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Health Scare

As HMO rates continue to soar, local jurisdictions look for alternatives.


These are sickly days for health care management. After several years of reining in medical costs, insurance companies are seeing prices climb again, resulting in heavy losses for teaching hospitals such as University Medical Center, which faced a $5 million shortfall this year, and health maintenance organizations statewide, which recently reported losing more than $75 million last year.

The insurance companies are responding by raising their premiums to make up for the losses. Pima County is facing rate increases of 15 to 20 percent; the rates for employees of the City of Tucson and the Tucson Unified School District are jumping as much as 26 percent; and the Amphitheater School District has a monstrous increase of up to 86 percent.

The steep hikes have elected officials and their staffs looking for alternatives. Tucson City Councilman Steve Leal is pitching the most ambitious proposal, a plan to create a single health care plan for the city, county, Pima Community College and local school districts. He estimates there are as many as 25,000 public-sector employees in the metro area paying a total of $80 million a year in health insurance costs, excluding the University of Arizona and Davis-Monthan Air Force Base. Leal envisions expanding the pool to allow non-profits and local businesses to sign on.

"I have to think that in six or so years, we could have 300,000 to 400,000 people in a pool," says Leal, who believes such a health care consortium would be a powerful negotiating force with HMOs or even large enough to self-insure.

"I would prefer it be self-insuring," he says. "If we have to transition to that by bargaining power through an HMO, OK. But I don't see why we couldn't just self-insure. Just cut out the middle man. All that money now is just getting on the plane and going to Cleveland."

In recent weeks, Leal has approached TUSD and Amphitheater with the proposal. Although neither entity has signed on the plan, he's hopeful the idea is making progress. "I have faith that if we continue the offer and the conversation, ultimately we'll be able to round folks up," Leal says. "I've just been out there quietly tilling that field."

County Administrator Chuck Huckelberry has less grandiose plans to deal with the county's steep health-care cost increases this year. Huckelberry is recommending the county budget absorb the increase of roughly $2.7 million, which he points out is equivalent to an approximate 2.5 percent cost-of-living raise for county employees.

He says the county considered joining a consortium, but a closer look at the proposal has convinced him it makes more sense to consider creating a self-insurance program for the county alone.

"It sounds like a good idea on its face, but when you look at actuarial rates, we tend to have a younger and healthier population of employees among large government, whether it be the city or state or school districts," Huckelberry says. "For us to go to a consortium, it's a question of whether we want to pay even higher rates. We don't think that's a good idea."

Instead, Huckelberry's office is studying the idea of "going it alone," creating a self-insurance trust fund using the $26 million the county and its roughly 6,000 covered employees spend on health insurance annually. The funds would go into a bank account and a third party would administer the program, paying claims to providers. For the high-priced care catastrophic illnesses require, the county would purchase excess health insurance coverage.

Huckelberry is all-too-familiar with the rising price of health care, having struggled to bring costs under control at the county's financially strapped Kino Community Hospital. Kino costs about $60 million a year to operate. He estimates that a long-lingering Kino debt of $50 million should be paid back by June, but says the hospital lost $6 million this year. Still, he sees that as an improvement over the $18 million Kino lost in the previous year, when it was out of his control and run by an independent commission.

Huckelberry recalls a recent conversation with doctors about the grim future of the heath care system: "They said you might try to stay healthy for the next few years."

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