Human Capital & Careers

Small-Company Health Plans: Gain, Pain

Employers' health-care cost increases were down from the last year. But it was cold comfort for employees, who paid more out-of-pocket.
Stephen TaubAugust 11, 2004

Small and mid-sized employers were able to hold health-care cost increases to single-digit rates in 2003. However, it came at the expense of their employees, who saw their benefits erode, according to a new study by Marsh Inc.

The total cost of health benefits (medical, dental, and any other health plans offered) averaged $6,130 per employee in 2003, up 9.8 percent from the prior year, according to Marsh’s Mid-sized Employer Health Plans 2003 survey of 1,904 employers with 10 to 1,999 employees. That’s almost half the increase recorded in 2002, when the year-over-year cost increase was 18.4 percent.

To keep companies’ costs down, meanwhile, workers paid more out-of-pocket: the percentage of employers requiring a PPO in-network deductible of $1,000 or more surged from 22 percent to 34 percent. Moreover, HMO office-visit co-pays of $20 or more nearly doubled, rising from 18 percent to 34 percent.

The smallest firms–those with fewer than 50 employees– experienced the steepest hike (16.1 percent), though they paid the least per employee($5,795). Employers with 200-499 employees paid $6,467 per employee, and companies with 1,000-1,999 paid an average $6,472 per employee.

Marsh added that 46 percent of the surveyed employers with 1,000 to 1,999 employees said they would raise employee contribution percentages in 2004, and 43 percent said they would shift more costs to employees by raising deductibles, co-payments or co-insurance, or out-of-pocket maximums.

These figures are both nearly double the percentage of that of employers with under 50 employees planning to shift more cost to workers.

“The dilemma for mid-sized employers is that they must compete with the largest employers for labor, and thus must offer a comparable benefit package. Yet they often do not have the purchasing power of large employers, nor do they benefit from the same economies of scale,” said Judye Fawver, vice president of employee benefits at Marsh’s office in Minneapolis.

“The smallest employers have been the first to shift cost, but survey results suggest that in 2004 the larger ones will follow suit,” she added.

With all of that shifting around, it appears employers will not be able to avoid double-digit increases for the coming year.

Surveyed employers expect an increase of 13.9 percent in 2004. And the smallest companies (those with 10-49 employees) expect an increase of 15.2 percent.

Other findings:

Among mid-sized employers offering prescription-drug-card plans, the use of three-tiered co-payments increasing co-pay amounts for generic, preferred brand, and non-preferred brand-name drugs reached 50 percent in 2003. The co-payment amounts in card plans averaged $11 for a generic drug, $22 for a preferred brand-name drug, and $38 for a non-preferred brand-name drug.

Fifty-seven percent of employers with fewer than 2,000 employees offered a preferred provider organization (PPO) in 2003, and 59 percent of all their covered employees enrolled in one.

Health maintenance organizations (HMOs) were offered by 32 percent of employers and point-of-service (POS) plans by 21 percent.

Employers preferred PPOs despite higher costs: PPO cost averaged $5,828 per employee while HMO cost averaged $5,029. However, HMO costs rose faster, by 14.2 percent, compared with just 8.9 percent for PPOs.