LINCOLNSHIRE, Ill. — Preliminary information¹ from Hewitt Associates, a global human resources consulting and outsourcing company, indicates that initial 2010 HMO premium rates will increase by approximately 11.8 percent—consistent with last year's projected rate increases and down from 13.2 percent in 2008. Final average HMO rates for 2009 increased by 9.0 percent after plan changes, negotiations and terminations.

"While HMO rates continue to outpace inflation and underlying health care trends, employers have been increasingly successful in reducing these costs by 3 to 4 percentage points over the past few years through plan design changes, cost shifting and negotiating aggressively with health plans," said Maureen Fay, a principal and co-leader of Hewitt's HMO rate analysis project. "Given these challenging economic conditions, we expect to see employers continuing to implement similar—if not more aggressive—strategies for 2010."

Southwestern U.S. to See Highest Rate Increases; West to See Lowest
According to Hewitt's data, HMO rate increases by region have stabilized for 2010, with less variation by region relative to the national average HMO increase level. (See charts for more regional information). The Southwest region is projected to see the nation's highest rate increases at 14.0 percent. This is an increase of almost 100 percent, up from 7.3 percent in 2009. The West region is expected to have the lowest premium increases at 11.1 percent, down from 12.0 percent in 2009.

"There are a number of reasons why HMO premium increases may fluctuate across regions, including variances in demographics, health risks, provider practice patterns, and plan designs," said Jeff Smith, a principal and co-leader of the HMO rate analysis project. "In the Southwest, for example, we weren't surprised to see higher than average rate increases for 2010 because plans in this region needed to make up for revenue and margins they lost from lower-than-average rate increases in 2009."

Employer Responses to Rate Increases
The tough economic climate and tighter health care budgets have employers working even harder this year to hold down health care costs. Most are considering a number of strategies to help mitigate the impact of high HMO premium increases for 2010. These strategies include:

Consolidating Vendors or Moving to Self-Insurance: Companies continue to consolidate vendors under self-insured plans, or in many cases, are terminating less efficient HMOs in favor of more efficient network models. Consolidating plans enables employers to take more control of their claims data so that they can better analyze the results, and put the right health care strategies in place to address underlying health risks, conditions, and utilization patterns specific to their population. Rather than adopting the "one size fits all" care management, disease management, and wellness programs available through fully insured HMOs, self-insured plans allow employers to customize the package of programs to meet the specific needs of their covered population.

In other cases, some employers are choosing to eliminate HMO plans altogether. According to Hewitt's data, 56.6 percent of employers offered HMOs in 2009, compared to 59.1 percent in 2008.

"The rich copay-style benefits associated with HMOs often hide the true costs of health care from consumers. Eliminating these plans allows employers to re-engage employees in managing their own health care and become smarter consumers about the resources they use," said Smith. It also enables employers to provide consistent plan offerings across state lines rather than subscribing to individual state mandates that are required under fully insured HMOs."

Aggressively Negotiating with Health Plans: This year, employers are negotiating more aggressively with health plans as they look for ways to achieve cost savings amidst the continued recession. Employers are armed with analytics that highlight differences in financial efficiencies between plans, which give them the leverage to negotiate successfully. In addition, employers that have moved their prescription drug benefits for HMO enrollees to one centralized plan are able to use drug claims data to identify and stratify health risks. With that risk assessment information, employers are in a better place to negotiate down proposed premium increases.

"More employers are taking a hard stance in negotiating with health plans. They are saying, 'either partner with us to cut our costs or we'll eliminate your plan altogether'," said Fay.

Changing Plan Design: Companies are continuing to look for ways to shift a greater portion of health care costs to employees. This year, an increasing number of employers are shifting from a copay to a coinsurance model by, for example, moving from a $15 office copay and $250 hospital copay to a $200 plan deductible followed by 90 percent coinsurance for all services. Between 2007 and 2009, Hewitt's data shows that out-of-pocket costs for large employer HMO offerings increased by 11 to 12 percent per year. By moving to percentage, rather than flat dollar cost sharing features, employers are able to share a greater portion of costs with their employees.

Companies are also looking at reducing their dependent subsidy dollars and focusing more on the subsidies provided to employees. This reduction is happening through increased payroll contributions for dependent health care coverage and/or by applying surcharges to encourage dependent spouses to take coverage under their own employer's plans. In addition, more employers are conducting dependent audits, which are designed to assess and remove plan costs for dependents who don't qualify for coverage based on the employer's eligibility requirements. More than two-thirds of Hewitt clients have completed an audit, have an audit in process, or are considering audits.

Improving Employee Health: Improving the overall health and wellness of employees continues to remain a main focus for companies, even in an environment where cost containment is a top priority. Recent Hewitt research shows that almost two-thirds (65 percent) of companies are making a significant investment in the health and productivity of their employees.

Increasing transparency of the total costs and drivers of health care can help employers identify critical areas and put the right strategies in place to help them manage chronic conditions in the workplace such as diabetes, cardiovascular disease, and asthma. In fact, Hewitt's data² shows approximately 80 percent are targeting specific health conditions in their employee population today, up from 51 percent just a year ago. The number of employers targeting diabetes and cardiovascular disease—two of the costliest and most prevalent chronic conditions in America—increased by almost 30 percentage points, to 75 percent and 69 percent respectively. Additionally, 56 percent of companies are targeting asthma, up from 36 percent in 2008, and almost a third (32 percent) are targeting depression, up from just 17 percent in 2008.

"Chronic health conditions have become a major workplace issue that impacts the overall productivity of a company," explained Smith. "And since chronically ill employees and their dependents account for at least half of companies' overall health care costs, employers have a vested interest in helping these workers optimize treatments for their conditions."

About Hewitt Health Resource™ Hewitt Health Resource™ (HHR) is a Web-based service that helps companies manage all of their health plan interactions and data needs. HHR includes online capabilities for health plan selection and renewal, and Hewitt's Connections service for eligibility and premium management. To date, Hewitt has used HHR for 160 companies representing approximately 1 million participants. Approximately 132 health plans have also used the site.

About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organizations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, health care, compensation, and talent management strategies. With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visit www.hewitt.com.