Human Capital & Careers

In Stable Condition?

Health-care costs have slowed down...for now.
Laura DeMarsNovember 8, 2006

First, the good news: In 2007, employers
could enjoy the smallest health-care cost increase since
2000. Now the bad news: that increase is still likely to be much higher than the rate of inflation.

Health-care premiums rose just 7.7 percent in 2006, compared to 9.2 percent in 2005 and
13.9 percent in 2003, according to the Kaiser Family Foundation. A number of experts expect the slowdown
in cost growth to continue into next year.

“There’s no doubt the trend is toward smaller increases,” says Paul Fronstin, a director at the
Employee Benefit Research Institute. He says the slowdown is partly due to companies
shifting more of the health-care burden to employees. “Costs are also moderating
because we haven’t seen a lot of new technologies hit the market recently,” he adds.

A decline in the cost of prescription drugs has also contributed to smaller price
spikes. According to a recent survey from The Segal Co., a benefits consultancy, pharmaceutical
costs have declined about 40 percent since 2003.

Given Imaging in Atlanta has enjoyed a slowdown in health-care cost increases
over the past five years. Vice president of finance Ed Cordell says Given’s costs
rose just 5 percent in 2005. But the medical-devices company is still working to contain
costs; it offers rewards for nonsmokers and recently adopted a wellness program. “We are trying to help our employees live healthier lifestyles, which could
increase savings on our health plan,” says Cordell.

But don’t pop the cork on the soy milk just yet. Cordell predicts that prices will
start to creep up again over the next few years as providers launch new high-tech products.
Tom Billet, a consultant at Watson Wyatt Worldwide, says baby boomers could
also push health-care costs back into double-digit growth. “We have yet to feel the full
effects of the aging population,” he warns.