Effective June 28, 2024, a significant change has been enacted through L. 2024, A4705 (c. 21), which increases the annual assessment rate for Health Maintenance Organizations (HMOs). This new legislation raises the HMO assessment from 5% to 6% of net written premiums. Additionally, this increase is in addition to the existing 2.5% health insurance assessment applied to all health insurance providers, including HMOs.

What’s Changing?

The key change is a 1% increase in the annual assessment rate for HMOs, from 5% to 6%. This adjustment, effective for all fiscal years beginning after June 30, 2024, will bring the total assessment rate for HMOs to 8.5%, factoring in the pre-existing 2.5% health insurance assessment.

How Will This Affect HMOs?

The increase in the assessment rate will have notable financial implications for HMOs. The 1% rise translates to a 20% increase in the assessment burden, which could lead to higher operational costs. HMOs will need to revisit their financial strategies, potentially adjusting premium rates to manage these increased expenses.

Moreover, the increase might affect the competitive landscape. Smaller HMOs may find it challenging to absorb the additional costs, which could shift market dynamics in favor of larger organizations with more robust financial frameworks.

What Should HMOs Do?

HMOs should begin by revising their financial plans to account for the new assessment rate. This includes updating budgets, adjusting pricing strategies, and preparing for the increased cost burden. It is also crucial to enhance compliance efforts to ensure accurate and timely payments of the new assessment rates.

Effective communication with stakeholders, including policyholders and investors, will be important. Transparency about how the increased assessment rate might impact premium costs or operational changes will help manage expectations and maintain trust.

Additionally, exploring cost management strategies will be essential. HMOs might look into ways to improve operational efficiency, renegotiate supplier contracts, or find new revenue streams to mitigate the effects of the increased assessment rate.

The recent legislative change raising the HMO assessment rate to 6% represents a significant shift for health maintenance organizations. By understanding these changes and preparing accordingly, HMOs can navigate the impact of this increase and continue to provide valuable services to their members.