SAN FRANCISCO – U.S. workers enrolled in HMOs can expect higher co-pays at drugstores and doctors’ offices and steeper premiums reducing their paychecks yet again next year.

As employers negotiate health plan rates for 2004, early indications show health maintenance organizations’ premiums are on track for another year of double-digit increases, though the growth may be moderating, according to a new survey.

Employers now are bargaining down HMO charges for 2004 as they prepare for open enrollment in the fall and early winter. Companies generally negotiate, terminate and change plan designs to bring them in line with their budgets, a process that’s leading to an average 17.7 percent rate hike in initial premiums for next year, according to a survey of 140 large employers from Hewitt Associates.

That’s down from the 21 percent HMOs were proposing this time last year before employers began adjusting plan features. Increases may ratchet down to the 12 to 15 percent range before the process is done, Hewitt national practice leader Tom Beauregard said.

The projected average national rate for 2004 remains high, but may at least be starting to stabilize instead of moving higher, he said.

“We’ve seen some moderation for the early result for 2004, which would slightly lower increases relative to 2003, but it’s still unacceptable from the employer standpoint or the employee standpoint due to the level of expense they’re expected to take on,” Beauregard said.

“These kinds of increases are unfortunately sustainable, which means employers will have to continue to change plan designs and increase employees’ share of the premiums.”

While the leveling off of rate increases projected for 2004 qualifies as good news, it’s tempered by the amount of money spent on inpatient and outpatient prescription drugs and physician services, said Alwyn Cassil, spokeswoman for the Center for Studying Health System Change.

Some regions were hit worse than others this year, when HMOs hiked rates 17 percent on average. Five states in the Southwest saw the greatest jump in plan rates – 26 percent – partly due to HMO consolidation that choked competition and sent rates higher, according to Hewitt.

The West saw a 19 percent rise, while the Southeast rose 17 percent and the Midwest 15 percent. The Northeast saw the most modest increase at 13 percent.

Hewitt first began conducting the survey a decade ago, when rate increases were negligible.

as insurers slashed rates to gain market share, Beauregard said. “In the early 90s, we were seeing zero to 2 percent. That’s when managed care was quite effective for employers.”

With cost-sharing the name of the game in controlling health-care costs lately, many workers can look forward to shelling out more for prescription drugs in plans that skew financial incentives heavily toward buying generic or plan-preferred prescription drugs.

“If you can use generic drugs, then your share of the expense is significantly lower,” Beauregard said.

Yet even generics are getting pricier. The number of companies offering a $5 co-pay for generic drugs dropped to 29 percent in 2003 from 46 percent in 2002, the survey said. Those with a $10 co-pay for generic drugs rose to more than half from 40 percent last year.

Similarly, the out-of-pocket cost for doctor visits is going up. The number of companies with a $15 office co-pay jumped to 43 percent this year from 24 percent in 2002, the survey said.


Many employers also are considering adopting a coinsurance model instead of a co-pay, meaning workers would pay a percentage of their pharmacy tab as opposed to a flat dollar amount, which would likely increase their costs, Cassil said.

HMOs have been losing luster with consumers recently after managed care proved too inflexible for many, she said.

“The hallmark of an HMO was a generous, comprehensive benefit with very minimal out-of-pocket costs and the tradeoff was you’d have very tight control of administrative care,” she said. “We consumers liked the first part, but didn’t care so much for the latter.”

Preferred provider plans or PPOs remain the most popular type of managed care plan. In 2002, 52 percent of workers were enrolled in PPOs, up from about 26 percent in 1996, according to the Kaiser Family Foundation.

HMOs claimed 26 percent of workers last year, down from 31 percent seven years ago. Eighteen percent were in point-of-service plans, up from 14 percent, while the proportion in traditional indemnity plans dwindled to 5 percent from 27 percent in 1996.

Despite the move to more cost-sharing, employers still are paying the bulk of health-care expenses – typically 80 percent, Beauregard said.

“We’re in an environment where if employers are seeing total costs go up in the range of 12 to 15 percent, their business isn’t growing nearly that fast and they’re forced to share more of that expense with employees or retirees.”

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AP-NY-06-24-03 1322EDT