Health-Plan Costs Rise 14.7% In Biggest Increase Since 1990

Tue, 24 Dec 2002 23:49:12 -0800 (PST)

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-----Original Message-----

From: Paul Windham

To: Kazzi, A. Antoine

Sent: 12/9/2002 2:08 PM

Health-Plan Costs Rise 14.7% In Biggest Increase Since 1990

By BARBARA MARTINEZ 

Staff Reporter of THE WALL STREET JOURNAL

U.S. companies saw an average increase in their workers' health-benefit costs this year of almost 15% -- significantly higher than they expected and the largest rise since 1990, according to a survey by Mercer Human Resource Consulting that will be released Monday.

The jump in health-care costs was seven times the rate of inflation, another illustration of how a powerful resurgence in medical costs is fueling a cost crisis for employers, most of whom pay the bulk of their employees' health-care costs.

HEALTH INDUSTRY EDITION

The annual Mercer study is one of the most expansive of its kind, surveying 2,900 employers -- public and private -- with an error range of plus or minus 3%.

The survey highlights an unrelenting climb in health-care costs during the past several years, resulting from a confluence of events. As a backlash against restrictive managed-care plans has won the American patient easier access to physicians, the average employee is costing his employer $5,646 this year in health costs, up 56% from $3,594 only five years ago. In addition to consumers' freer access to doctors and specialists, technology has produced new and more expensive medicines, diagnostic equipment and various other breakthroughs to treat people for diseases and conditions that once were untreatable.

All of this has had an even greater effect on small and medium-size businesses. According to Mercer, those companies saw their health-care costs increase about 18% in 2002. The crushing advance of health-care costs has forced some tiny employers to drop coverage for their workers altogether. The percentage of businesses with 10 to 49 employees offering a health plan fell to 62% from 66% in just one year, the survey said.

The quickly escalating costs appear to have outstripped the forecasts of even pessimistic managers. When surveyed at the end of last year, companies predicted an average increase for 2002 of almost 13%. According to Mercer, the companies' forecasts have always been accurate within one percentage point. This year, for the first time, employers missed it by two percentage points. "I think the reason they got it wrong is because costs are escalating so quickly there's a feeling of disbelief that it could go that high," said Blaine Bos, a consultant in Mercer's Minneapolis office and one of the study's authors.

For 2003, employers expect their health-care costs to increase 14%, and nearly half of large employers say their workers will pay a larger share of health-plan costs in 2003 through higher premiums. Raising premiums is a more drastic move than simply increasing co-pays and deductibles because of premiums' immediate effect on paychecks. An increase in a co-payment actually will affect only those employees who go to the doctor often; at companies that increase premiums, every employee's paycheck is likely to be hit beginning Jan. 1. However, despite employers making similar threats in last year's survey about raising premiums, Mercer found that the average employee contribution as a percent of premium didn't rise in 2002. Mr. Bos suspects that employers weren't yet pushed far enough to risk angering employees with premium increases.

Instead, the survey showed that employers stuck mostly to just raising co-payments and adding deductibles. The median co-payment for a health-maintenance organization, or HMO, doctor visit rose to $15 from $10 in one year. Plus, many employers had their HMOs charge deductibles at hospitals for the first time. Only a third required the hospital deductibles two years ago; now nearly half do.

Finally, a significant number of employers dropped the number of plans they offered their employees, reducing their workers' choices of plans.

Meanwhile, prescription-drug costs continued to climb. Those costs rose 16.9% in 2002 for employers, following an increase of 17.8% in 2001 and 18.3% in 2000. But Mr. Bos said the slowdown isn't necessarily a result of cost-containment in prescription-drug spending overall. Indeed, the actual cost increase for prescription drugs was near 20%, Mr. Bos said. The slowdown for employers represents the fact that many companies have installed pricing tiers on prescription drugs, forcing the patient to pay a higher percentage of expensive medications through higher co-payments of, say, $30 or more.

Write to Barbara Martinez at barbara.martinez@wsj.com <mailto:barbara.martinez@wsj.com> 

Subscriber <http://online.wsj.com/public/subscriber_agreement> Agreement 

Brian Potts
Managing Editor, CAL/AAEM News Service
MS-IV, UC Irvine
MD/MBA candidate
pottsbri@yahoo.com

