Health Cost Inflation Slows for Third Straight Year

Employers are shifting more of the expense to consumers, survey finds

MONDAY, Nov. 21, 2005 (HealthDay News) -- Health benefit costs rose just 6.1 percent in 2005, to an average of $7,089 per employee, as employers shifted more medical and dental plan expenses to their workers in the form of higher out-of-pocket costs, a new survey finds.

This year's increase, down from 7.5 percent last year, continues a three-year slowing in the annual rate of growth, according to the survey by Mercer Health & Benefits. Health inflation has cooled quite a bit since the turn of the century, when double-digit rates of increase were the norm. In 2002, health costs rose 14.7 percent.

Next year, employers expect an essentially flat rate of increase, at 6.7 percent, the survey revealed.

So how are employers taming health benefit costs? "It's a combination of aggressive cost shifting and other strategies that are starting to take hold, in particular, health management," said Blaine Bos, a Mercer consultant and one of the study's authors.

While employee contributions, as a percent of premium, were essentially unchanged, employers increased the out-of-pocket costs that consumers pay.

Eighty percent of PPO plans, for example, now require an in-network deductible, up from 73 percent last year. Among large employers -- those with 500 or more workers -- the median deductible rose to $300, from $250 in 2004. Among the largest employers -- those with 20,000 or more employees -- the use of "coinsurance" as a way of sharing the cost of a physician office visit jumped to 37 percent, up from 26 percent last year.

What's more, the percentage of employers offering at least one disease-management program rose to 41 percent, a 9 percentage-point increase from the prior year. Sixty-seven percent of large employers offering disease-management programs jumped the same number of points, from 58 percent.

Mercer's survey is the largest annual survey of its kind, based on a national sample of nearly 3,000 public and private employers. The survey captures employers' total health costs in a calendar year divided by the number of active employees they have.

Oddly, this year's cost increase differs markedly from what another high-profile survey found. In September, the Henry J. Kaiser Family Foundation reported that health insurance premiums rose 9.2 percent in 2005.

The difference, Bos explained, is that Kaiser's survey examines the rate of increase in the employee premium and measures that change mid-year to mid-year.

"Since our number is pure cost after plan design changes have been made, as opposed to taking a look at the change in the amount that the individual pays in family premium, there's going to be some 'noise' in their numbers that is not in our numbers," he reasoned.

And because of differences in the timing of the surveys, "As costs decline, they're going to be reporting a number that's slightly bigger," he said.

However, Jon Gable, a co-author of Kaiser's annual survey, was puzzled. Even those explanations would not account for the large gap between the numbers, he said.

One point on which both surveys agree is that HMO enrollment is on the decline. According to Mercer's account, HMO enrollment fell to 25 percent of all covered employees, from 27 percent in 2004.

Employers are offering fewer health plan choices, too, which in the context of falling HMO enrollment means that they are likely dropping HMOs, Bos suggested.

Meantime, many of the nation's largest employers are adding "consumer-directed health plans," such as high-deductible insurance plans with health savings accounts.

Twenty-two percent of "jumbo" employers with 20,000 or more workers offered these plans in 2005, up from 12 percent in 2004. Only 5 percent of "large" employers with 500 or more workers and 2 percent of "small" employers with 10 or more employees, have rolled out these plans.

Looking ahead, 11 percent all employers indicated that they are likely to offer consumer-directed health plans in 2006, and 13 percent said that chances are they would offer these plans in 2007. Among jumbo employers, 29 percent and 31 percent anticipate offering these plans in 2006 and 2007, respectively.

What these trends bode for the future of the HMO may be too soon to say. "It depends on what the alternative is," said Gabel, vice president of the Center for Studying Health System Change in Washington, D.C. "If all you have is a consumer-driven health plan or an HMO plan, I think HMO enrollment will rebound," he said.

But if the whole consumerism movement catches on, Bos thinks HMOs will suffer and consumer-directed health plans will become the "managed care of the 21st century."

More information

For more information on employer-sponsored health insurance, visit the Agency for Healthcare Research and Quality.

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