HMO Premium Increases Might Drop To Single Digits in 2005, Study Finds
HMOs will seek premium increases for large employers averaging 13.7% in 2005, meaning that premium increases could drop into the single digits following negotiations between insurers and employers, according to a report by the employee-benefits consulting firm Hewitt Associates, the New York Times reports (Freudenheim, New York Times, 6/4). For the report, Hewitt surveyed 160 large companies about the initial 2005 price proposals they have received from health insurers, the Wall Street Journal reports (Fuhrmans, Wall Street Journal, 6/4). It is the second consecutive year that the rate of HMO premium increases has declined, the AP/Minneapolis Star Tribune reports. At this time last year, HMOs were seeking a 17.5% premium increase. After negotiations and plan design changes, employers reduced the increase to 13% -- down from 16.6% in 2003 (Agovino, AP/Minneapolis Star Tribune, 6/4). HMOs and employers are beginning to negotiate the 2005 rates, and many analysts expect that premium increases ultimately will fall below 10%, the Journal reports (Wall Street Journal, 6/4). Ken Sperling, director of the Hewitt survey, predicted that the average premium increase would be between 9% and 10%, the Times reports. Doug Simpson, a health care analyst for Merrill Lynch, said he expected a 9% increase; Charles Boorady, an analyst for Smith Barney, said he expects an 8% increase; and Matthew Borsch, an analyst for Goldman Sachs, said he expects a 6.5% increase (New York Times, 6/4). According to the Journal, Goldman Sachs analysts anticipate a premium increase of about 6% because the Hewitt report only includes data from large companies, and not the more-contested small- and medium-sized employers (Wall Street Journal, 6/4).
Sperling said that insurers are seeking lower increases because medical costs are increasing 9% to 10% this year, down from 12% last year, the AP/Star Tribune reports (AP/Minneapolis Star Tribune, 6/4). In addition, changes in health plan design -- including higher deductibles and copayments -- have shifted more medical costs to employees and have deterred the use of expensive prescription drugs and elective hospital procedures, according to the Journal. Generic and over-the-counter versions of popular drugs have also slowed medical costs. Because of the slowdown, insurers "reaped double-digit profit increases last year," the Journal reports. However, slow job growth and reductions in health benefits have made it difficult for insurers to add new members, prompting competition and premium increases much closer to underlying medical expenses, according to the Journal (Wall Street Journal, 6/4). "The declining growth in HMO rates reflects the fact that health plans have reached comfortable profit margins and are willing to price closer to their underlying medical costs," Sperling said (New York Times, 6/4). "There is no new Fortune 500 company and there is no real overall employment growth," he added (AP/Minneapolis Star Tribune, 6/4). However, the Times reports that even with lower premium increases, there is "ample room for solid profit at most managed care companies" (New York Times, 6/4). According to the Journal, the Hewitt report indicates that insurers are not yet "taking big underwriting risks." Sperling said that the premium increases will not help consumers much because they are "still three to four times the rate of inflation" (Wall Street Journal, 6/4).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.