Rising Health Care Costs Could Ease in 2005

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Oct. 7, 2004--Employer-sponsored health care costs are expected to go up 8% in 2005, the first time in half a decade such an increase would fail to break double-digits, according to a new study.

The report by Towers Perrin, a consulting firm, forecasts a slowing growth rate in health care costs for next year. But it also warns that the single-digit rate is deceiving because it comes on top of a large existing cost following previous recent increases.

"The cumulative effect of soaring costs year over year has created a bigger cost base," said Jim Foreman, a managing director at Towers Perrin, in the report, "which means that while this year's percentage increase creates an appearance of lower costs, the increase in the actual dollar amount is similar to years past."

According to the survey, the factors driving higher costs include rising HMO rates, greater demand for expensive diagnostic tests such as MRIs, and continued high use of heavily promoted prescription drugs.

While employers will pick up the tab for most of the projected cost increases, the report says that the cost burden is slowly shifting to employees. The study estimated the 8% increase for one employee's care-related costs in an employer-sponsored plan to total $7,761. Of that, the employee share of premium costs will increase next year by 14%, to $1,610, while the employer share will increase by 7% to $6,151.

"While employers have simply shifted some costs to employees through benefit design changes, their efforts to control the underlying drivers of health care cost increases are beginning to make a difference," said Foreman.

More than half of employers cited in the survey have redesigned their plans to increase employee accountability at the point of care. Many are examining their prescription drug benefits, encouraging the use of lower-cost and generic alternatives and providing employees with better resources to care for chronic medical conditions.

"Employers would be wise to take advantage of short-term cost savings to implement long-term and sustainable solutions now," said Foreman. "Research and experience suggest that interventions such as care management, engaging employees in managing their health and promoting consumerism can have a mitigating impact on health care cost trend."





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