Human Capital & Careers

Moderating Health Costs Still Troubling

The increase in health-care costs is projected to stay in the single digits next year for companies, but not for their employees.
Craig SchneiderOctober 12, 2005

This year’s hike in employer health-care costs is the lowest in six years, according to a new study by Hewitt Associates. And although the 9.2 percent increase for 2005 is expected to be followed by a 9.9 percent rise in 2006, that’s still far below the recent high of 15.2 percent in 2002.

“Increased consumer awareness and financial responsibility, continued consolidation of health plans and providers, and lower overall inflationary demands,” are among the reasons for the moderation of cost increases, explained Hewitt national healthcare practice leader Craig Dolezal, in a statement.

Dolezal acknowledged that despite the encouraging news, health-care costs continue to grow almost three times faster than salary and inflation. Hewitt derived its figures from its database of more than 2,000 health plans throughout the U.S., including 400 major employers and more than 18 million health-plan participants.

To be sure, in 2005 some major U.S. markets continue to see double-digit increases in health-care costs. They include Cleveland/Akron, Boston, Atlanta, Houston, Orlando, Kansas City, Orange County, Sacramento, and the Tampa Bay area. “More consistent treatment protocols, better health risk management, and price and quality transparency,” added Dolezal, “will narrow, not eliminate, these regional differences over time.”

And depending on the plans they offer, some companies will fare better than others. Hewitt forecasts that on average, companies will experience 2006 cost increases of 9.5 percent for preferred provider organizations, to $8,075 from $7,374; 10 percent for health maintenance organization plans, to $7,752 from $7,048; 10.5 percent for traditional indemnity plans, to $8,091 from $7,322; and 10.5 percent for point-of-service plans, to $8,673 from $7,849.

Employees contributions have nearly doubled since 2002, the report also noted. Hewitt projects that the average employee contribution for 2006 will be $1,612, or 20 percent of the overall health care premium, up from $1,444 in 2005. Out-of-pocket costs such as copayments, coinsurance, and deductibles are expected to increase next year to $1,524, up from $1,366. Total employee health-care costs for 2006, projected at an average of $3,136, would represent an increase of 12 percent from the 2005 figures.

Hewitt observed that rising health-care costs are offsetting salary gains for many employees. The consultancy projected that salaried exempt employees will receive an increase of 3.6 percent in their base salary next year. However, to take Hewitt’s example of a worker making $40,000 per year, 23 percent of that raise will be eaten up by the projected increase in health-care costs.

More trends:

• Hewitt expects that in the next few years, as many as 30 percent of large companies will offer consumer-directed health plans. These plans, which allow customization by employees based on their health and financial needs, experience rate increases “well below” the national trend; some have even decreased costs.

• Companies will contract with plans that offer specialized or health-risk-management programs for chronic health conditions and focus on wellness and prevention.

• Employers have started to require greater cost transparency from plans and hospitals, especially concerning prescription drugs.

• To further manage the high costs of prescription drugs, employers are implementing higher copayments and coinsurance models, mandating low-cost substitution provisions and mail order for certain drug classes, and offering generous generic programs and designs.