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Analysts See Premium Hikes Lying in Wait

Happy New Year: Most analysts agree that employer premiums have nowhere to go but up in 1998, though there is less consensus on amount. HMOs' weak 1997 performances, coupled with other factors, are driving those predictions.

In a scene reminiscent of the gasoline wars of a generation ago, employer premiums remained flat or even declined in 1997 as health plans fiercely battled for market share. The fighting left lots of black eyes among plans, fueling predictions that employers could have to swallow increases of from 2 to 10 percent, depending on type of contract and market.

Competition wasn't all that weighed down health plans. Mike Coppola, who handles group health plan business for Brunswick Inc., an Akron, Ohio-based underwriting company, says the Health Insurance Portability and Accountability Act has insurers leery of writing new plans before they can study the medical conditions and liabilities of employees and their families. The act precludes health plans from placing limitations on members with pre-existing conditions.

Runaway pharmaceutical costs have also hurt. HMOs are fighting back by restricting formularies and increasing copayment differentials between branded and generic drugs, but analysts say those strategies probably will not help enough.

Market trends aside, some HMOs are nursing wounds for which they only have themselves to blame. Oxford linked its $78 million third-quarter beating to problems in managing information systems. And Aetna's trouble digesting its acquisition of U.S. Healthcare pulled 1997 (through Sept. 30) net income down 17.3 percent.

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