Large Employers To See 15% Increase In Health Care Costs

Compiled By Frank R. Chloupek Based on preliminary results of a survey by Towers Perrin, large employers will see an average increase of 15% in their employee health-care costs in 2003. This is the fourth consecutive year of double-digit increases for big firms and the largest one-year increase since this survey began in 1989. The average increase will be $830 per employee per year, and increases will be borne both by employers and employees. "Employees will be paying more out-of-pocket this year," notes Ron Fontanetta, a principal in Towers Perrin's New York office. "Cost sharing will come in the form of increased monthly contributions, as well as higher deductibles and copayments." This corresponds to an employee bearing 19% of health-care costs for single coverage in 2003, compared to 17% in 2002. A driving factor of this large increase is growing health management organization (HMO) costs. "Employers are facing the highest increase in HMO renewals since the early 1990s," says Jim Foreman, managing director of health and welfare for Towers Perrin. The average HMO rate increases for active employees are 15% while those for retirees exceed 20%. Factors cited as driving the increase in HMO costs include greater prescription drug costs, sharp increases in the price of hospital services, and greater demand for high-cost diagnostic tests. In addition to increased cost-sharing, employers are studying other solutions to lower the total health-care costs, including:

  • Care Management -- A special focus on chronic condition that result in high total costs from a small number of cases. This may include separating these costs from the general plan and/or using specialty organizations for care delivery.
  • Consumerism -- Empowering employees to take more active roles in health-care services to reduce cost.
  • Design And Optimal Delivery -- Designing health-care plans to encourage the most cost-effective use of services.
  • Vendor Management -- Updating the selection of vendors. There is also an increased utilization of self-insuring HMOs.
  • Data Management -- Increase monitoring of plan utilization and costs.
Towers Perrin provides global human resource consulting and administration services. The survey was conducted of primarily Fortune 1000 companies during August and September 2002, and conclusions are based on a preliminary assessment of 268 responses. The full survey will be available in December 2002.
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