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Health Insurance Costs to Rise Again

Posted on: Sunday, 9 October 2005, 15:00 CDT

By Bruce Japsen, Chicago Tribune

Oct. 9--The cost of providing health insurance to workers is expected to go up 9.9 percent in 2006, nearly triple the rate of inflation, to a national average of about $8,046 per employee.

The portion paid by workers will surpass the 20 percent mark, rising 11.6 percent, to $1,612 per employee.

And those increases are considered a victory of sorts.

If projections hold, it would be the second straight year employers' premiums rose less than 10 percent, according to an annual study of health insurance costs by Lincolnshire-based Hewitt Associates in preparation for the 2006 open-enrollment season that has just begun for large employers.

"The cost increases that we are seeing are coming down from the past couple of years," said David Stacey, a senior consultant for Hewitt, referring to the 14.7 percent and 12.3 percent increases nationally in 2003 and 2004, respectively. "But we still expect increases in the high single digits for the next two or three years."

Nationally, workers on average will pay more than $134 per month for their annual health insurance, more than double what they paid five years ago, according to Hewitt. Plus, out-of-pocket costs for co-payments, drugs and other non-covered expenses are expected to rise 11 percent, to $1,524 a year.

Chicago-area workers are expected to pay slightly more, with average annual contributions of $1,707 for insurance premiums, or more than $142 a month. They're expected to pay about $1,549 for out-of-pocket costs. Urban areas like Chicago typically tend to have higher costs than elsewhere for a variety of reasons.

Hewitt's projections, calculated with data from 400 major employers providing health benefits to 18 million, are reported as an average per individual worker. Employees with single coverage would tend to pay less, and workers with family coverage would tend to pay more.

Analysts say premiums are higher because the cost of medical care continues to rise across the board.

"It is a mix of the entire inflation piece," Stacey said. "It is not just one thing."

Employees' share of health insurance costs continues to grow. Next year's 20 percent of the premium is up slightly from 19.7 percent in 2005. In 2000, employees paid about 16 percent of the costs.

"The cost of health care is one of the largest expenses many organizations face," Stacey said. "Employers are having their employees pick up an increasing share of that cost so that they may remain competitive in the marketplace."

A $40,000-a-year employee who receives a 3.6 percent raise, or $1,440, will use nearly a quarter of it, $326, to pay for the increase in health insurance and out-of-pocket costs, Hewitt said.

Hewitt's survey primarily focuses on large employers with 9,000 to 50,000 employees. For smaller companies, employees tend to pay more than those tracked by Hewitt because they have fewer premium dollars to spread over the health costs of their workers. They also don't usually have the clout when negotiating rates with insurers.

Chicago-based Benefitdecisions Inc., which provides health-benefits consulting to employers in the 2- to 500-employee range, said its clients "are asking employees to pay 30 to 35 percent [of the premium] for single coverage and closer to 50 percent for family coverage," said Dan Wilke, director of underwriting.

As workers shoulder a larger burden, employers are taking some new approaches to controlling costs.

Chicago-based Globalcom Inc. will see its health-care costs rise 1 percent in 2006, thanks in large part to its decision last year to add a consumer-driven health plan to such traditional offerings as HMOs and preferred-provider organizations.

Whereas HMOs restrict medical-care-provider choices to their networks, and PPOs use preferred lists of doctors and hospitals to control costs, consumer-driven plans are a relatively new insurance that allow employees or the employer to decide how much they want to spend on health-care services.

Consumer-driven plans offer networks or providers of choices, like other health plans, while setting aside a defined amount of money to put toward medical costs, deductibles and co-payments.

The consumer-driven plan often is attached to a health savings account, which holds the defined amount for employees to use toward their medical costs. Any unused dollars usually can be rolled into the next year's account.

Globalcom offered two consumer-driven plans sold by Humana Inc., one with an annual deductible of $1,000 and another with a $2,500 deductible. For participating employees, Humana pays the first $500 toward out-of-pocket costs before the deductible would kick in, requiring employees to pay the next $1,000 or $2,500. After that, the insurance turns into something similar to a PPO.

The new plans can lead to greater out-of-pocket costs, depending on how much money the insurer or employer provides toward deductibles. Further, critics say high-deductible plans can cause workers to avoid trips to the doctor if they are worried they are going to exhaust the money employers or insurers provide toward deductibles.

About 60 percent of Globalcom's 140 workers, who have an average age of 27, participate in a consumer-driven plan.

"We have a youthful population, and I think that is part of it," said Joan Wrenn, vice president of human resources for Globalcom, which is using Humana's SmartSuite consumer-directed health plan.

"If they feel they go to the doctor more frequently, they can stay in a traditional HMO or PPO. If someone feels they rarely visit the doctor, they may choose a higher deductible [plan]."

Consumer-driven health plans are most popular with smaller employers. Benefitdecisions said about one-third of its clients offer a consumer-directed plan.

"We expect that number to double once we have this renewal season complete," Wilke said.

And more larger companies are moving to add consumer-driven plans as an option for their employees, according to Hewitt. This year, Stacey said, 15 percent of companies offered a consumer-driven or defined-contribution plan as an option with traditional plans. In 2006, Hewitt's Stacey projects one in four companies will offer such consumer plans.

In addition to the consumer model, employers are stepping up wellness programs and preventive health screenings as ways to keep workers from the more expensive inpatient hospital setting.

For example, the insurance program for 4 million federal employees administered by Blue Cross and Blue Shield plans next year for the first time to offer coverage for four visits to a nutritional counselor as a way to address the nation's obesity epidemic.

"We're doing as much as we can to help people live a healthier lifestyle and give them as much as we can upfront," said Fred Plumb, executive director for the Blue Cross and Blue Shield Federal Employee Program. "We recognize the role of the health insurance carrier is no longer just paying the claims."

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Source: Chicago Tribune

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