2004 HMO Premium Increases to Average 15%; HMOs Prepare the Way for Consumer Driven Approaches.

Business Editors/Health/Medical Writers

SEATTLE--(BUSINESS WIRE)--Oct. 21, 2003

HMOs will increase renewal rates by approximately 15% in 2004, according to the twelfth annual Milliman USA survey of the nation's HMOs, the firm announced today. Responding HMOs also reported that 2003 premium rates were 11% to 16% higher than 2002 premium rates, down from the 16% to 22% increases reported in last year's survey.

Rising health care expenses continue to drive up the premiums HMOs need to charge to break even. An increase in hospital admissions and an increase in the prescription drug premium component are the major factors in the rise in premiums measured by the survey. Responding HMOs reported a small profit in 2002, only the second time a profit has been reported in the past seven years.

"Employers have been managing these large annual premium increases by shifting more benefit plan costs to their employees via higher copayments and/or larger premium contributions," notes Bill Thompson, a Milliman USA Principal. "Through these actions, employers' actual increases are lower than those reported in the survey but they are still too high. As a result, the concept of consumer driven health care has gotten employers' attention, with the hope of reducing health care costs. To date, much of the development of consumer driven health plans has come from large insurance companies and specialty organizations. However, several HMOs are entering this marketplace as well."

The survey indicated that forty-six of seventy-nine (58%) HMOs have implemented or are about to implement within the next year some type of consumer driven approach. However, many of these forty-six represent large single state or multi-state HMOs, so the emergence of consumer driven approaches is likely greater than the 58% indicates. "Clearly a different approach is needed to lower the increase in health care premiums," notes Steve Cigich, author of the Milliman USA survey. "Perhaps greater employee financial involvement in health care decision-making, an integral a part of consumer driven approaches, will help."

These are among the findings from Milliman USA's 2003 HMO Intercompany Rate Survey. Milliman's survey is unique in that it normalizes for three large factors that can skew the results of a survey on health costs: differences in benefit design, cost sharing, and demographics.

The annual survey was sent to the approximately 370 HMOs that serve the commercial market. It asked HMOs about premium rates and trends by component, unit price and utilization data, physician reimbursement levels, medical expense ratios and profit levels, plus several questions on important issues facing HMOs. Survey results are provided by metropolitan area, state, region and nationwide.

Regional Variations Noted

All regions of the country experienced premium increases in 2003 with the Mountain region seeing the largest hike in per member premiums at 19%. The Pacific region continues to have the lowest premiums in the country at $204.78 per member. The highest rates were in the East North Central region at $253.56 per member.

The New England region, which includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont, is expected to see the largest premium increases in 2004 with premiums up 15.7% for large groups. The smallest anticipated increase in 2004 large group premiums is 12.9% in the West North Central, which includes Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. The national average for large groups is 14.8%. Large groups are those with over 50 employees.

The West South Central continues to have the highest annual level of hospital utilization per 1,000 members, reporting 281 total inpatient days and 73.7 hospital admissions per 1,000 members. Pacific HMOs continue to report the lowest utilization with 207 inpatient days and 54.6 hospital admissions per 1,000 members. The nationwide average was 256 days, up 6.2% from the 241 days reported last year. Total hospital admissions per 1,000 increased even more to a nationwide average of 67.0, up 7.7% from 2002.

About Milliman USA

Milliman USA, whose corporate offices are in Seattle, serves the full spectrum of business, financial, government and union organizations. Founded in 1947 as Milliman & Robertson, the company has 30 offices in the United States as well as offices in Bermuda, Hong Kong, Japan, Korea, Brazil, and the U.K. Milliman USA employs approximately 1,700 people, including a professional staff of about 750 qualified consultants and actuaries. The firm has consulting practices in property and casualty, employee benefits, health care and life insurance. It is a founding member of Milliman Global, an international organization of consulting firms serving insurance, employee benefits and health care clients worldwide. Milliman provides analytical insight and solutions supported by a vast spectrum of data resources. For further information, visit www.milliman.com.