Trends in health plan design, consumer utilization of healthcare services and the growing economy may indicate higher premiums on the way and potential changes for insurers' profits, according to an analysis by Aon Hewitt.
Average healthcare premium increases will bounce back up in 2014 for large employers and their employees to earlier trends of 6 percent to 7 percent. Patients are beginning to use healthcare services more after a period of backing off and more employers are shifting to consumer-driven health plans (CDHPs).
In 2013, the healthcare premium rate increase was the lowest in more than a decade at 3.3 percent compared to 4.9 percent in 2012 and 8.5 percent in 2011, the human resources consulting firm said in a recent news release.
A number of factors that tamped down premium increases in the past two years, including uncertainty around health reform and the continued weak economy, will not continue, said Tim Nimmer, chief healthcare actuary at Aon Hewitt. Also, employers and insurers will be subject to new transitional reinsurance and health industry fees.
"With the lagging economy, utilization dropped significantly more than any of us anticipated," he said. "When you look at insurers' profits and the reserves for self-funded plans, the reason that they have been so healthy is because of that utilization component being lower than expected."
With fewer unknowns about healthcare reform and the economy starting to come back, there are early indications that utilization is also coming more back in line with historical averages.
One of the other factors in decreased use of healthcare services was the recent shift to consumer-driven health plans (CDHPs), which have overtaken health maintenance organization (HMO) plans as the second most popular plan option offered by employers, the Aon Hewitt analysis said. Increasingly, employers are offering CDHPs as the only plan option. Although 10 percent of companies do so currently, another 44 percent are considering it in the next three to five years.
"With the increase in consumer-driven health plans, technically you will see a fairly large change in utilization that first year and possibly going into the second year, then utilization will creep back up after a year or year and a half to normal levels," Nimmer said. "It just takes a while for plan participants to understand how the program works."
For health plans, "if it's a fully insured plan, they will profit heavily in that first year or year and a half when utilization drops so quickly, and then in subsequent years, you'll see the trend start to return to the industry level unless they implement strategies, such as higher deductibles, or other ways because the leveraging component of a high-deductible health plan is so much stronger than a traditional PPO," Nimmer said.
By health plan type, company costs in 2014 will increase 7.5 percent for HMO plans, 6.5 percent for preferred provider organization (PPO) plans, and 6.5 percent for point-of-service (POS) plans, Aon Hewitt predicted.
Although HMOs traditionally were lower cost, they have a richer plan design in general, and consumers, no matter which of the type of plans they are in, have become accustomed to meeting with their primary care physician first before other practitioners and specialists.
"An HMO is not having an impact on utilization it once had because the gatekeeper portion of that has worn off or eroded with time," Nimmer said.