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Health Care Cost increases Continue Double-Digit Pace,
But May Slow
According to Hewitt Associates, U.S. Employees Should Prepare
for Major Health Care Benefit Changes and Increased Cost Sharing
October 2003 (Newstream) -- U.S. health care cost increases
continued to escalate at a double-digit pace in 2003, but there
are indications that rate hikes may begin moderating as early
as next year, according to global HR outsourcing and consulting
firm Hewitt Associates (NYSE: HEW). For 2004, Hewitt is projecting
a 12.6 percent average increase for employers, which is lower
than 2003's 14.7 percent rate.
Large companies are continuing to absorb the majority of next
year's increase, but many are also making plan design changes,
such as raising copayments and deductibles, and increasing employees'
share of health care premiums. According to Hewitt, the average
employee contribution for 2004 is projected to be $1,565, representing
22 percent of the overall health care premium, and up from $1,276
in 2003.
"The good news is that we expect health care costs will begin
to moderate over the next few years. The bad news is that companies
should still expect 9 to 14 percent rate hikes," said Jack Bruner,
national health care practice leader, Hewitt Associates. "Clearly,
health care cost increases are not going away anytime soon; however,
we are seeing some moderation in hospital cost increases and stabilization
of prescription drug costs."
2004 Cost Increases by Plan Type
On average, Hewitt forecasts that companies will receive 2004
cost increases of 13.5 percent for health maintenance organizations
(HMOs), 12.5 percent for traditional indemnity plans, and 12.0
percent for preferred provider organizations (PPOs) and point-of-service
(POS) plans.
That means from 2003 to 2004, the average cost of health care
for a person working at a major company will increase from $6,018
to $6,831 for HMOs; $6,300 to $7,056 for PPOs; $6,391 to $7,158
for POS plans; and $6,738 to $7,581 for indemnity plans, according
to Hewitt's database of more than 2,000 health plans in 139 U.S.
markets, including 300 major employers and more than 16 million
health plan participants.
"Companies are remaining committed to offering quality health
care coverage but cannot afford to absorb the rate of these increases
alone, which means consumers will also feel the impact," said
Bruner. "Even though the employee portion of health care is on
the rise, it's important to point out that organizations are still
paying for the vast majority of the overall health care premium."
Cost Increases Across Major Metropolitan Areas
Double-digit rate hikes will affect nearly every major U.S.
metropolitan area next year, after most already experienced significant
increases in 2003. Hewitt's data reveals that the following cities
recorded the highest rate increases in 2003: 19.8 percent in Denver,
19 percent in San Francisco, 17.7 percent in Los Angeles, 16.2
percent in Houston, 15.6 percent in both Chicago and the Tampa
Bay area, 14.8 percent in Cincinnati, 14.4 percent in Philadelphia
and 14.2 percent in Dallas/Fort Worth.
Employer Reaction to Rate Increases
How are organizations reacting to the rate hikes? In addition
to sharing increases with their employees, Hewitt finds that companies
are doing the following:
- Re-evaluating cost-sharing and contribution strategies.
The primary and most effective way companies are managing cost
increases is by re-evaluating employee contributions and out-of-pocket
costs. Organizations are considering the following tactics:
higher payroll contributions, lower subsidies for dependents,
and increased office, hospital inpatient and emergency room
copayments. Emerging tactics include paying hospitals based
on financial efficiency, lifestyle pricing and pay-based contributions.
- Changing prescription drug coverage. Prescription drug
costs continue to be a major driver behind insurance hikes and
employers are actively evaluating new strategies to help contain
costs. For next year, companies are implementing higher copayments,
coinsurance models, mandated low-cost substitution provisions
for certain therapeutic classes and generic incentives.
- Contracting with plans that offer specialized or disease
management programs. To enhance or maintain the health of
their workforce, more employers are contracting with organizations
that offer specialized or disease management programs that can
help manage employees' chronic health conditions.
- Offering new consumer-driven health plans. More employers
are evaluating consumer-driven health plans that are designed
to provide employees with more choice, flexibility and control
in making health care decisions. "We are seeing a lot of employer
interest in these types of plans and expect that the number
of organizations offering consumer-driven plans as an option
to employees in the next few years will significantly increase,"
said Bruner.
- Linking active and retiree health care programs. And,
finally, as organizations implement consumer-driven options,
some are also offering retiree health care savings accounts
in the form of health reimbursement accounts (HRAs). Through
increased education around future postretirement health care
needs, employees will have more financial incentive to consider
the implications of their annual health plan election. "These
programs enable employee's to balance their current health care
needs with the longer-term need to accumulate savings for retiree
health care," added Bruner.
About Hewitt's Data
Hewitt's data for this release is derived from the Hewitt Health
Value Initiative™, a cost and performance analysis database
of more than 2,000 health plans in 139 U.S. markets, including
300 major employers and more than 16 million health plan participants.
About Hewitt
Hewitt Associates (www.hewitt.com)
is global human resources outsourcing and consulting firm. It
provides services from offices in 38 countries.
------------------------
Produced for Hewitt Associates
Contact: Suzanne Zagata-Meraz
(847) 442-7657
sszagata@hewitt.com
Rebecca Hayne
(847) 442-7655
rlhayne@hewitt.com
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