While health insurance premiums rose modestly last year, the future may not be so promising for healthcare payers.
Two recent surveys show that health plan premiums increased less than 1% last year. But one of the reports predicts much steeper jumps next year.
A national survey conducted by KPMG Peat Marwick's Compensation and Benefits Practice showed that for the second straight year, the cost of health insurance increased less than overall inflation, which was 2.9% as measured by the Consumer Price Index. The survey said premiums rose just 0.5%, the lowest increase on record.
The cost slowdown comes as employers continue to offer the same level of benefits.
KPMG credits employers "moving their employees into managed-care plans en masse" for the decrease in costs.
Currently, only 57% of employers offer employees a traditional indemnity plan, down from 63% last year and 89% at the end of the 1980s, KPMG said.
The study covers the period from spring 1995 to spring 1996.
KPMG said the cost of premiums declined by 0.4% in the West, reflecting the growth of HMOs in the region. "This may prove to be an indication for the nation as a whole," the firm said.
"The new survey results reveal a seven-year trend of declining rates of inflation in the cost of employer-sponsored health insurance," KPMG said.
"The figures make it clear that the private sector has substantially reformed the underlying costs of healthcare," the firm said.
For the first time, HMO enrollments-at 33%-surpassed those in fee-for-service plans, at 26%. The other enrollees were in PPOs and point-of-service plans.
Total enrollments in managed-care plans, including HMOs, PPOs and point-of-service plans, reached 74% of all enrollments, up from just 29% in 1988.
The study is based on a survey of 1,151 firms with more than 200 employees.
From 1992 to 1996, the cost of health insurance rose an average of only 4% a year, dropping to a record low of 0.5% this year. During the preceding four years, the cost rose 13.6% annually, KPMG said.
KPMG's study is "looking backwards," said Jon Gabel, director of KPMG's Center for Survey Research. "It is possible we're going to see an upswing in prices."
Indeed, a survey released by Douglas Sherlock, an HMO analyst in Gwynedd, Pa., shows that HMOs nationwide expect a 2.6% increase in premium rates during 1997. "While low by historic standards, the results indicate a significant increase in the premium rates" from this year, when HMOs generally experienced a premium rate increase of 0.8%, Sherlock said.
Sherlock polled 627 HMOs in August and September, and 103 responded.
The HMOs also reported that they expected a decrease in their medical-loss ratios of 1.5 percentage points in 1997, Sherlock said.
That ratio is the percentage of premium spent on medical care as opposed to administrative costs. The average medical-loss ratio of publicly traded HMOs tracked by Sherlock is 84.8% this year.
But KPMG's Gabel noted that the 2.6% increase is what HMOs hope to get and is not assured.
In Sherlock's survey 74.8% of HMOs expected premium increases, 5.8% expected declines and 20.4% expected flat rates.
Of the HMOs surveyed, 51.5% expected medical-loss-ratio improvements, 26.2% anticipated worse ratios and 22.3% expected no change.