Health care costs to rise 8 pct in 2006: study

By Bill Berkrot

NEW YORK (Reuters) – Health care expenses for U.S.
companies will rise at a slower rate in 2006 than in recent
years but will still cost an average of more than $8,400 per
employee, according to the 17th annual Towers Perrin Health
Care Cost Survey released on Wednesday.

Employers will see an 8 percent increase next year, or
about $600 per employee, the survey found. Employees will pay
about $155 of that increase in 2006, a 10 percent rise from
2005 levels.

While the rate of increase over the last two years has
improved from the double-digit inflation of years past,
“sustained rates at this level still are unacceptable for most
employers,” said Ronald Fontanetta of Towers Perrin.

The increasing burden of health care costs has weighed
heavily on both employers and employees, the survey found, with
employers still bearing the lion’s share despite a continuing
shift that has seen workers taking on more of the expense.

Employees are paying 64 percent more for health care than
they spent five years ago. In that same time frame, employer
costs have risen 78 percent — both far outpacing other
inflation gauges.

Workers will contribute about 20 percent of total health
care premiums in 2006. But the survey found that employers now
appear to be looking beyond simply shifting more of the costs
to employees as a means of controlling expenses.

“Employers have concluded there are inherit limits in
controlling costs through cost shifting,” Fontanetta said.
“They are trying now to focus on core drivers of health care
expense.”

He cited a push toward heavier use of cheaper generic
prescription drugs, and utilizing health risk assessment
programs and wellness initiatives.

Where before there was corporate resistance to spending for
preventive or interventional care, they are now much more
willing to do so, with a focus on avoiding expensive chronic
illnesses such as heart disease and diabetes.

“We are clearly seeing a trend in willingness to invest in
wellness and health management programs to prevent chronic
illnesses and to keep those that exist from becoming more
significant,” Fontanetta said.

There was a wide disparity in costs between companies in
the top third and bottom third of respondents, the survey
found, with an expected 14 percent rise for the higher-cost
companies compared to 7 percent for those at the lower end.

A key distinguishing factor was the relationship between
the companies and their health care vendors, with lower-cost
companies more aggressively working with vendors on efficiency
and implementing processes to monitor care management
initiatives.

Costs for retirees under age 65 will rise by 10 percent
over 2005 levels, 3 percent higher than for Medicare-eligible
retirees, the survey found.

But 53 percent of companies offering retiree benefits that
participated in the survey said Medicare changes in 2006 —
including the new prescription drug plans — will prompt them
to rethink their commitments to all retirement programs.

Data for the survey was collected from more than 200 of the
nation’s largest employers, covering more than five million
individuals, including active workers, dependents and retirees.