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Studies Hint At Slowing Health Care Cost Increases

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Although U.S. employers continue to face large health care cost increases, two recent surveys show them to be moderating slightly.

Hewitt Associates Inc., Lincolnshire, Ill., found that 2005 saw the lowest average rate increase in 6 years, at 9.2%. Surveyed employers, however, project an average 9.9% increase next year.

Another survey by the Sherlock Company, Gwynedd, Pa., foresees an 8.4% rise for next year, down from a 9.3% rise this year. The Sherlock study surveyed 80 health care plan providers.

Hewitt, a human resources consulting firm, reported a 12.3% average increase in health care costs in 2004.

Employees are taking an increasingly heavy hit on health care, with their total contributions plus out-of-pocket costs almost doubling in 4 years, from $1,687 in 2002 to a projected $3,136 in 2006, Hewitt found. It expects the average employee cost this year to be $2,810, consisting of $1,366 for the employee’s share of the insurance premium and $1,444 for co-payments, deductibles and coinsurance.

Overall, employees’ total health care spending next year will be up 12%, more than 3 times the average 3.6% pay raise expected for salaried exempt employees, Hewitt noted, citing its recent compensation survey.

With health care costs eating up much of the pay gains for many workers, it remains to be seen how much more of these costs employers can shift onto employees. For instance, an employee making $40,000 now would receive the average salary increase of $1,440 next year, 23% of which would be taken by increased health care costs next year.

Craig Dolezal, national health care practice leader for Hewitt, attributes the reduced cost increases this year to a variety of causes, including increased consumer awareness and financial prudence in using health care services, continued mergers of health plans and providers, and lower overall inflation.

Hewitt’s data shows some U.S. metropolitan areas substantially exceeding the average health care increase, most notably Cleveland-Akron (12.2%), Boston (11.1%) and Atlanta (11.1%).

Hewitt also found differences by plan type, forecasting a 9.5% increase for preferred provider organizations next year, 10% for health maintenance organization plans and 10.5% for both traditional indemnity and point-of-service plans.

That works out to the following average cost increase per employee for major companies:

o From $7,048 this year to $7,752 in 2006 for HMOs;

o From $7,374 to $8,075 for PPOs;

o From $7,322 to $8,091 for indemnity plans; and

o From $7,849 to $8,673 for POS plans.

Hewitt’s survey was based on data from more than 2,000 employers.

The Sherlock survey found a predicted average 8.4% increase in health care premiums for next year, almost 1% lower than this year’s increase. However, those figures included so-called buy-downs, where an employer reduces benefits or increases employee cost-sharing.

Before buy-downs, premium rate increases next year are expected to be 11.1%, compared to 11.3% this year, Sherlock reports.

“We estimate that the difference between before and after buy-down rate increases implies a 21.2% increase in employee contributions for 2006,” says Douglas B. Sherlock, head of the firm.

Plans reported they expect on average a 0.2% increase in the part of premiums to be spent on actual health benefits.

Employees’ total contributions plus out-of-pocket costs have almost doubled in 4 years, from $1,687 in 2002 to a projected $3,136 in 2006


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