HMOs Propose Lowest Rate Increases in Five Years; Hewitt Associates Data Shows Aggressive Cost Management Strategies Paying Off

Business Wire, June 9, 2005

LINCOLNSHIRE, Ill. -- Preliminary analysis indicates that HMO rates will increase approximately 12.4 percent nationally in 2006 - representing the lowest rate of increase in more than 5 years - according to global human resources services firm Hewitt Associates.

As U.S. companies begin to negotiate HMO plan rates for 2006, data from Hewitt Health Resource(TM) (HHR) - a Web site that captures HMO rate information for roughly 160 large companies representing more than 1 million employees and annual premiums of nearly $4 billion - shows that initial HMO rate increases are averaging 12.4 percent(1 )compared with 13.7 percent at the same time last year. After plan changes, negotiations and terminations, the average HMO rate increased by 9 percent in 2005 (see chart).

"While HMO rate increases have trended downward for the past several years, 2005 marked a turning point in that employers who managed their health care spending through plan design adjustments and aggressive negotiations were able to realize HMO rate increases of less than 10 percent for the first time in five years," noted Paul Harris, senior health care strategist, Hewitt Associates. "In 2006, we expect to see even lower increases, perhaps in the 8 percent to 9 percent range, after negotiations are complete."

While the U.S. is showing a lower rate of increase overall, some areas of the country, namely the East and Southwest, are experiencing slightly higher rate increases.

Preliminary analysis shows 15.8 percent increases for the East in 2006 compared with 14.6 percent at this time last year, and 13.5 percent for the Southwest compared with 13.4 percent last year. (See attached charts for more regional information.)

"Regional variances in rate increases are to be expected," noted Harris. "Possible reasons for these variances include differences in demographics, provider costs, and common plan designs and coverage, as well as rates for health plans that target these areas. We will learn more about specific cost drivers as plans finalize rates through the summer and fall."

2005 Summary

Despite early indications that HMO costs will continue to moderate, companies are still facing double-digit increases and, therefore, continue to adjust their plan designs and share more of the cost with employees. For example, the number of companies offering $20 office copays continues to increase from 16 percent in 2004 to 25 percent in 2005, while the percentage of employers offering $10 office copays has dropped from 29 percent in 2004 to 22 percent in 2005.

Employees are also being asked to share more of the cost of prescription drugs in the form of higher copays:

Prescription
Drug              2001       2002        2003        2004        2005
----------------------------------------------------------------------
Generic
----------------------------------------------------------------------
$5 copay     52 percent 46 percent  29 percent  28 percent  24 percent
----------------------------------------------------------------------
$10 copay    27 percent 40 percent  52 percent  50 percent  52 percent
----------------------------------------------------------------------
$15 copay              (Greater than)1 percent   5 percent   6 percent
----------------------------------------------------------------------
Brand Formulary
----------------------------------------------------------------------
$10 copay    39 percent 28 percent  15 percent  12 percent  10 percent
----------------------------------------------------------------------
$15 copay    20 percent 30 percent  26 percent  20 percent  15 percent
----------------------------------------------------------------------
$20 copay    12 percent 26 percent  32 percent  33 percent  35 percent
----------------------------------------------------------------------
$30 copay              (Greater than)1 percent   6 percent   7 percent
----------------------------------------------------------------------
Brand Non-Formulary
----------------------------------------------------------------------
$10 copay    13 percent  9 percent   7 percent   5 percent   4 percent
----------------------------------------------------------------------
$25 copay    16 percent 21 percent   8 percent   5 percent   5 percent
----------------------------------------------------------------------
$30 copay    11 percent 22 percent  19 percent  14 percent  11 percent
----------------------------------------------------------------------
(Greater than)
$30 copay     9 percent 24 percent  24 percent  38 percent  38 percent
----------------------------------------------------------------------

Another way employers are controlling costs is by increasing copays for specialty care and emergency room visits. For example, the number of employers who require a copay of more than $50 for emergency room visits has increased by 26 percent since 2001.

"The positive impact of employee cost sharing on utilization rates, stabilization in the frequency of hospital visits and the increased focus of companies on health management programs are playing a major role in ongoing cost moderation," added Harris. "While this is good news, it's important to remember that growth in health care costs continues to well outpace inflation. The longer-term challenge for employers and health plans is to bring cost increases down closer to the rate of salary increases."