Weakening Controls Push Medical Costs Higher

May 29, 2001 (PLANSPONSOR.com) - After a decade of 5% increases, the largest insurance companies dealt with 10-15% medical cost increases in the first quarter, according to preliminary data from Hewitt Associates.

Health maintenance organizations (HMOs) are reportedly asking for an average premium increase of 18.3% from employers, according to the NY Times, citing preliminary estimates from Hewitt. That report also cited proposed increases as high as 60%.

Costs are rising for a variety of reasons, including:

  • the increasing ability for hospitals to extract concessions from HMOs as the former consolidate in their markets
  • while many hospitals have received no payment increase for years, they are now contending with rising labor costs for workers such as nurses and pharmacists.
  • as insurers drop care restrictions, the cost of treatment is rising again
  • drug costs continue to rise precipitously (nearly 19% last year)

The report suggests that insurers are going back to paying a fee for each service, with some health plans again requiring patients to pay 20% of the fee ? as they did before the advent of managed care.