Aggressive Cost-Saving Strategies Keep HMO Premiums Level

July 15, 2009 ( - Preliminary information from Hewitt Associates indicates that initial 2010 HMO premium rates will increase by approximately 11.8% - consistent with last year's projected rate increases and down from 13.2% in 2008.

Final average HMO rates for 2009 increased by 9% after plan changes, negotiations and terminations, Hewitt said in a press release.

Perhaps the biggest reason HMO premiums are holding steady is that this year, employers are negotiating more aggressively with health plans, Hewitt says. Employers are armed with analytics that highlight differences in financial efficiencies between plans, which give them the leverage to negotiate successfully.

In addition, employers that have moved their prescription drug benefits for HMO enrollees to one centralized plan are able to use drug claims data to identify and stratify health risks. With that risk assessment information, employers are in a better place to negotiate down proposed premium increases, according to Hewitt.

Maureen Fay, a principal and co-leader of Hewitt’s HMO rate analysis project, said that “While HMO rates continue to outpace inflation and underlying health care trends, employers have been increasingly successful in reducing these costs by three to four percentage points over the past few years through plan design changes, cost shifting and negotiating aggressively with health plans.”

Hewitt found that companies continue to consolidate vendors under self-insured plans, or in many cases, are terminating less efficient HMOs in favor of more efficient network models. In other cases, some employers are choosing to eliminate HMO plans altogether. According to Hewitt’s data, 56.6% of employers offered HMOs in 2009, compared to 59.1% in 2008.

Hewitt found HMO premium increases vary by region. The Southwest region is projected to see the nation’s highest rate increases at 14% – an increase of almost 100%, up from 7.3% in 2009. The West region is expected to have the lowest premium increases at 11.1%, down from 12% in 2009. “There are a number of reasons why HMO premium increases may fluctuate across regions, including variances in demographics, health risks, provider practice patterns, and plan designs,” said Jeff Smith, a principal and co-leader of the HMO rate analysis project, in the press release.

According to the press release, companies are continuing to look for ways to shift a greater portion of health care costs to employees. They are able to do so by moving to percentage rather than flat dollar cost-sharing features.

Companies are also looking at reducing their dependent subsidy dollars and focusing more on the subsidies provided to employees. This reduction is happening through increased payroll contributions for dependent health care coverage and/or by applying surcharges to encourage dependent spouses to take coverage under their own employer's plans.

In addition, more employers are conducting dependent audits, which are designed to assess and remove plan costs for dependents who do not qualify for coverage based on the employer's eligibility requirements (see Employers See Substantial Savings from Dependent Eligibility Audits ). More than two-thirds of Hewitt clients have completed an audit, have an audit in process, or are considering audits, according to the press release.

Also in an effort to cut health care costs, recent Hewitt research shows that almost two-thirds (65%) of companies are making a significant investment in the health and productivity of their employees, and many are getting specific in their wellness efforts. Hewitt's data shows approximately 80% are targeting specific health conditions in their employee population today, up from 51% just a year ago (see Corporate Wellness Efforts Find Specific Targets ).