In the Southern California region, Kaiser rates will increase an average of 14%, compared to a 17.5% increase in 1990, Jack Hudes, manager of marketing strategy and development for the region, said in an interview. Some employer groups will have rate increases as low as 9%, he said, while rates for some will increase as much as 19%.

The monthly charge for comprehensive group insurance will go to $377.22 in 1991, up about $47 from this year’s rate.

In Northern California, rates will increase from 17% to 19%, compared to an average 19.6% increase in 1990, said regional spokesman Bob Hughes.

Given its needs, Kaiser’s planned increase is modest, said Peter Boland, a Berkeley-based health-care consultant. “I’m surprised it’s only 14% (in Southern California). They took the biggest chunk this year. They probably did not want to put in as big an increase two years in a row,” he said. The Kaiser 1991 increases will compare favorably to rate hikes expected next year by other HMOs, he said. Those increases may be in the 15% to 19% range, he said.

General medical inflation accounts for some of the rate increases, Hudes said, but Kaiser has the added problem of having to build facilities or renovate existing clinics and hospitals to serve its rapidly growing membership. In Southern California, the HMO expects to have added 100,000 members by the end of this year compared to 1989, he said. More than 2.2 million people are currently enrolled in the region, he added.

Kaiser has experienced unprecedented growth in the past three years. Between 1988 and the end of 1989, the HMO added 320,000 members. Part of the reason for the growth was that Kaiser’s rate increases in the latter part of the 1980s were low (single digits) compared to its competitors’.

Health-care consultants say Kaiser is currently benefiting from a trend among employers to drastically cut the number of health maintenance organizations they will offer their workers. Kaiser almost always survives the cut, they say.

Hudes said the Southern California region will spend $600 million on facilities in 1991, compared to a $164-million capital improvements program in 1987. Two-thirds of the funds will be spent remodeling existing facilities, he said.

Meanwhile, Kaiser has to pay “the short-term price of sending members outside,” he said, explaining that Kaiser is increasingly having to bear the higher cost of contracting with independent medical groups and hospitals to serve its members. Unlike many HMOs, Kaiser employs its own doctors, nurses and support staff and owns its hospitals and clinics.

While the increased use of independent contractors relieves overcrowding in Kaiser facilities, the HMO does not have the same control over cost. For example, a birth within a Kaiser facility costs the organization $1,000, but that doubles when the patient is served outside the system, according to Kaiser officials. Cardiac surgery by outside contractors costs more than $40,000, compared to $10,000 to $15,000 in Kaiser facilities.

Other factors underlying Kaiser’s increased expenses include the fact that its membership is aging faster than the population as a whole and needs more medical services, Hudes said. Kaiser was established in the early 1940s, he said, and thus has many members who joined as young adults in the 1940s and 1950s. “In 1987, 6% of our members were over 65. In 1989, that figure jumped to 9%,” he said.

Kaiser is also increasing its medical staff to lower the number of members per physician, which is an added cost, he said.

The increased growth “is putting quite a strain on our efforts to recruit personnel,” said Dr. Frank E. Murray, Kaiser’s Southern California medical director. Still the region has hired about 1,000 doctors in the past three years, he said. Also, physicians hired recently have more experience than new hires traditionally brought into the organization, he added.