Home |  Elder Rights |  Health |  Pension Watch |  Rural Aging |  Armed Conflict |  Aging Watch at the UN  

Mission  |  Contact Us  |  Internships  |  Donate Now!  

back

Employers are bracing for their third year in a row of double-digit increases in health care costs, according to industry consultants and analysts. The sharply higher costs could lead many employers to offer fewer health plans, reduce what they cover or shift more costs to employees.

Companies will probably face average increases of 12 to 15 percent in 2003, compared with a projected increase of 12.7 percent this year, according to preliminary estimates from Mercer Human Resource Consulting, based on early discussions some employers are having with insurers.

But costs for some employers will rise much more sharply. The California Public Employees' Retirement System, known as Calpers, announced yesterday that premiums for the health maintenance organizations it uses would increase an average of 25 percent and premiums for other plans would rise around 20 percent.

Some other large employers are being asked to pay as much as twice what they had been paying, and increases of roughly 25 percent are common, said Kenneth Sperling, a consultant with Hewitt Associates.

Still, small companies will probably face some of the largest increases, according to health care experts. If premiums for Calpers, which provides health insurance to about 1.2 million state and local employees, dependents and retirees, are increasing by 25 percent, "we'll be seeing increases far exceeding that for small businesses," said Peter Lee, the president of the Pacific Business Group on Health, an employers' group that negotiates with health plans.

The steep increases could lead many employers to shift a greater proportion of health care costs to their workers, some of whom may not be able to afford the higher premiums and co-payments. Employees "are going to pay a lot more out of pocket, and we're going to see a huge spike in the number of uninsured," Mr. Lee said.

Many health care experts predict that employers could experience double-digit cost increases for the next several years.

"There is nothing on the horizon that would cause me to think that double-digit increases are going away," said Randall K. Abbott, a senior consultant at the consulting company Watson Wyatt, who predicts that these increases will continue three to five years.

The last time annual increases of more than 10 percent were common was in the late 1980's and early 1990's, before managed care took hold.

Cost increases slowed or reversed for a few years in the mid- 1990's. But managed care companies, especially those in California, have now wrung many easy-to-find costs out of the system, and hospitals facing rising admissions and increasing labor costs are demanding sharply higher payments from insurers. In addition, as ever more costly drugs are introduced, prescription costs are rising by double-digit percentages each year.

Many managed care companies are now choosing to risk losing a contract rather than holding premiums relatively steady as their own costs escalate. "They're not willing to destroy their margins to hold onto their unprofitable business," said Andrea Urban, a health care analyst for Merrill Lynch.

Officials at Calpers, which was particularly successful in using its influence to hold down health-care costs for much of the last decade, see fewer opportunities now to keep costs down as the population ages and makes greater use of new drugs and technology. The organization is choosing not to reduce the benefits it offers or to increase the proportion an employee pays for care, but people covered through Calpers will still face a substantial increase in their own costs.

Some consultants say California, which was early and enthusiastic in its embrace of managed care, is facing unusual pressures on its health care system today. "California is a very mature, very competitive H.M.O. marketplace," where cost pressures are particularly acute, Mr. Abbott said.

Calpers officials say, however, that their experience reflects what is happening around the country as employers struggle with double-digit health care cost increases at a time when the overall economy has been weak.

"This is a national problem," said William Crist, the president of the Calpers board of administration.

Calpers plans to work with other large employers to begin discussions with policy makers in Washington about what, if any, steps the government should take to address these issues.

"I don't think policy makers have woken up to how bad things are," Mr. Lee said.

As part of rethinking its health care strategy, Calpers has also decided to drop its PacifiCare and HealthNet plans and work more closely with existing plans through Blue Shield, Kaiser Permanente and some regional insurers.

Calpers is also considering other alternatives, including a self-financed health insurance plan managed by an outside company.

Other employers are expected to follow the example of Calpers and reduce the number of plans they offer, as long as they do not force too many of their employees to find new doctors, several consultants said. The employers' decisions to drop plans could, in turn, force some insurers out of business and lead others to combine.

"The industry is going through a consolidation phase, and this will accelerate it further," Mr. Sperling said.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.