Hewitt Predicts Lower Health Cost Increases in 2005

October 12, 2004 (PLANSPONSOR.com) - Health-care costs are still increasing at a rapid pace, but projections for 2005 show signs of a slowdown in what has seemed to be perpetual rate hikes.

In a news release, Hewitt Associates projected that for 2005, the average increase in health care costs for employers will be 11.3%, down from 12.3% in the current year.

Not surprisingly, increases in health care costs vary by plan type. On average, 2005 cost increases will be 11.5% for health maintenance organizations (HMOs), 10.5% for traditional indemnity plans, 11% for preferred provider organizations (PPOs), and 11.5% for point-of-service (POS) plans. In absolute monetary terms, the average cost per person for major companies will increase from$6,519 to $7,269 for HMOs; $6,823 to $7,573 for PPOs; $7,192 to $8,019 for POS plans; and $6,793 to $7,506 for indemnity plans, according to Hewitt.

Along with plan type, location will also be a major factor in costs increase for 2005. Hewitt predicts that every major US city will witness double-digit cost increases. The five cities with the highest expected increases are Memphis (22.6%), Pittsburgh (19.1%), Cincinnati (18.5%), and Charlotte and Raleigh (17.3%).

Hewitt expects companies to deal with the problem in ever-increasing health-care costs by passing on more of the burden to employees. Employees should expect to pay, on average, 15% more in 2005 for health care across all plan types.

Hewitt credits this increase in health care costs to consolidation – which produces less choice and higher costs, the consulting firm asserts – prescription drug price increases, research costs, liability concerns, and an aging population.

Hewitt predicts that on top of shifting costs to the employee, employers will look at other alternatives to picking up the lion’s share of the cost increase. They will most likely re-evaluate cost-sharing and contribution strategies, increasingly utilize consumer driven health plans such as flexible savings accounts and health saving accounts, and contract with plans that specialize in disease management and wellness programs. They will also most likely require better data and fuller price transparency, change prescription drug coverage to lower costs, link active and retiree health care programs, and focus more energy on participant education.