Milliman: HMO Renewal Rates Up 15% in 2004

October 22, 2003 ( - Besting earlier estimates by a full percentage point, Health Maintenance Organizations (HMO) will increase renewal rates by 15% in 2004.

The final figures for 2004 came in higher than July’s 14% projection for 2004 (See HMOs Spike 14% Higher For 2004 ). However, things may be looking up for lower costs as HMOs reported 2003’s premium rates were 11% to 16% higher than the previous year’s rates, down from 16% to 22% increases reported in last year’s survey , according to the 12th annual Milliman USA survey of the nation’s HMOs.

Further examining the 2004 forecast, t he New England region is expected to see the largest premium increases for large groups (15.7%), while the smallest anticipated increase in 2004 large group premiums is 12.9% in the West North Central – Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. The national average for large groups – those over 50 employees – is 14.8%.

Premium increases in 2003 were also not confined to any particular part of the country, as all regions of the United States experienced premium increases. Overall, it was the Mountain region that saw the largest hike in per-member premiums at 19% in 2003, with the Pacific region continuing to have the lowest premiums in the country at $204.78 per member. The highest rates were in the East North Central region at $253.56 per member.

Contributing Factors

Looking for the main reasons for the escalating HMO renewal rates, Milliman points to rising health-care expenses. Among those possible contributing factors, to these increases are:

  • an aging population
  • rising rates of certain conditions like obesity, diabetes, and asthma
  • high medical malpractice litigation cost
  • health-care workforce shortages
  • a move away from managed care
  • cost shifting impact from government health care programs
  • cost of HIPAA compliance
  • changing consumer attitudes and demands toward health care.

Due to these increases and the evolving nature of health-care demands, Bill Thompson, a Milliman USA Principal, sees waves of change rolling into the system, particularly in the potential for more consumer-driven health plans. “The concept of consumer-driven health care has gotten employers’ attention, with the hope of reducing health-care costs. To date, much of the development of consumer-driven health plans has come from large insurance companies and specialty organizations. However, several HMOs are entering this marketplace as well,” observeed Thompson.

Supporting this observation is survey data showing 58% of HMOs have implemented or are about to implement within the next year some type of consumer-driven approach. Further, many of the HMOs that are considering or already have the consumer-driven approach represent large single-state or multi-state HMOs, so the emergence of consumer driven approaches is likely greater than the figure indicates.

With an increased scrutiny on health-care cost increases, Milliman’s projections do not come as a surprise, particularly after a trend-setting projection for HMO price hikes by the nation’s largest public pension fund. 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.