US firms see smaller health care cost hikes: study

NEW YORK (Reuters) – Cost increases for health-care
benefits at U.S. companies next year are expected to rise at
their lowest rate in six years, according to a survey released
on Monday by human resources outsourcing company Hewitt
Associates.

For 2006, Hewitt expects health-care costs to rise 9.9
percent on average, up from a 9.2 percent increase in 2005, but
well below average increases of about 15 percent seen in 2002
and 2003. It is the smallest increase in that category since
1999.

Executives often place rising health-care costs among the
top challenges for their corporations, particularly as older
workers comprise a larger part of the U.S. workforce.

A number of reasons are seen as contributing to the slower
rate of cost increases, including increased consumer awareness,
consolidation of health plans and providers, and lower overall
inflation demands.

Still, health care is growing about three times faster than
wages, the survey showed.

Furthermore, rising health-care contributions and
out-of-pocket expenses could also offset any salary increases
for many workers, Hewitt said.

Wage increases are expected to be about 3.6 percent, while
contributions and out-of-pocket expenses are projected to rise
11.6 percent. For a person who makes $40,000 per year, that
increase in health-care costs would take out about 23 percent
of their overall salary gains.

Hewitt expects the average employee contribution and
out-of-pocket costs for health care to be $1,612 for 2006, up
from $1,444 in 2005.

Companies could also be paying more for health care, based
on the type of provider they use, the survey showed.

On average, Hewitt expects that companies with preferred
provider organizations (PPOs) will see a cost increase of 9.5
percent for 2006. Costs for health maintenance organizations
(HMOs) are expected to rise 10 percent on average, while
companies with point-of-service (POS) plans could see a cost
increase of 10.5 percent on average, the survey showed.

Hewitt derives its forecast from its database of 2,000
health plans throughout the United States.