Hewitt Forecasts 17.7% HMO Rate Hike for 2004

June 23, 2003 (PLANSPONSOR.com) - Health Maintenance Organization (HMO) rates continue to be above the double-digit mark for 2004 (17.7%), however encouraging signs show that health care rate hikes may be starting to moderate.

The 17.7%-projected increase for 2004 is significantly less than the 21% forecast for 2003. However, increasing health care rates mean employers are looking to shift the cost to employees, specifically in areas such as office co-pays and prescription drugs, according to data from Hewitt Health Resource, a Web site that tracks HMO rate information for nearly 140 large employers representing more than 1 million employees.

“The good news is that this may signal the moderation of health care increases over the next few years,” Ken Sperling, East market leader for Hewitt’s Health Management Practice, said in a statement. “The decrease in HMO rates reflects the fact that health plans have made an adjustment to make up for conservative pricing last year, hospital costs are slowing, and while drug utilization is still high, greater use of over-the-counter and generic alternatives have impacted drug prices.”

However, the news was not good for all parts of the country. While the West region was projected to have only a 16%-rate increase in 2004, the Southwest and Midwest should brace for a 20%-increase. The other two regions, Northeast and Southeast, were much closer to the national average at 16% and 18%, respectively.

Earlier, the California Public Employees’ Retirement System (CalPERS) released a recommendation for an 18.4%-HMO price hike in 2004 (See CalPERS 2004 Health Coverage Price Hike Proposed at 18.4% ).CalPERS, considered a bellwether of HMO rates due to its size as one of the nation’s largest health insurance buyers, reached the proposed contract terms with three not-for-profit HMO plans: Blue Shield of California, Kaiser Permanente and Western Health Advantage.

Co-Pays Up

The number of companies with a $15 office co-pay increased significantly to 43% in 2003 from 24% in 2002. At the same time, employers offering $10 office co-pays dropped to 39% in 2003 from 58% in 2002.

Further, specialty care office visit co-pays continue to rise, with 40% of companies using a $15 co-pay, up from 25% in 2002 and even a few companies (12%) are introducing a $20 co-pay. Additionally, more than half (55%) of organizations use a $50 co-pay for emergency room visits, while 16% use a co-pay of more than $50, doubling from just 7% in 2001.

Prescribing Change

Employees are also being asked to pay more for prescription drugs. The number of companies with a $15 co-pay for generic drugs shot up to 52% in 2003 from 29% the year before. Similar trends are being noticed in co-pay amounts for brand formulary drugs:

  • $20 co-pay 32% in 2003; 26% in 2002
  • $15 co-pay 26% in 2003; 30% in 2002
  • $10 co-pay 15% in 2003; 28% in 2002.

“Overall, we anticipate HMO cost increases to end up in the low to mid teens for large organizations,” said Sperling. “However, continued increases at these levels remain unaffordable for the majority of employers, so we expect companies to continue making aggressive plan design and employee contribution changes for the future.”