U.S. Health Care Cost Rate Increases Reach Highest Levels in Five Years, According to New Data from Hewitt Associates

Rate of Increase Rises Significantly as Companies Struggle to Keep up with the Rapidly Evolving Health Care Landscape

LINCOLNSHIRE, Ill.--(BUSINESS WIRE)-- Due to recent higher medical claim costs, an aging population and changes brought about by health care reform, employers can expect 2011 health care cost increases to be at their highest levels in five years, according to an analysis by Hewitt Associates, a global human resources consulting and outsourcing company. Next year, Hewitt projects an 8.8 percent average premium increase for employers, compared to 6.9 percent in 2010 and 6.0 percent in 2009.

According to Hewitt’s analysis, the average total health care premium per employee for large companies will be $9,821 in 2011, up from $9,028 in 2010. The amount employees will be asked to contribute toward this cost is $2,209, or 22.5 percent of the total health care premium. This is up 12.4 percent from 2010, when employees contributed $1,966, or 21.8 percent of the total health care premium. Average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, are expected to be $2,177 in 2011—a 12.5 percent increase from 2010 ($1,934).

These projections mean that in a decade, total health care premiums will have more than doubled, from $4,083 in 2001 to $9,821 in 2011. Employees’ share of medical costs—including employee contributions and out-of-pocket costs—will have more than tripled, from $1,229 in 2001 to $4,386 in 2011.

According to Hewitt, a variety of factors are driving the increase in projected health care cost increases for 2011. Employers are seeing an increase in the amount of charges and frequency of catastrophic claims. This is particularly true today, as slower levels of hiring have left employers with slightly older workforces who are more prone to costly medical conditions. Hewitt estimates that the most immediate applications of health care reform—including covering dependents to age 26 and the elimination of certain lifetime and annual limits—contributed approximately 1 percent to 2 percent of the 8.8 percent projected increase for 2011.

“After 18 months of waiting for health care reform to play out, employers find themselves in a very challenging cost position for 2011,” said Ken Sperling, Hewitt’s health care practice leader. “Reform creates opportunities for meaningful change in how health care is delivered in the U.S., but most of these positive effects won't be felt for a few years. In the meantime, employers continue to struggle to balance the significant health care needs of an aging workforce with the economic realities of a difficult business environment. While health care reform cannot be blamed entirely for employers’ increasing cost, the incremental expense of complying with the new law adds fuel to the fire, at least for the short term.

“Companies cannot afford to take a ‘wait and see’ approach to health care benefits. Now is the time for organizations to be bolder about the strategies, programs and tactics they’re using to contain cost and motivate employees to engage in their own health,” added Sperling.

2010 Cost Increases by Major Metropolitan Area

In 2010, a few U.S. markets experienced rate increases significantly higher than the national average. Five major metropolitan areas in California, for example, experienced rate increases of 10 percent or higher: Los Angeles (10.2 percent), Orange County (10.6 percent), Sacramento (10.7 percent), San Diego (10.8 percent) and San Francisco (10.4 percent). Other U.S. cities experiencing higher-than-average rate increases included Charlotte (9.7 percent); Newark, NJ (10.8 percent); Philadelphia (10 percent); and Tampa (9.2 percent). Conversely, Columbus, Ohio (4.3 percent); Dallas/Ft. Worth (3.7 percent); Portland, OR (4.6 percent); and Washington D.C. (4.0 percent) experienced lower-than-average rate increases in 2010.

“Similar to 2009, workers in California saw higher health care increases this year mainly because more companies in the state offer fully insured HMOs, and increases for these plans have been higher than average,” said Bob Tate, Hewitt’s chief health actuary and the leader of the annual cost study.

2010 Cost Increases by Plan Type

In 2010, Hewitt saw average cost increases of 7.8 percent for health maintenance organizations (HMOs), 6.9 percent for point-of-service (POS) plans and 6.3 percent for preferred provider organizations (PPOs).

For 2011, Hewitt forecasts that companies will have average cost increases of 8.5 percent for PPOs and POS plans. Companies will see an average cost increase of 9.4 percent for HMOs. That means from 2010 to 2011, the average cost per person for major companies will increase from $8,671 to $9,408 for PPOs; $9,373 to $10,254 for HMOs; and $9,747 to $10,575 for POS plans.

