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Health Insurance Rate Rise Slows, Surveys Find

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Early results of two consulting firms’ health care insurance rate surveys forecast that 2007 will see lower premium increases than in recent years.

A preliminary survey by Milliman Inc., Seattle, estimates January renewal increases averaging 9.7% for health maintenance organizations, almost 1% lower than last year’s result of 10.6%.

Results for preferred provider organizations show an anticipated 2007 renewal rate increase of 10.7%, 1% lower than last year.

Meanwhile, preliminary information from Hewitt Associates, Lincolnshire, Ill., a human resources services company, shows 2007 HMO rates will rise about 11.7%, compared with 12.4% in 2006 and 13.7% for 2005.

After plan changes, negotiations and terminations, the final average HMO rate increased by 10% in 2006, according to Hewitt.

Both firms found 2007 would be the fourth year in a row in which the rate of increase declined, Milliman notes.

More will be known in October, when Milliman releases more comprehensive data on health care costs, says Doug Proebsting, co-author of the survey report. But despite the slower increases, they are still well above the nationwide rate of inflation, he points out.

“You have the ‘glass half empty, half full’ type of argument,” says Proebsting. “These percentages are unsustainable, because we are still two to three times inflation. We have to get back to a sustainable number.”

Milliman points to many contributing factors in the rise of health care costs, including an aging population; increasing consumer demand; rising rates of chronic conditions like obesity, diabetes and asthma; new technology and specialty drugs; health care work force shortages; and cost shifting due to government health care programs.

Proebsting says one response by employers has been to turn to consumer-driven health plans, which continue to increase in popularity with employers.

“If you’re paying for health care, you might start taking better care of yourself,” he says. “If you don’t care what it costs, you don’t care what provider you go to.”

In 2004, CDHPs accounted for just 1% of total premiums for health care, he says. That grew to 2.5% of the total a year later.

“Are you going to see it double again?” Proebsting asks. “I think it’s unlikely. But you are going to see growth in the higher single digits.”

Eric Raymond, chief executive of benefits broker Corporate Synergies, Mt. Laurel, N.J., observes that such surveys may not always reflect actual cost growth.

Surveys can miss the fact that employers cut back on health care at renewal time by imposing higher deductibles and other benefit reductions, Raymond points out.

For benefits brokers, that can cause a problem if employers see average cost increases are lower than what the broker has been quoting, he says.

“It may be the surveys aren’t asking the right questions,” Raymond concludes.