Human Capital & Careers

Rising Medical Costs: Pass ‘Em On

Higher worker co-pays, reduction in coverage, common; some companies dropping medical benefits entirely.
Stephen TaubMarch 7, 2003

Health-care costs in 2002 jumped more than many companies projected.

Although health-care benefit costs have soared for several years now, nearly half (45 percent) of employers reported that their health-care costs exceeded their budgets in 2002, according The Eighth Annual Watson Wyatt/WBGH Survey, released by Watson Wyatt Worldwide and the Washington Business Group on Health (WBGH).

Just 13 percent of the corporate respondents said the cost came in under budget.

Health-care costs are expected to jump another 15 percent this year.

Many employers in the survey are looking to pass those increases on to others. Just 32 percent of the respondents said they are able or willing to absorb increases in medical-benefit costs, compared with 52 percent who said so in 2000.

“Health-care costs are hitting companies’ bottom lines hard, and the situation appears to be getting worse, not better,” said Maureen Cotter, global group and health-care practice director at Watson Wyatt. “These rising costs are impacting companies’ balance sheets, eroding employee satisfaction, and forcing benefit managers to explore new approaches to controlling costs. Unfortunately, for most employers, relief is nowhere in sight.”

What do companies plan to do about the recent huge increases in health-care costs?

No surprise here: 83 percent of the surveyed companies indicated they would increase employee premium contributions. Another 80 percent plan to increase employee co-pays/cost-sharing.

And one-third of the respondents said they plan to reduce or eliminate coverage.

Nearly half (45 percent) said they will add or configure coverage.

In another survey released Thursday, half of the employers polled stated that the cost of health insurance influenced recent decisions about their workforce levels. This was reflected either in layoffs or in not hiring additional staff.

What’s more, half of employers surveyed said they have recently increased employee health-insurance contributions or employee out-of-pocket health-insurance costs.

And nearly 60 percent of those who responded indicated they had to trim employee health-insurance benefits or changed health plans in the past three years to slow the cost escalation.

This survey was an E-mail poll of SMC Business Councils member companies. SMC is a nonprofit trade association representing nearly 5,000 small-business employers in western and central Pennsylvania.

And yet another health-care-related report released on Thursday seemed to indicate one major reason costs have been skyrocketing.

It seems that 10 percent of employees—those who file occupational or nonoccupational disability claims—drive 55 percent of employee medical costs and up to 66 percent of all medical, disability, and workers’ compensation costs combined, according to UnumProvident Corp.

“The key corporate implication reflected by this research is that a strategic approach to return-to-work planning can impact the duration of disability and make a bottom-line difference,” said Ralph Mohney, senior vice president of UnumProvident. “However, it is up to employers to direct this impact through a combination of effective benefit plans and defined return-to-work programs that support workplace productivity.”