Employer Response to Rate Increases

According to a recent Hewitt survey of 600 large U.S. companies, employers have grown increasingly concerned about rapidly rising health care costs. Almost all (95 percent) of companies say managing costs is a top business issue. To mitigate these costs, employers continue to take a number of proactive steps. These include:

Increasing Employee Cost Sharing: With the cost of providing health care benefits continuing to rise, employers continue to pass some of these costs to employees. In a recent Hewitt survey, "increasing employee cost sharing" was ranked by employers as one of their top five health care tactic priorities over the next three to five years. Workers may see employers passing along these costs in different ways, including:

  • Shifting plan designs from fixed dollar copayments to coinsurance models, where employees pay a percentage of the out-of-pocket costs for each health care service.
  • Increasing deductibles out of pocket limits and cost sharing for use of non-network providers.

Managing Dependent Eligibility and Subsidies: An increasing number of employers are realizing they can significantly reduce health care costs by assessing the eligibility of covered dependents in their plans. About three-quarters of Hewitt’s health and welfare administration clients have conducted dependent audits in the past five years to assess the eligibility of covered dependents. According to Hewitt's data, on average, 11 percent of people enrolled in an employer's health plan are ineligible. For a company with 10,000 enrollees, this can equate to millions of dollars in health care costs each year.

While still an emerging trend, a growing number of companies are charging premiums on a per-participant basis, rather than through a “lump sum” premium traditionally found within the “individual” and “family” pricing models. Companies may also be shifting more costs to employees by either requiring them to pay more for spousal coverage, or by applying surcharges to encourage dependent spouses to enroll in their own employer’s plans. According to Hewitt's SpecSummary database of more than 1,200 companies, 13 percent currently impose a spousal surcharge.

Aggressive Vendor Management and Consolidation: Continuing a trend Hewitt has seen over the past three years, employers are aggressively managing vendor relationships. Programs and vendors that do not deliver measurable, near-term results are being replaced or eliminated. Employers continue to look for "best in class" vendors for certain services, while consolidating vendor relationships to secure volume discounts.

Improving Employee Health: According to recent Hewitt research, disease management and health improvement programs continue to remain a top priority for employers. More than half (53 percent) of companies currently have a disease management/health improvement strategy in place. Of those that don’t, 11 percent planned to implement one in 2010 and another 75 percent planned to implement one in the next three to five years.

Also growing in popularity is employers’ willingness to use penalties and financial incentives as a way to increase employee participation in these programs. Hewitt’s recent survey of 600 large U.S. employers found that nearly one-half (47 percent) say they either already use or plan to use financial penalties over the next three to five years for employees who don’t participate in certain health improvement programs. Of those companies, most say they will do so through additional employee cost shifting, such as higher benefit premiums (81 percent), an increase in deductibles (17 percent) and an increase in out-of-pocket expenses (17 percent).

“While employers have taken steps to mitigate costs in 2011, many organizations across all industries are already focused on developing multi-year strategies and a 2012 action plan aimed at resetting their health care programs to reflect today's cost realities and tomorrow's changing health insurance landscape," said Jim Winkler, managing principal and senior health care strategist at Hewitt. "In the wake of reform, rising costs and an increasingly unhealthy workforce, employers know they must reassess the role they play in engaging their workforce to be healthy, present and productive at work."

About Hewitt’s Data

Hewitt’s data is derived from the Hewitt Health Value Initiative™ database, which contains detailed census, cost and plan design information for 350 large U.S. employers representing 14.4 million participants and $51.9 billion in 2010 health care spending.

About Hewitt Associates

Hewitt Associates (NYSE: HEW) provides leading organizations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt consults with companies to design and implement and communicate a wide range of human resources, retirement, investment management, health management, compensation, and talent management strategies. As a leading outsourcing provider, Hewitt administers health care, retirement, payroll, and other HR programs to millions of employees, their families, and retirees. With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visit www.hewitt.com.

Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=6443195&lang=en


Hewitt Associates
Media Contacts:
MacKenzie Lucas, 847-442-2995
[email protected]
Maurissa Kanter, 847-442-0952
[email protected]

KEYWORDS:   United States  North America  Illinois

INDUSTRY KEYWORDS:   Health  Public Policy/Government  Healthcare Reform  Other Health  Other Policy Issues  Professional Services  Consulting  Human Resources  General Health