Health Costs Dwarf Inflation For Small, Mid Firms

August 23, 2001( Health plan costs at small and mid-sized companies rose by 9.2% last year, outpacing the inflation rate for the third consecutive year, a new report reveals.

According to research by Marsh Inc, this follows an increase of 8.5% in 1999 and one of 5.1% in 1998 for firms employing between 10 and 999 workers.

Bigger Bills for Pills

Increases in prescription drug costs were found to be the key driver of health benefit costs, mid-sized firms receiving no respite from price hikes as drug costs increased by 14.7% in 2000 after a 10.9% hike the previous year.

Marsh, a company that provides risk and insurance services, predicts that these increases will lead to a movement away from simple co payment plans, where employees pay a flat fee for drugs, to coinsurance, where plan participants pay a fixed percentage of the costs.

Almost half the small and mid-sized employers studied in the report plan to increase employee contributions for the new plan year in anticipation of further cost pressures in this area. In fact, two-thirds expected their health benefits costs to go up by an average of 12%.

Plan Type

Marsh also found that 38% of the sample offered health maintenance organizations (HMOs) in 2000, up from 33% from 1999. However, growth here was limited to businesses employing 49 or fewer workers.

Preferred provider organizations (PPOs) remained the dominant plan type among small and mid-sized employers, with 47% offering PPOs in 2000, compared with 50% in 1999.

Point-of service plans were offered by 19% of small and mid-sized companies in 2000, down from 21% in 1999, while traditional indemnity plans were offered by 14%, compared with 15% the prior year.


According to the study, in 2000,

  • half of all health plan participants were covered by PPOs,
  • a little over a quarter were covered by HMOs,
  • some 14% were in POS plans,
  • while 9% were in traditional indemnity plans

In terms of costs, in 2000

  • the average cost of HMO coverage increased by 9.6% to $3,349 per employee,
  • PPOs rose by 9.9%, reaching $3,970 per employee,
  • POS plans cost $4,009 annually per employee, an increase of11.1%.
  • while the cost of traditional indemnity plan coverage increased by 19.1%, reaching $4,569 per person

The report based on the responses of 1,669 employers with 10 to 999 employees who participated in the National Survey of Employer-sponsored Health Plans.