Human Capital & Careers

Early Word on HMO Rates Is Promising

A recent analysis suggests rate increases in the 8 percent to 9 percent range after negotiations are complete.
Stephen TaubJune 14, 2005

As U.S. companies begin to negotiate HMO rates for 2006, preliminary analysis by Hewitt Associates indicates that rate increases will come in at their lowest level in more than five years.

Hewitt collected HMO rate information for about 160 large companies, representing more than one million employees and annual premiums of nearly $4 billion. The preliminary prices — 12.4 percent rate increases compared with 13.7 percent a year ago — translate into much smaller actual rate increases once the deals are finalized.

“HMO rate increases have trended downward for the past several years,” pointed out Paul Harris, a senior health care strategist for Hewitt Associates, in a statement. In 2005, he noted, some employers realized HMO rate increases of less than 10 percent for the first time in five years. “In 2006, we expect to see even lower increases, perhaps in the 8 percent to 9 percent range, after negotiations are complete.”

Employees at companies in the East and Southwest will probably pay higher rates than their peers in the rest of the country, according to Hewitt. Possible reasons include differences in demographics, provider costs, and common plan designs and coverage, as well as rates for health plans that target these areas, wrote Harris.

Even after the final numbers are negotiated, these rate hikes will be several times the nation’s overall inflation rate, and as a result, many companies will continue to lay off more of the costs onto their employees.

“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,” wrote 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.”