According to Aon Hewitt proprietary data, derived from its Hewitt Health Resource (HHR) – a Web site that captures HMO rate information for 160 large companies representing approximately one million participants – average HMO rates for 2011 increased 9.8% after plan changes, negotiations and terminations. This is the highest rate increase since 2006 (10%). Final rate increases were 9.4% and 9% in 2010 and 2009, respectively.
A press release said Aon Hewitt attributes the high HMO premium costs to a number of factors. During the past few years, high deductible health plans (HDHP) and PPO plans – both of which generally have a lower premium price tag than HMO plans – have become increasingly popular among employees, particularly those who are younger, unmarried and generally healthy. HMOs, on the other hand, tend to provide richer benefits but at a higher cost, thus attracting individuals and/or families who may use health care more often or need more robust coverage. Having a higher mix of these plan participants in HMO plans raises the risk pool, which can drive costs higher, the announcement said.
HMO plans have also been more aggressive in estimating the cost impact of some of the most immediate applications of health care reform – including covering children up to age 26, the elimination of certain lifetime and annual limits and covering preventive care at 100%.
The analysis found final average HMO rate increases remain fairly consistent across regions. The Southeast region is likely to see the nation’s highest rate increases at 12.5%, up from 8.6% in 2010. The West region is expected to have the lowest premium increases at 9%, down from 9.2% in 2010.While cost increases for HMO plans remain higher than other health plans, the difference in costs is actually narrowing. According to Aon Hewitt, average cost increases for point-of-service (POS) and preferred provider organizations (PPO) plans are projected to be 8.5% in 2011 – up approximately two percentage points from last year, from 6.9% and 6.3%, respectively.
Controlling HMO Costs
As rates increase, employers continue to tweak their HMO plan designs to share more of the cost with employees, Aon Hewitt found. Next year, workers are most likely to see these increases in the form of higher copays for primary and specialty care visits.
Aon Hewitt's data shows that the number of companies offering $30 primary care office copays will increase to 13% in 2011, up from 5% in 2010. Conversely, the number of employers offering $20 primary copays is expected to drop to 36% in 2011, compared with 45% in 2010. Copays for specialty care are also increasing, as 20% of employers will offer copays between $45 and $80 in 2011, compared to just 10% in 2010.
While copays are increasing, Aon Hewitt's analysis shows little change in prescription drug benefit designs. A $15 copay for retail generic drugs remains the most popular plan design choice, with 58% of employers offering it in 2011.
There has, however, been a slight move toward higher formulary/non formulary copays over the last few years. According to Aon Hewitt's data, 14% of companies will offer a $35 copay for retail formulary drugs in 2011, up from 5% in 2010. Almost one in five (18%) will require a $55 to $80 copay for retail non formulary drugs in 2011, up from 10% in 2010.
“If HMO rates continue to outpace average health care cost increases, employers may elect to take even more aggressive steps in the coming years, such as eliminating HMO plans altogether," said Jeff Smith, a principal and leader of Aon Hewitt's HMO rate analysis project, in the press release.Aon Hewitt says its data shows this is a trend that has already begun to take shape. Fewer than half (47%) of employers offered HMOs in 2010, compared to 58% in 2007.
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