NCPA - National Center for Policy Analysis

Escalating HMO Costs Send Employers Searching

September 6, 2000

Some years back, many companies encouraged their employees to switch to health maintenance organization insurance plans because they were confident HMOs could hold down costs. But cost containment didn't go on forever, and now those same employers are turning to non-HMO insurance plans.

  • Health insurance premiums are increasing by 10 percent to 30 percent across the country, according to employers, insurers and regional business groups.
  • While many technology companies are absorbing the higher costs in order to attract new recruits, smaller companies in low-margin businesses may have to force their employees to share the increasing costs -- or stop offering health insurance altogether.
  • In a current survey, one in seven businesses with fewer than 100 employees said they would drop health insurance if their premiums increased by 10 percent.
  • Companies are reportedly stepping up efforts to shift employees into preferred-provider organizations -- plans that are much closer to old-fashioned fee-for-service insurance.

PPOs are based on networks of doctors and hospitals that agree to reduce rates for their services. Employees can go to any doctor in the network without obtaining permission beforehand, and employers pay only when workers use their medical services.

There were 89 million people in PPOs and 81.3 million in HMOs as of July 1999.

Source: Milt Freudenheim, "HMO Costs Spur Employers to Shift Plans," New York Times, September 6, 2000.


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