Hewitt: HMO Rates Up 14% in 2005

June 3, 2004 (PLANSPONSOR.com) - For plan sponsors hoping for relief from high health-care cost increases in 2005, the initial projections do not look promising.

Hewitt Associates, the first out of the gate in what will be a long procession of consulting house health-care rate predictions, anticipates health maintenance organizations (HMOs) will hike rates 13.7% in 2005. Even though 2005’s cost increase will mark another year of double-digit health-care cost increases, the Lincolnshire, Illinois-based human resource consulting firm said costs are “showing signs of moderation.”

“As we predicted last year, we’re starting to see a moderation in health care premium increases, with the possibility of employers who aggressively manage their health care spending seeing increases in the single digits for the first time in five years,” said Ken Sperling, East market leader for Hewitt’s Health Management Practice. “The declining growth in HMO rates reflects the fact that health plans have reached comfortable margins and are willing to price closer to their underlying costs.”

Compared to last year’s predictions, 2005’s anticipated rates are lower. Hewitt projected a 17.5% rate hike in 2004 at this time last year. However, once all of the plan changes, negotiation and termination dust had settled, the average HMO premium increased by only 12.7% in 2004.

Looking across the country, Hewitt said the largest HMO rate increases can be expected in the Northeast (15%), followed by:

  • Southeast (14%)
  • West (14%)
  • Southwest (13%).

In addition to HMO rate increase, other changes are coming as companies continue to make plan changes, Hewitt found. T he number of companies offering a $20 office copay nearly doubled from 9% in 2003 to 16% in 2004, while the number of organizations with a $15 office copay continues to increase in prevalence from 24% in 2002 to 47% in 2004. At the same time, employers offering $10 office copays continues to drop from 58% in 2002 to 29% in 2004.

“While this moderation in increases is good news for employers and employees, it’s important to point out that employers and employees have endured years of double-digit increases, and health care continues to impact both corporate and individual pocketbooks,” said Sperling. “Therefore, we expect companies to continue pursuing strategies that allow consumers to better manage their health and make smart choices about the health-care services they consume.”