Health Care Cost Rate Increases to Highest Level in 5 Years

Hewitt Associates projects an 8.8% average premium increase for employers in 2011, compared to 6.9% in 2010.

Due to recent higher medical claim costs, an aging population and changes brought about by health care reform, employers can expect 2011 health care cost increases to be at their highest levels in five years, according to an analysis by Hewitt Associates. Next year, Hewitt projects an 8.8% average premium increase for employers, compared to 6.9% in 2010 and 6% in 2009.

According to Hewitt's analysis, the average total health care premium per employee for large companies will be $9,821 in 2011, up from $9,028 in 2010. The amount employees will be asked to contribute toward this cost is $2,209, or 22.5% of the total health care premium. This is up 12.4% from 2010, when employees contributed $1,966, or 21.8% of the total health care premium.

Average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, are expected to be $2,177 in 2011 -- a 12.5% increase from 2010 ($1,934).

These projections mean that in a decade, total health care premiums will have more than doubled, from $4,083 in 2001 to $9,821 in 2011. Employees' share of medical costs -- including employee contributions and out-of-pocket costs -- will have more than tripled, from $1,229 in 2001 to $4,386 in 2011.

According to Hewitt, a variety of factors are driving the increase in projected health care cost increases for 2011. Employers are seeing an increase in the amount of charges and frequency of catastrophic claims. This is particularly true today, as slower levels of hiring have left employers with slightly older workforces who are more prone to costly medical conditions. Hewitt estimates that the most immediate applications of health care reform -- including covering dependents to age 26 and the elimination of certain lifetime and annual limits -- contributed approximately 1-2% of the 8.8% projected increase for 2011.

Employer Response to Rate Increases

Almost all (95%) of companies say managing costs is a top business issue. Increasing employee cost sharing was ranked by employers as one of their top five health care tactic priorities over the next three to five years.

Disease management and health improvement programs continue to remain a top priority for employers. More than half (53%) of companies currently have a disease management/health improvement strategy in place. Of those that don't, 11% planned to implement one in 2010 and another 75% planned to implement one in the next three to five years.

Also growing in popularity is employers' willingness to use penalties and financial incentives as a way to increase employee participation in these programs. Hewitt's recent survey of 600 large U.S. employers found that nearly one-half (47%) say they either already use or plan to use financial penalties over the next three to five years for employees who don't participate in certain health improvement programs. Of those companies, most say they will do so through additional employee cost shifting, such as higher benefit premiums (81%), an increase in deductibles (17%) and an increase in out-of-pocket expenses (17%).

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