HMOs Planning Double Digit Premium Increases For 1999

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EXPECT THE HMO INDUSTRY TO PUSH double digit premium increases on employers for 1999. This will cause political and financial repercussions which impact clinical laboratories.

“I think the honeymoon is over,” stated Henry Moyer, healthcare consultant with New York-based Hirschfield, Stern, Moyer & Rose. During the period of 1994-1996, employers saw increases to healthcare premiums of only 3% to 5% per year.

“Last year HMOs asked for 5% or more but backed down to preserve market share,” observed Richard Sinni, healthcare practice leader at Watson Wyatt Worldwide in New York. “Real increases tended to be from zero to 3%. We don’t expect that level of flexibility for 1999.”

For the upcoming year, HMOs will be aggressive at seeking increased premiums from employers. The reason is simple. Most lost money in 1997. In order to survive, they must increase premiums as much as possible, since their cost to provide healthcare climbed sharply in both 1997 and 1998.

Employer Survey Results

Watson Wyatt Worldwide, a human resources company, recently polled all its clients with 500 or more employees. The poll revealed that double-digit premium increases were expected for all categories of healthcare plans except POS (point of service) and HMOs, where increases will average only 5% to 7%.

Kaiser Permanente’s premium boost of up to 12% for 1999 has already attracted considerable attention. In 1997, Kaiser lost money for the first time in its history. During 1998, Kaiser’s finances improved, but not dramatically.

As employers encounter stiff premium increases to their health insurance plans, expect political action. Already most state legislatures, as well as Congress, have numerous healthcare bills in the hopper. The consequences of well-intended, but bad healthcare legislation, will plague the industry for years.

Pushing Higher Premiums

Although health insurers are pushing higher premiums, it is unlikely that clinical laboratories will see much increase in reimbursement for laboratory testing. Since most managed care companies are struggling financially, they will probably not share increased premium revenues with providers.

In fact, THE DARK REPORT continues to stand by its prediction that the HMO industry is entering a phase of financial turmoil. Most managed care plans have inadequate capabilities to accurately track costs and establish appropriate prices.

Further, the increase in members who upgrade from a basic HMO to an option which allows out-of-plan services will continue to constrain HMO profitability. We suggest clients re-read our analysis of this situation in the March 2, 1998 issue. This is a fundamental shift in consumer behavior which favors clinical laboratories. But it will be some time before laboratories actually reap benefits from this trend.

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