Matt Quinn

HMO Rate Increases Expected to Slow in 2005

 

June 7, 2004-- The bad news is early projections of 2005 health maintenance organization rate increases show double-digit gains. The good news is the percent increase will be lower for the second straight year.

As companies have started to negotiate HMO rates for 2005, increases are averaging 13.7 percent, compared to 17.5 percent the same time last year, according to a study conducted by the consulting firm Hewitt Associates. After further negotiations and changes to plans, the average premium increased 13.0 percent for 2004, down from 16.6 percent in 2003.

While the increases may be slowing, they far outpace consumer inflation, which is growing at an annual rate of 2.3 percent, and projected GDP growth of 4.4 percent.

But looking at the bright side of things, some companies may be able to negotiate single digit increases for the first time in five years, according to Ken Sperling, a consultant with Hewitt.

"The declining growth in HMO rates," Sperling said, "reflects the fact that health plans have reached comfortable margins and are willing to price closer to their underlying costs."

Companies are increasingly asking their employees to share more of the cost of prescription drugs. The percent of employers with a $20-or-more copayment for a brand-name drug increased to 39 percent in 2004, up from 32 percent last year.

Copays for specialty care office visits continue to rise as well. In 2004, 19 percent of companies have copays of $20, up from 12 percent in 2003. Sixteen percent have copays above $20.

Matt Quinn contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.