A number of factors is driving the projected increase in health care costs for 2012. Employers continue to experience an increase in the quantity and cost of catastrophic claims, as slower levels of hiring have resulted in slightly older workforces who are more prone to costly medical conditions. In addition, generally poorer health – leading to increases in costly conditions such as diabetes and heart disease – make it difficult for employers to deploy tactics that drive short-term cost savings. As a result, employers continue to ask employees to absorb increases through a combination of out-of-pocket cost and increased payroll contributions, Aon concluded.
“In what continues to be an uncertain economic environment, organizations cannot afford health care costs growing at 7% each year,” said John Zern, Executive Vice President and the Americas Practice Director for Health & Benefits with Aon Hewitt. “While health care reform continues to represent potential systemic change in a few years, employers will continue to shift cost to employees in order to keep company costs to a manageable level.”On average, Aon Hewitt forecasts that companies will realize 2012 cost increases of 7.8% for health maintenance organization plans (HMOs), 6.6% for preferred provider organizations (PPOs) and 6.6% for point-of-service (POS). That means from 2011 to 2012, the average cost per person for major companies is estimated to increase from $10,344 to $11,151 for HMOs, $9,417 to $10,038 for PPOs and $10,375 to $11,059 for POS plans.
Costs are plan costs (premium or budget rate) on a per employee basis. They include employee contributions, but not their out-of-pocket costs (i.e., co-payments, coinsurance).
"HMO trend continues to be a cause of concern for employers," said Tim Nimmer, Aon Hewitt's Chief Health Care Actuary. "While HMOs have higher premium costs, they offer lower out-of-pocket costs that employees value. If HMO trend continues to outpace PPO and POS trends, employers will be forced to discontinue current HMO contribution levels or eliminate HMO offerings altogether."
In 2011, major U.S. markets that experienced rate increases higher than the national average included Orlando (11.1%), New York City (9.5%), Orange County (9.1%), Houston (8.9%), Boston (8.6%) and Los Angeles (8.5%). Conversely, Detroit (5.8%), Atlanta (6.6%), Minneapolis/St. Paul (7.2%) and San Francisco/Oakland/San Jose (7.2 percent) experienced lower-than-average rate increases in 2011.
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