HMO 2008 Premium Rate Analysis Finds 14.1% Hike

June 28, 2007 (PLANSPONSOR.COM) - A Hewitt Associates analysis of HMO 2008 premium rates predicts the highest rate increase in four years.

A Hewitt news release said data from Hewitt Health Resource (HHR) – its HMO Web site – indicates an initial 2008 increase of 14.1%. That compares with 11.7% in 2007, 12.4% for 2006, and 13.7% in 2005.

After plan changes, negotiations and terminations, final average HMO rates increased by 8.2% in 2007.

“While the majority of HMOs are proposing initial rate increases that are consistent with those provided in previous years, a few carriers have proposed significantly higher rate increases for 2008, which seems to be the primary reason for the spike in this year’s overall rate increase across plans,” said Jeff Smith, a senior consultant and co-leader of Hewitt’s HMO rate analysis project, in the news release. “We expect that average rates will decrease once negotiations are complete; however, they may continue to be in the double digits.”

Two regions – the Southeast and Midwest – will experience significantly higher than average rates next year, according to Hewitt. Preliminary analysis shows an 18.2% increase for the Southeast in 2008 compared with 11% at this time last year, and an 18.4% increase for the Midwest, compared with 11.5% last year.

Employers are considering a number of cost-cutting strategies, Hewitt said:

  • In recent years, an increasing number of employers have implemented plan designs that encourage employees who are overutilizing or abusing benefits to change their behaviors by increasing costs for those services.
  • As fully insured rates increase in excess of overall medical cost increases, an increasing number of employers plan to further eliminate local HMO offerings and consolidate those plan participants under a self-insured arrangement.
  • As in past years, employers continue to negotiate aggressively with their health plans to try to reduce initial premium increases; however, this is becoming an increasingly difficult strategy for mitigating costs.
  • More companies are encouraging preventive care and developing special programs designed to address the needs of the employee population that have chronic health conditions.