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<P>-----Original Message-----</P>
<P>From: Paul Windham</P>
<P>To: Kazzi, A. Antoine</P>
<P>Sent: 12/9/2002 2:08 PM</FONT><FONT size=2></P>
<P></P>
<P></P>
<P>Health-Plan Costs Rise 14.7% In Biggest Increase Since 1990</P>
<P>By BARBARA MARTINEZ </P>
<P>Staff Reporter of THE WALL STREET JOURNAL</P>
<P>U.S. companies saw an average increase in their workers' health-benefit costs this year of almost 15% -- significantly higher than they expected and the largest rise since 1990, according to a survey by Mercer Human Resource Consulting that will be released Monday.</P>
<P>The jump in health-care costs was seven times the rate of inflation, another illustration of how a powerful resurgence in medical costs is fueling a cost crisis for employers, most of whom pay the bulk of their employees' health-care costs.</P>
<P>HEALTH INDUSTRY EDITION</P>
<P></FONT>
<P><FONT size=2></FONT><FONT size=2></P>
<P></P>
<P></P>
<P></P>The annual Mercer study is one of the most expansive of its kind, surveying 2,900 employers -- public and private -- with an error range of plus or minus 3%.</P>
<P>The survey highlights an unrelenting climb in health-care costs during the past several years, resulting from a confluence of events. As a backlash against restrictive managed-care plans has won the American patient easier access to physicians, the average employee is costing his employer $5,646 this year in health costs, up 56% from $3,594 only five years ago. In addition to consumers' freer access to doctors and specialists, technology has produced new and more expensive medicines, diagnostic equipment and various other breakthroughs to treat people for diseases and conditions that once were untreatable.</P>
<P>All of this has had an even greater effect on small and medium-size businesses. According to Mercer, those companies saw their health-care costs increase about 18% in 2002. The crushing advance of health-care costs has forced some tiny employers to drop coverage for their workers altogether. The percentage of businesses with 10 to 49 employees offering a health plan fell to 62% from 66% in just one year, the survey said.</P>
<P>The quickly escalating costs appear to have outstripped the forecasts of even pessimistic managers. When surveyed at the end of last year, companies predicted an average increase for 2002 of almost 13%. According to Mercer, the companies' forecasts have always been accurate within one percentage point. This year, for the first time, employers missed it by two percentage points. "I think the reason they got it wrong is because costs are escalating so quickly there's a feeling of disbelief that it could go that high," said Blaine Bos, a consultant in Mercer's Minneapolis office and one of the study's authors.</P>
<P>For 2003, employers expect their health-care costs to increase 14%, and nearly half of large employers say their workers will pay a larger share of health-plan costs in 2003 through higher premiums. Raising premiums is a more drastic move than simply increasing co-pays and deductibles because of premiums' immediate effect on paychecks. An increase in a co-payment actually will affect only those employees who go to the doctor often; at companies that increase premiums, every employee's paycheck is likely to be hit beginning Jan. 1. However, despite employers making similar threats in last year's survey about raising premiums, Mercer found that the average employee contribution as a percent of premium didn't rise in 2002. Mr. Bos suspects that employers weren't yet pushed far enough to risk angering employees with premium increases.</P>
<P>Instead, the survey showed that employers stuck mostly to just raising co-payments and adding deductibles. The median co-payment for a health-maintenance organization, or HMO, doctor visit rose to $15 from $10 in one year. Plus, many employers had their HMOs charge deductibles at hospitals for the first time. Only a third required the hospital deductibles two years ago; now nearly half do.</P>
<P>Finally, a significant number of employers dropped the number of plans they offered their employees, reducing their workers' choices of plans.</P>
<P>Meanwhile, prescription-drug costs continued to climb. Those costs rose 16.9% in 2002 for employers, following an increase of 17.8% in 2001 and 18.3% in 2000. But Mr. Bos said the slowdown isn't necessarily a result of cost-containment in prescription-drug spending overall. Indeed, the actual cost increase for prescription drugs was near 20%, Mr. Bos said. The slowdown for employers represents the fact that many companies have installed pricing tiers on prescription drugs, forcing the patient to pay a higher percentage of expensive medications through higher co-payments of, say, $30 or more.</P>
<P>Write to Barbara Martinez at barbara.martinez@wsj.com &lt;</FONT><A href="mailto:barbara.martinez@wsj.com"><U><FONT color=#0000ff size=2>mailto:barbara.martinez@wsj.com</U></FONT></A><FONT size=2>&gt; </P></FONT><FONT size=2>
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<P><FONT size=2></P>Subscriber &lt;</FONT><A href="http://online.wsj.com/public/subscriber_agreement"><U><FONT color=#0000ff size=2>http://online.wsj.com/public/subscriber_agreement</U></FONT></A><FONT size=2>&gt; Agreement </P>
<P></FONT><FONT size=2>Copyright © 2002 Dow Jones &amp; Company, Inc. All Rights Reserved </FONT><FONT size=2></P></FONT><BR><BR>Brian Potts<br>Managing Editor, CAL/AAEM News Service<br>MS-IV, UC Irvine<br>MD/MBA candidate<br>pottsbri@yahoo.com<p><br><hr size=1>Do you Yahoo!?<br>
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