Hewitt: 2007 Health Care Hikes Slowing but Beat Out Inflation

October 9, 2006 (PLANSPONSOR.com) - The latest Hewitt Associates data shows that while health care coverage cost hikes projected for 2007 are lower than this year, they will still outpace inflation and be ahead of many salary increases.

A Hewitt news release said the company is predicting an average 7.7% hike for employers – just below the average 7.9% from 2006.

According to Hewitt, the average health cost per person for major companies will increase from $7,744 in 2006 to $8,340 in 2007. Employees’ share in 2007 will be $1,678, representing 20% of the overall health care premium, up from the 2006 figure of $1,576.

Average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, are also expected to increase from $1,489 in 2006 to $1,627 in 2007. Overall, workers are expected to have to shell out an average $3,305 in 2007, up 7.8% from $3,065 in 2006 – including employee contributions and out-of-pocket costs.

In fact, Hewitt predicts that increases in employee contributions will continue to offset salary gains for many workers next year. In 2007, Hewitt projects, salaried employees can expect a base salary hike of 3.7%. So an employee making $40,000 who receives the average salary increase ($1,480) will use 16% of it to pay for the increase in health care costs next year.

Geographic Differences

While Hewitt’s data shows a general moderation in costs in 2006, that wasn’t true everywhere in the country. For example, specific increases included: San Antonio (13.1%), St. Louis (13%), Hartford (12.8%), Milwaukee (11.4%), Cleveland/Akron (10%) and San Francisco (10.5%).

Drilling down by health provider type, on average, Hewitt forecasts that companies will experience 2007 cost increases of 7% for preferred provider organization (PPO) plans, 8% for health maintenance organization (HMO) plans and 9% for point-of-service (POS) and indemnity plans.

That means from 2006 to 2007, the average cost per person for major companies will increase from $7,744 to $8,340 overall; $7,547 to $8,151 for HMOs; $8,287 to $9,033 for POS plans; $7,735 to $8,227 for PPOs; and $7,816 to $8,520 for indemnity plans, Hewitt reported.

How are employers reacting to cost increases? Hewitt said it is working with many large companies to develop and implement strategies to combat costs and enable employees to make effective health care decisions, including:

  • Employers are beginning to recognize the value of integrated databases that give them insight into the health risks and chronic conditions in their covered populations, which leads to much more focused programs and solutions for the minority of their workforce that will be incurring the majority of costs.
  • Many companies are providing education, decision support tools, integrated disease management, coaching, wellness and preventive care programs to provide employees with a more holistic way to manage their health.
  • Employers are offering health plans that provide much more price transparency and condition-specific education in prescription drug plans.

Hewitt’s health care cost data is derived from the Hewitt Health Value Initiative, a cost and performance analysis database of more than 1,800 health plans throughout the US, including 400 major employers and more than 18 million health plan participants.