Hewitt Associates’ Data Reveals U.S. Health Care Cost Increases to Remain Stable for Third Consecutive Year

Companies Making Small but Aggressive Health Plan Changes to Help Stabilize Rate of Increase

LINCOLNSHIRE, Ill.--(BUSINESS WIRE)--Despite economic instability and increased employer pressure to cut costs, health care rate increases are projected to remain stable for the third consecutive year, according to an analysis by Hewitt Associates, a global human resources consulting and outsourcing company. In 2009, average health care premiums increased 6.0 percent, consistent with 2008. Hewitt also projects a 6.0 percent average premium increase for employers in 2010.

“Despite the possibility of extensive health care reform, employers are likely to continue their focus on short-term cost management in 2010.”

According to Hewitt, the average total health care premium per employee for large companies will increase from $8,607 in 2009 to $9,120 in 2010. The amount employees will be asked to contribute toward this cost is $2,085, or 23 percent of the total health care premium. This is up 10 percent from 2009, when employees contributed $1,890, or 22 percent of the total health care premium. Average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, are expected to increase to $1,938 in 2010, also up 10 percent from $1,766 in 2009.

These projections mean that in nine years, total health care premiums will have more than doubled from $4,159 in 2001 to $9,120 in 2010. Employees’ share of those costs—including employee contributions and out-of-pocket costs—will have more than tripled from $1,262 in 2001 to $4,023 in 2010. For a worker making $15 per hour, this $4,023 price tag is equivalent to seven weeks of work per year, with all of his or her income going directly toward health care-related costs (insurance and out of pocket expenses).

“Employers were able to successfully mitigate rising health care costs through one of the worst economic climates in history and they did so by taking some very simple steps—cost shifting, tougher negotiations with health plans and an increased focus on preventive care,” said Jim Winkler, Hewitt’s U.S. Health Management Consulting practice leader. “Despite the possibility of extensive health care reform, employers are likely to continue their focus on short-term cost management in 2010.”

2009 Cost Increases by Major Metropolitan Area

In 2009, a few major U.S. markets experienced rate increases significantly higher than the national average, including Orange County (9.6 percent), San Diego (9.5 percent), Los Angeles (8.7 percent), South Florida (8.2 percent) and Austin (8.0 percent). Conversely, Columbus (0.8 percent), Cincinnati (2.1 percent), Nashville (3.3 percent) and Phoenix (3.8 percent) experienced lower-than-average rate increases in 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.

2009 Cost Increases by Plan Type

In 2009, Hewitt saw average cost increases of 7.4 percent for health maintenance organizations (HMOs), 5.4 percent for point-of-service (POS) plans, 5.2 percent for preferred provider organizations (PPOs) and 2.7 percent for traditional indemnity plans.

For 2010, Hewitt forecasts that companies will receive average cost increases of 5.0 percent for PPOs, POS plans, and traditional indemnity plans. Companies will see an average cost increase of 8.0 percent for HMOs. That means from 2009 to 2010, the average cost per person for major companies will increase from $8,264 to $8,677 for PPOs; $8,869 to $9,579 for HMOs; $9,320 to $9,786 for POS plans; and $8,762 to $9,200 for traditional indemnity plans.

Employer Response to Rate Increases

“Employers continue to seek a balance between benefits that are affordable to the company and meaningful to employees,” added Tate. “Doing so in tough economic times requires difficult choices for employers.”

To mitigate rising health care costs, employers have made a number of changes to their health care plans. These include:

Increasing Employee Cost Sharing: According to a recent Hewitt survey, nearly two-thirds (65 percent) of employers are asking workers to bear a greater burden of health care costs. For 2010, employers are striking a balance between increased payroll contributions and out-of-pocket costs. Many companies are shifting from fixed dollar copayments to coinsurance models, where employees pay a percentage of the out-of-pocket costs for each health care service.

While still an emerging trend, an increasing number of companies are adopting salary-banded models, where higher paid employees contribute more toward their health insurance than lower-paid employees.

Shifting Costs to Dependents: According to Hewitt’s data, dependents make up about 50 percent of an employer’s overall health care costs. In recent years, employers have increasingly focused on the covered dependents in their plans. More than 40 percent of Hewitt’s clients have conducted audits in the past five years to assess the eligibility of covered dependents.

Additionally, companies are 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.

Encouraging Enrollment in High-Deductible Plans: Employers are also looking to boost enrollment in lower-cost, high-deductible health plans (HDHPs). According to the Kaiser Family Foundation, 28 percent of employers with more than 1,000 employees offered an HDHP with a savings option in 2009, compared with 22 percent in 2008.

Consolidating Vendors and Moving to Self-Insured Plans: Employers are eliminating smaller, less efficient HMO plans into more efficient models that create greater purchasing power and better negotiating power. In addition, they are moving away from local and regional fully insured HMO plan offerings, which have higher administrative costs and are subject to state-mandated benefit requirements that drive up premium costs. Instead, they are consolidating plan participants under self-insured arrangements where they assume the full financial risk for medical claim costs and pay the health plan an administrative fee for services such as claims processing and provider network management.

Improving Employee Health: Recent Hewitt research indicates that almost two-thirds (65 percent) of companies are making a significant investment in the health and productivity of their employees despite the continued focus to hold down health costs.

Organizations are increasingly using tools and programs like Health Risk Questionnaires (HRQs) and biometric screenings as a way to collect data on the health of their employee population to help them target specific conditions within their covered population. Many employers are providing incentives (e.g., reduced premiums) for workers who agree to actively participate in these types of programs.

Employers are using the aggregate data they collect from HRQs and biometric screenings to identify top risk factors within their employee population and put effective strategies into place to help employees manage chronic conditions such as asthma and diabetes. Hewitt data shows that approximately 80 percent of employers are targeting specific health conditions in their employee population, up from 51 percent just a year ago.

“Employers realize that having a healthier workforce directly correlates to lower health care costs through reduced claims and increased productivity,” explained Winkler. “Determining what health issues are most prevalent in an employee population and developing programs that will encourage healthier behaviors or greater compliance provides significant opportunities for short- and long-term cost savings.”

About Hewitt’s Data Hewitt’s health care cost data is derived from the Hewitt Health Value Initiative, a cost and performance analysis database of more than 1,700 health plans throughout the U.S., including 325 major employers representing more than 13 million health plan participants.

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.

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