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Hewitt: Account Plans Spur Carriers To Raise HMO Rates

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U.S. health maintenance organizations are starting negotiations by asking large employers to pay about 14% more for coverage in 2008 than the employers are paying this year.

The average initial HMO rate increase demand was about 12% a year ago, when large employers were negotiating 2007 HMO rates, according to researchers at Hewitt Associates L.L.C., Lincolnshire, Ill.

The researchers, who have based the 2008 increase estimate on data for 160 large employers with more than 1 million employees, say the average initial increase demand is the highest reported in 4 years.

For 2007, employers used plan changes, negotiations and terminations to reduce the final average HMO rate increase to 8.2%, or a figure about 4 percentage points lower than the initial increase demand, the researchers report.

Initial HMO increase demands are averaging more than 18% in the Southeast and in the Midwest, the researchers report.

Consolidation in the HMO market is one factor leading to higher rates, and another factor is a perception that the healthiest HMO members are moving into high-deductible plans that incorporate health savings accounts or health reimbursement arrangements, the researchers report.

Some HMO executives are being unusually conservative when setting rates because they believe the health account plan shift may affect the health risk of the employees who stick with HMOs, the researchers report.