Health-Care Premiums Expected
To Jump 8.7% in 2008, Study Says

By VICTORIA KNIGHT

Wall Street Journal
September 24, 2007 6:21 p.m.

 

NEW YORK -- Health-care premiums of employers and their workers rose by more than twice the rate of inflation in 2007, and cost increases are expected to accelerate next year, with employees picking up a larger slice of the bill, according to a study released Monday by Hewitt Associates, a global human resources company.

The cost of providing health-care benefits to employees rose by 5.3% on average in 2007, down from 7.9% in 2006 and the smallest increase in nine years. However, Hewitt predicts that health-care costs will jump by 8.7% on average in 2008, bringing the average annual premium cost per employee to $8,676 from $7,982 now.

Bob Tate, the chief actuary in Hewitt's Health Management Consulting business, said that in recent years rate increases have slowed as employers used funds carried over from previous years' budgets as a cushion. However, "that surplus is now gone," he said.

The Hewitt study comes in the wake of recent surveys by the Kaiser Family Foundation and the Health Research and Education Trust, and a survey by employee-benefits firm Mercer Health & Benefits LLC, predicting an uptick in the rate of premium growth.

Cost-Sharing

Employees are also likely to shoulder slightly more of the financial burden for their health-care next year. Hewitt predicts that employees on average will contribute $1,859, or 21.4%, toward premiums, compared with $1,690, or a contribution of 21.2%, this year. In 2003, employees paid 17% of the premium.

In addition, employees are expected to pay higher out-of-pocket expenses, through higher co-pays, annual deductibles and co-insurance. Overall, employees are likely to pay $3,597 -- or 10.1% more -- in 2008 for health care than in 2007. And employers are likely to continue slowly shifting more costs to employees in the coming years, according to Tate.

Jim Winkler, practice leader of Hewitt's Health Management Consulting business, said it was encouraging to see rate increases soften in 2007 because it means that companies are making a concerted effort to manage health-care costs. However, one of the primary ways employers have been accomplishing this, he said, is by passing a significant percentage of costs to employees, and Hewitt is seeing evidence that this strategy is prompting an increasing number of employees to forego necessary preventative care and/or not comply with prescribed medications.

"While some cost-shifting is appropriate, it's critical that companies design their health-care programs in a way that encourages employees to use them -- and use them wisely," Mr. Winkler said. "Otherwise, they are essentially trading preventative care now for "rescue care" later, which will lead to unhealthy employee populations, a decrease in employee productivity and ultimately -- higher health-care costs."

High-Deductible Health Plans

Hewitt's research also found that more than 20% of employers offer, or plan to offer, a high-deductible health plan with a tax-advantaged health savings account, or HSA, by the end of this year, and almost half are considering offering one at a future date. While just 3% of employees elected these plans last year, most companies anticipate that enrollment will grow to 20% in five years, according to Hewitt.

Hewitt data included than 1,800 health plans throughout the U.S., including 400 large employers, and more than 18 million plan participants in its survey. The results were based on responses from employers that pay premiums to insurance companies for coverage and employers who are self-insured.

Write to Victoria Knight at victoria.knight@dowjones.com