Hewitt Associates report on their annual survey on health costs for employers. They found that the 2004 premiums will be up an average of 12.6% next year as opposed to 14.7% in 2003. They also note that HMO costs continue to rise a little more than PPO and POS plans (13.5% vs 12%) which is one reason that HMO enrollment has been declining (although HMOs and POS are pretty similar these days). Don’t forget that these costs are for employers and are not really the same as overall health costs which are also paid by government and consumers. Employers are continuing to respond by imposing more costs onto their employees, which is leading to contentious labor relations in many industries, such as retail and public services (via The Bloviator). Hewitt expects some of the following tactics:
Higher payroll contributions (from employees), lower subsidies for dependents, and increased office, hospital inpatient and emergency room copayments. (For drugs), implementing higher copayments, coinsurance models, mandated low-cost substitution provisions for certain therapeutic classes and generic incentives. (For chronic care)
contracting with organizations that offer specialized or disease management programs. Offering new consumer-driven health plans.
In other words pay more and probably get less.
There are a couple of implications here for health plans serving the commercial market. One is the slow but steady emergence of the "consumer-directed health plan". While this doesn’t appear to be any more than another fancy benefit-set such as the HMO, PPO or POS were in their day, it is making an appearance as this news from Siemens suggests. Expect consumer directed plans to mean employees choosing between a diminishing set of benefit options.
The other implication is that the slight reduction in cost increase may translate into lower revenue increases and therefore lower margins for health plans. Health plans (and insurance companies) ride out something called the underwriting cycle. Simplisticly put they charge more in some years to make up for losses in past years and they make big profits in those years–so big premium increases as we’ve seen in the past few years equal big profits for insurers.
Two of the biggest insurers, United and Wellpoint, have seen their stocks rise over 50% in the past 2 years, and beat the S&P500 by way more than that. This may not continue for much longer if costs are coming slightly more under control, which may have consequences for the vast amount of money with which United’s senior management have been rewarded, mostly with the approval of an exceedingly compliant board led by ex-New Jersey governor, Thomas Kean .