HMOS: Costs Up, Enrollment Down

      HMO enrollment dropped for the first time last year, while total health care spending on employer-sponsored plans jumped 6.1%, a trend most employers expect will continue through this year, according to a new survey by William M. Mercer Inc. Nearly 72% of employers expect cost increases of 9% for 1999. The survey of 4,200 employers with ten or more employees found that last year's costs for PPOs rose 5.2%, traditional insurance costs rose 7.6%, HMO costs rose 1.6% and POS plan costs rose 2.6%. Prescription drug costs, rising 13.8%, were a main factor behind the increases, in addition to an end to the savings associated with the five-year migration of employees into managed care. "The one-time cost reduction employers experience as their workers move into less expensive plans has been masking the underlying cost trend," said Mercer's Blaine Bos, adding, "Migration out of indemnity plans slowed to a trickle last year, so we're finally seeing a real trend reflected in the national cost figures." Health care costs varied by region, averaging $4,340 annually per employee in the Northeast, $3,900 in the Midwest, $3,626 in the West and $3,438 in the South.

Still More Numbers
      The big winners last year were PPOs, as enrollment in these less- restrictive plans rose from 35% to 40% -- capping a four-year enrollment increase of 60%. Enrollment in HMOs and POS plans fell to 47% from 50% of employees, and enrollment in traditional indemnity plans dropped from 15% to 13%. "It's too early to tell whether the decline in HMO/POS enrollment is a short-term phenomenon or -- more ominously -- a sign that these managed care plans may not be the centerpiece of the nation's health care delivery system after all," Mercer's Bos said. As a result of increased costs, 35% of large employers adjusted prescription drug benefits, with 18% shifting costs to consumers and 9% restricting the list of drugs covered. The percentage of employers providing retiree coverage for non-Medicare eligible employees dropped 2% from 38% to 36% and the percentage offering it for Medicare-eligible retirees dropped from 31% to 30% (Mercer release, 1/26).

Survey Says
      The Wall Street Journal reports that the survey's findings suggest "that one of corporate America's most effective strategies in the war on health costs has run its course." Mercer's Bos said employers and their health plans have sold HMOs with the promise that "if you agree we can limit your access, we will give you higher quality are for less cost. That promise is in question" (Winslow, 1/26). He added that the enrollment shift from HMOs to the more expensive PPOs shows that employers and employees are looking more at quality than at cost. "People are moving into a PPO so not to have to deal with a gatekeeper," he said (Galewitz, AP/Anchorage Daily News, 1/26). However, Mary Jane England, president of the Washington Business Group on Health, expressed concern that the move to PPOs could cause an erosion in quality. She said, "At least the large HMOs and POS plans have quality standards. PPOs can go on their merry way without any kind of quality measures" (Wall Street Journal, 1/26). Christopher Goff, executive director of the North Canton, OH-based Community Healthcare Coalition, predicted that consumers will see price increases shortly, saying, "Employees will feel it, one way or another. Companies are going to ask them to pay for a bigger share of their premiums, or decide not to offer benefits at all, or reduce benefits to something they think they can afford" (Drown, Akron Beacon Journal, 1/26).

Local Angle
      The Philadelphia Inquirer reports that insurance costs in Philadelphia rose 7% last year, the biggest jump nationally, in part because two large insurers -- Independence Blue Cross and Aetna U.S. Healthcare -- dominate the local market. Jim DiGuiseppe, a consultant in Mercer's Philadelphia office, said, "A lack of competition does not hold down costs" (Gerlin, 1/26). Tracy Cassidy of Mercer's Baltimore and Washington offices said employers in the area can expect a similar dynamic next year. "With all the market consolidation, employers won't have the same kind of leverage," she said (Salganik, Baltimore Sun, 1/26). The Boston Globe reports that "Health care inflation is back." Despite a "modest" 1.5% increase in insurance premiums in Massachusetts, Susan Connolly, a principal in Mercer's Boston office, said dwindling reserves will force many insurers to raise rates next year. "We're going to see a real spike in premiums this year," she said, adding that Massachusetts companies are "in for a rude awakening (Pham, 1/26). Prospects for stable costs are better in California, where the Los Angeles Times reports a more "mature" managed care market held increases to 1.1% in 1997. Nonetheless, many employers experienced "hefty premium increases" and are likely to pass them along to employees or explore setting up self-insurance funds (Bernstein, 1/26). The Ft. Worth Star-Telegram reports that "North Texas seems to be bucking the national trend" in enrollment, with the number of employees enrolled in HMOs last year jumping to 45%, up from 37% in 1997 (Lunday, 1/26).