Spokane Journal of Business

Health premium hikes flatten, survey says

Cost increases were highest among small employers last year, rising 7 percent for them

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Employers arent accustomed to hearing good news about their health-benefit costs, but might take some comfort in the findings of a recent survey by Mercer Health & Benefits. The survey shows that rising costs have leveled off in each of the past two years, and are expected to hold that pace this year.

The total average cost of health benefits per employee rose 6.1 percent to about $7,500 last year, according to Mercers survey, which was released in June. The total cost of benefits rose 6.1 percent in 2005 as well, slowing from 7.5 percent in 2004 and about 10 percent in 2003. In 2002, cost increases spiked at 14.7 percent, their highest level since they reached roughly 17 percent in 1990.

While cost increases are expected to hover at the 6.1 percent level again this year, employers shouldnt expect that trend to continue in the future, says Kathy Prosser, Mercers Portland, Ore.-based regional manager. Cost increases leveled off in 2005 and 2006 largely because employers, in response to higher premiums, became more aggressive in choosing plan designs that put more of the burden for care on employees, and adopted care-management programs to improve employees health. Such efforts can reduce rate increases somewhat, but cant stop the upward spiral of health-care costs, Prosser says.

The past doesnt predict the future, Prosser says.

Mercer Health & Benefits is a unit of Mercer Human Resource Consulting, which is a subsidiary of New York-based Marsh & McLennan Cos. Inc. Mercers annual National Survey of Employer-Sponsored Health Plans is the largest of its kind, with nearly 3,000 public and private employers participating last year.

Mercers survey showed that while health-benefit cost increases have been slowing since 2002, theyre still rising faster than both workers earnings and inflation. Average worker earnings grew about 4 percent in 2006, while inflation rose 2 percent.

Also, although health-benefit cost hikes have been slowing for employers generally, costs rose faster for small employers than for midsize and large businesses last year, the survey says. Costs rose 7 percent, to about $7,100, for employers with 10 to 499 employees. In comparison, costs rose 5.8 percent for mid-size businesses with 500 to 4,999 employees and 6.5 percent for large employers with 5,000 or more employees.

Smaller employers, which are bundled together in community ratings by insurers, have less negotiating power with insurers than larger employers do, Prosser says.

Also, large employers with diverse work forces can negotiate rates based on their groups own health experiences, she says. In tight insurance cycles, small employers fare worse because they dont have that latitude, and insurers are struggling to meet their financial targets, Prosser says.

The survey also found that employers, particularly small businesses, showed less interest last year in scaling back benefits and shifting the cost of plans to employees through higher deductibles and co-pays than in previous years. One reason is the tightening of the labor market.

Among small employers using preferred-provider organization plans (PPOs), 79 percent required an in-network deductible. The median deductible was $500 for individuals and $1,500 for families, Mercers survey showed. Eighty-seven percent required a co-pay for doctors office visits, and the median co-pay was $20. The average monthly employee contribution toward premiums was $98 for individuals and $446 for families.

For small employers that offer a health-management organization (HMO) plan, the average monthly employee contribution toward premiums was $96 for individuals and $364 for families. Fifty-four percent of small employers required a hospital deductible, and 90 percent required an emergency-room co-pay. The median hospital deductible was $500, and the median ER co-pay was $75. The median co-pay for a doctors visit was $20.

Employers have made many of the cost-shift changes that they can tolerate, Prosser says. If you look forward, theres not a lot of room to make benefit changes, so theyre looking at other strategies.

Employers identified consumer-directed plans and care-management programs, rather than cost-shifting, as their top strategies for containing health-care costs, according to the survey.

In another finding from Mercers survey, prescription drug-benefit cost hikes continued to slow last year. Drug costs for employers with up to 499 employees rose 6.3 percent, while costs for employers with 500 to 4,999 employees rose 9.8 percent.

In comparison, costs for small and mid-size businesses rose roughly 9 percent and 11 percent in 2005, respectively. According to the survey, drug-benefit cost increases have been slowing every year since 2002.

The recent number of generic drugs that have hit the market as pharmaceutical companies patents have expired has been one of the biggest contributors to the trend, Prosser says.

Yet, as more injectable drugs and other drugs targeted at specific illnesses become available on the market, drug benefit costs might rise more rapidly in the future, she says.

Among other health-care benefits offered by employers polled by Mercer, 9 percent of small employers and 28 percent of midsize employers offered long-term care insurance. Thirty percent of small businesses and 65 percent of mid-size employers offered vision benefits, while 3 percent of small employers and 20 percent of mid-size employers maintained an on-site clinic. Twenty-nine percent of small employers and 80 percent of midsize employers offered a health-care spending account.

Contact Emily Proffitt at (509) 344-1265 or via e-mail at emilyp@spokanejournal.com.

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