2003 Health Cost Increases Lower Than 2002

November 27, 2002 (PLANSPONSOR.com) - Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) rate increases will be lower in 2003 than they were in 2002, according to investment bank SG Cowen Securities Corp.

2003 will see an increase in commercial HMO rates of 15.5%, down from the 16.3% increase seen in 2002.   “This is the first sequential slowdown since 1995 and could dampen HMO revenue growth rates,” said SG Cowen analyst Ed Kroll in his November 25 report, according to Washington-based legal publisher BNA.

PPO rates are expected to increase 13.8% in 2003, lower than 2002’s increase of 16.7%.   The report said the PPO rate is important due to the fact most Americans get their insurance through this type of health care plan.    

The lower rate increases are being attributed to “benefit buydowns” – shifting costs from the corporation to the employees through increased co-payments and deductibles – and “generally flattening medical cost inflation,” which the report says is between 12% to 13%.   

Data from the survey came from the responses of about 400 benefit managers.   SG Cowen said the sampling was designed to achieve “full representation by both geography and employer size.”

2004 data is not included in the survey, but Kroll expects 2004’s first “pricing data point” in April or May of 2003 from the California Public Employees Retirement System (CalPERS).   CalPERS announced in April that 2003’s healthcare benefit rates would increase 25.1% for its 1.2 million members.