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Firms Expect Small 2012 Rise in Health Insurance Costs

Lowest rate increase expected since 1997

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Firms Expect Small 2012 Rise in Health Insurance Costs

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In a recent survey companies say they expect to pay 5.4% more on average for health benefits next year, the smallest increase in more than a decade. Workers, however, may see their share of the costs outpace their earnings growth, as reported by the LA Times.

Healthcare expenses for U.S. employers are expected to increase next year at the lowest rate in more than a decade, but the cost of benefits for workers is likely to outpace the growth of their earnings, a national survey has found.

Companies expect their bills for health benefits to rise 5.4% on average next year, the smallest increase since 1997, according to preliminary results from a survey of nearly 1,600 employers by benefits consulting firm Mercer.

The smaller increase reflects cost-cutting efforts by employers. Many are moving workers into lower-cost health plans, including health savings accounts or slashing expenses by raising insurance deductibles.

In the absence of any cost-cutting, employers said they expect their average health benefit costs to rise 7.1% That's down from about 9% each of the last five years.

The lower increase is partly the result of workers staying away from doctors in the tough economy, the Mercer survey found. Corporate programs, including those emphasizing wellness to improve employee health also may be having a positive effect, the report said.

"Earlier risk identification and health education … are keeping people with health risks and chronic conditions away from the emergency room," said Susan Connolly, a Mercer partner. "And consumers are more aware that overuse and misuse of healthcare services will directly impact their wallets as well as their employer's budget."

Mercer said its survey offered an initial forecast for 2012 and that final survey results from 2,800 employers will be released by the end of the year.

Another Cost-control Means

So what are some other means employers can target to lower their health insurance expenditures? Beyond the use of high deductible plans partnered with health savings accounts and wellness initiatives, a growing number of employers are turning to self-funding.

Self-funding is gaining ground in the small employer market, especially with employers in the 75-200 employee range. Still others are trying out modified self-funding models at even smaller firms with fewer employees. In the era of health care reform with the passage of the PPACA, employers seem to be emboldened to try new, cutting edge benefit formulas as we enter a new age in health care. Stay tuned as health care reform is only the tip of the iceberg.

Costs Still Rising

According to a recent report by the Kaiser Family Foundation the mean health insurance costs per worker hour for employees with access to coverage more than doubled between 1999 and 2010. In 1999 it cost just $1.60 per worker/ hour to provide insurance coverage to an employee. Now, with an adjustment for inflation, it costs $3.35 in 2010 or more than double the 1999 amount.

Employer Nuances Expand the Story

According to Kaiser, a closer look at 2010 offers a a more detailed snapshot of insurance costs by employer. For example, the difference between employer costs at the 25th percentile ($1.76) and 75th percentile ($4.39) was just over $2.50 per hour. These costs per hour may vary for a number of reasons, including: differences across plans in benefits and cost sharing, differences in premium shares borne by employers, differences in the demographic characteristics of workers in sampled establishments (e.g., average age, health status), differences in employee and dependent participation in health benefits, and geographic differences in the costs of health care.

With this wide of a gap in employer plans and their costs its easy to see why so many individuals are under-insured. What effects with the implementation of health insurance exchanges have with so many gaining access to standardized coverage? Will the essential benefits packages plan criteria bring health insurance plans to the middle and close this gap? How will the largest employers be impacted? These are questions we’ll continue to explore as we get closer to 2014.

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