Health Costs Could Double in Five Years: Hewitt

October 15, 2002 ( - Employers are looking at another double-digit increase in health-care costs next year, and barring a significant shift, could see those costs double in the next five years, according to Hewitt Associates.

Hewitt is projecting a 15.4% average increase for 2003, on top of this year’s rate hike of 13.7%.   While some companies will continue to absorb the majority of next year’s increase, many are increasing employees’ share of health-care premiums, according to Hewitt.   Next year, the Lincolnshire, Illinois-based consulting giant projects the average employee contribution will be 19% for their own coverage and 24% for dependent coverage.

“Unless there is a fundamental change in the way health care is delivered, costs will double in the

next five years,” said Jack Bruner, national health-care practice leader, Hewitt Associates. “This is a major concern for senior management as it impacts the bottom line of companies across the country.”

On average, Hewitt forecasts that companies will receive 2003 cost increases of 15% for preferred provider organizations (PPOs), point-of-service (POS) plans, and traditional indemnity plans, and a slightly higher 16% increase for health maintenance organization plans (HMOs).   Overall, Hewitt is projecting an annual per employee health care cost of $6,295 next year, compared with $5,456 in 2002.

Average Increases

Consequently, according to Hewitt’s database of more than 2,000 health plans in 139 US markets, the average cost per person for most major companies will increase from:

  • $5,157 to $5,982 for HMOs in 2003;
  • $5,545 to $6,367 for PPOs;
  • $5,639 to $6,485 for POS plans; and
  • $6,304 to $7,249 for indemnity plans

Hewitt’s database also includes 300 major employers and more than 16 million health plan participants.

City Scapes

Hewitt’s 2002 data reveals that the following cities recorded the highest rate increases:

  • 14.8% in Atlanta
  • 13.7% in Denver
  • 13.6% in Dallas/Fort Worth
  • 13.5% in Boston
  • 13.4% in Detroit
  • 13.0% in Cincinnati
  • 12.9% in the Tampa Bay area, and
  • 12.8% in San Francisco.

Employer Approaches

Responding to these dramatic cost increases, Hewitt says that employers are employing the following strategies:

  • Re-evaluating cost-sharing and contribution strategies, including higher payroll contributions, lower subsidies for dependents, spousal surcharges, heftier out-of-network penalties, and increased office, hospital inpatient and emergency room copayments.
  • Changing prescription drug plan coverage.   Many companies are implementing higher copayments, generic incentives, customized drug options, and coinsurance structures, according to Hewitt.
  • Eliminating “cost inefficient” plans. Companies are taking a closer look at the health plans they currently offer by reviewing quality and financial factors, and eliminating those that aren’t cost efficient.
  • Contracting with plans that offer specialized or disease management programs.
  • Offering new consumer-driven health plans; plans that combine a high-deductible medical plan plus a health-care reimbursement account offer new opportunities for companies to control costs and at the same time deliver a high-value benefit, according to Hewitt.

Hewitt notes that while consumer-driven plans are only being offered by a few employers at present, it expects that many more will do so in 2004 and beyond.