Economy helps fuel largest cost increase since 2005: Study

By Jerry Geisel of Business Insurance Magazine, www.businessinsurance.com

Group health care plan costs are expected to increase an average of 8.8% in 2011, the largest percentage gain since 2005, new research shows.

The average group health plan cost per employee is projected to rise to $9,821 next year, according to an analysis released by Lincolnshire, Ill.-based Hewitt Associates Inc. this week. Costs include employer and employee premium contributions, but not employee out-of-pocket costs, such as copayments and coinsurance.

The analysis is based on information from 325 large employers, which mainly self-fund their health care programs.

That 8.8% cost hike compares with a 6.9% increase this year and 6% increases in 2008 and 2007 (see box).

The spike in costs is driven in large part by the economy, said Jim Winkler, a managing principal in Hewitt’s Norwalk, Conn., office.

With the ongoing weak economy, employers drastically have reduced hiring. That has resulted in an aging workforce because new hires tend to be younger than existing employees, Mr. Winkler said. Older employees typically have more medical problems than younger workers, boosting the average health care cost per employee, he said.

In addition, employers have seen increased frequency of high-cost claims, which also could be related to aging workforces, Mr. Winkler said.

In addition, the new health care reform law also is driving up costs. Provisions, such as eliminating lifetime dollar limits and expanding coverage to employees’ adult children up to age 26, begin Jan. 1, 2011, for most employers.

While health care cost increases are accelerating, the rate remains far below the double-digit increases of 15.2% in 2002, 14.7% in 2003 and 12.3% in 2004.

To avoid double-digit cost increases, Mr. Winkler said employers are analyzing strategic steps they can take that will result in healthier workforces and increase the likelihood that employees will receive high-quality, cost-effective services when they see a health care provider.

By type, health maintenance organization plans are projected to have the largest percentage increase in 2011, a 9.4% rise to $10,254 per employee. Point-of-service and preferred provider organization plan costs each are projected to increase an average of 8.5%, rising to $10,575 and $9,408 per employee, respectively.

Cost-shifting to employees also is increasing, according to Hewitt’s survey. For example, employees’ premium contributions averaged $1,966 per person in 2010, up 7.6% from the prior year, while those contributions comprised 21.8% of the total premium, up from 21.6% in 2009.

In addition, employees’ out-of-pocket costs, including copayments and coinsurance, averaged $1,934 per employee this year, up 11.6% from 2009.

Additional information on Hewitt’s analysis is available online at www.hewitt.com.

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This entry was posted by Adam V. Russo on Wednesday, September 29th, 2010 at 12:33 pm and is filed under Health Care Legislation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.