Benefit Costs Rise, As Does Enrollment

March 27, 2003 ( - Increasing numbers of employees are using flexible spending accounts (FSAs), switching to Preferred Provider Organizations (PPOs) and enrolling in benefit options via the Internet, despite a 16%- increase in medical coverage costs.

Compared to 2002, FSA participation in 2003 has increased by 15%, and annual amounts contributed into these accounts overall increased 7% to $1,031, from $967. For employees who have participated in FSA for one year or more, the average 2003 contribution amount grew to $1,360, according to a Fidelity Investments analysis of 100 medical plans encompassing 505,000 active employees and their dependents.

These figures are being attributed to employees reflecting more on the future costs of health care and taking more immediate and more effective actions to save for these costs, as employees are being asked to pick up a greater proportion of their health care cost. On cost sharing, employees are paying an additional $193 or 16% for medical coverage this year. Comparatively, employers are paying an additional $720 per employee for medical premiums in 2003, representing an increase of 12.8% over 2002 levels.

The average 2003 premium according to the Fidelity analysis is $6,354, of which $1,398 (22%) is paid by the employee, slightly up from 21.4% in 2002. However, despite these increases, the study found that the vast majority of employees (78%) chose to stay with the same plan for 2003 as they had for 2002.

Plan Changes

Overall, 60% of the medical plans analyzed underwent changes, the most common change being an increase in employee cost sharing, which contributed to maintaining stable health care costs. Without these changes, the average 2003 premium increase would have been $260 higher per employee. Broken down by plan, 63% of PPOs, 56% of point of service (POS) plans, and 55% of health maintenance organizations (HMOs) increased employee cost sharing.

The greatest increase across all plans was seen in prescription drug co-pays, impacting 59% of PPOs, 55% of HMOs and 47% of POS plans. Other areas with significant increases included:

  • office visit co-pays for HMOs
  • emergency room co-pays for POS plans
  • out-of-pocket maximums for PPOs.

However, the increased costs that were shared did not prevent employees from desiring PPO enrollment, with 50% of employees in plans serviced by Fidelity selecting them. The popularity of PPOs may have continued given they generally offered a broader choice of providers and experienced the smallest increase in employee contributions at 15%.

POS plans experienced the highest increase in employee contributions at 19%, but increases in enrollment as well up 6%, with more than 20% of employees choosing them. The shine on the HMO apple dimmed somewhat in 2003, with about 30% of employees selecting them this year.

Enrolling Online

The number of participants turning to the Internet during the fall 2002 annual benefits enrollment period to select their health and dental plans, and make other benefits choices grew to 71% from 62% for the previous year. This number increased significantly from 24% four years ago.

In addition to enrolling in plans, the Internet is delivering employees a series of online tools such as an out-of-pocket costs FSA calculator, information about doctors including online provider directories, and charts comparing various plans.