Survey Finds Largest HMO Rate Increase in Its History

Health Care Financing Review, Winter 1998 | Go to article overview

Survey Finds Largest HMO Rate Increase in Its History


Disappointing 1997-98 losses, a slowing of utilization improvements, and flat provider unit cost levels caused national health maintenance organization (HMO) premium rates to rise 8 to 10 percent over 1997 levels, according to the 1998 Milliman & Robertson, Inc. HMO Intercompany Rate Survey. It was the largest increase in the 7 years M&R has been compiling this data.

Following 4 years of flat HMO monthly book premium rates (the rates required to achieve budgeted revenue targets), the rate per member per month in 1998 increased to $138.30, a 7.8-percent rise from the 1997 rate of $128.28. On a per employee basis, that number was higher, posting an almost 100-percent increase from $151.01 in 1997 to $164.17 for 1998. The survey represents data as of July 1, 1998, based on responses from over 40 percent of all U.S. HMOs.

"HMO rates are still up 1 percent annually since 1994 even allowing for this year's spike," said Steve Cigich, the Milwaukee M&R principal who compiled the data in the survey. "Three factors contributed to this year's rise in rates: poor profitability, the inability of HMOs to obtain further unit cost reductions, and the inability of HMOs to further encourage providers and health care systems to provide care more efficiently. …

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