HMO Rates Continue Double-Digit Increases, But Begin To Moderate

HMO Rates Continue Double-Digit Increases, But Begin To Moderate

Hewitt Data Shows U.S. Employers Remain Aggressive in Managing Costs Through Plan Design Changes and Higher Cost Sharing

June 2004 (Newstream) —

Preliminary 2005 HMO rates will increase almost 14 percent, continuing a trend of double-digit health care cost increases, but are showing signs of moderation, according to new data from Hewitt Associates (NYSE: HEW), a global HR outsourcing and consulting firm.

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As U.S. companies begin to negotiate health plan rates for 2005, data from the Hewitt Health Resource™ (HHR) a Web site that captures HMO rate information for nearly 160 large employers representing more than 1 million employees and annual premiums of nearly $4 billion shows that initial HMO rate increases are averaging 13.7 percent compared to 17.5 percent at the same time last year. After plan changes, negotiations and terminations, the average HMO premium increased by 13.0 percent in 2004 (see attached chart for regional data).

“As we predicted last year, we’re starting to see a moderation in health care premium increases, with the possibility of employers who aggressively manage their health care spending seeing increases in the single digits for the first time in five years,”

said Ken Sperling, East market leader for Hewitt’s Health Management Practice. The declining growth in HMO rates reflects the fact that health plans have reached comfortable margins and are willing to price closer to their underlying costs.

2004 Summary

Despite cost moderation, companies are still facing double-digit increases and, as a result, continue to make plan design changes and share more of the cost with employees. For example, the number of companies offering a $20 office copay nearly doubled from 9 percent in 2003 to 16 percent in 2004. The number of organizations with a $15 office copay continues to increase in prevalence from 24 percent in 2002 to 47 percent in 2004. At the same time, employers offering $10 office copays continues to drop from 58 percent in 2002 to 29 percent in 2004.

“The work done by employers in past years is beginning to pay off in 2005,” added Sperling. “The trend in health care cost increases has moderated due to stable hospital utilization rates, changes in prescription drug usage brought on by generic and over-the-counter alternatives, the positive impact of increased employee cost sharing on utilization rates, and an increased focus on disease management programs by employers.”

Employees are also being asked to share more of the cost of prescription drugs (see chart in downloadable press release).

Specialty care office visit copays also continue to rise, with 35 percent of companies using a $15 copay, down from 40 percent in 2003, and 19 percent of companies are using a $20 copay, up from 12 percent in 2003. Sixteen percent of employers are introducing copays above $20. More than half (55 percent) of organizations currently use a $50 copay for emergency room visits, and 33 percent use a copay of more than $50, a significant increase from 16 percent in 2003 and only 7 percent in 2001.

“While this moderation in increases is good news for employers and employees, it’s important to point out that employers and employees have endured years of double-digit increases, and health care continues to impact both corporate and individual pocketbooks,” said Sperling. “Therefore, we expect companies to continue pursuing strategies that allow consumers to better manage their health and make smart choices about the health care services they consume.”

About Hewitt Health Resource

Hewitt Health Resource is a Web-based service that helps companies manage all of their health plan interactions and data needs. HHR includes online capabilities for health plan selection and renewal, and Hewitt’s Connectionsä service for eligibility and premium management. To date, Hewitt has used HHR for 160 employers representing more than 1 million participants and nearly $4 billion in premiums. More than 120 health plans have also used the site.

About Hewitt Associates

Hewitt Associates is a global human resources outsourcing and consulting firm. It provides services from offices in 38 countries.

Produced for Hewitt Associates

JoAnne Laffey
Hewitt Associates
847 442-7648

Suzanne Zagata-Meraz
Hewitt Associates
847 442-7657

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