Hewitt Projects 6.4% Health Care Cost Increase for 2009

September 22, 2008 (PLANSPONSOR.com) - After enjoying a period of steady decline in health care cost trends, U.S. companies have seen average rate increases settle in around 6% to 7%, according to Hewitt Associates.

In 2008, average health care costs increased 6%, up from 5.3% in 2007, and Hewitt is projecting a 6.4% average increase for employers in 2009, according to a press release.

Hewitt says the average health cost per person for major companies will increase from $8,331 in 2008 to $8,863 in 2009. The amount employees will be asked to contribute toward this cost is $1,946, representing approximately 22% of the overall health care premium and up from $1,806 in 2008.

Average employee out-of-pocket costs, such as copayments, coinsurance, and deductibles, are also expected to increase from $1,707 in 2008 to $1,880 in 2009. Overall, employees’ total health care costs – including employee contribution and out-of-pocket costs – are projected to be $3,826 in 2009, up 8.9% from $3,513 in 2008, the announcement said.

In 2008, Hewitt saw average cost increases of 10.1% for traditional indemnity plans, 8% for health maintenance organizations (HMOs), 3.9% for point-of-service (POS) plans, and 4.8% for preferred provider organizations (PPOs). For 2009, Hewitt forecasts that companies will see cost increases of 6.5% for traditional indemnity plans, 8% for HMOs, 5.5% for POS plans, and 5.5% for PPOs.

A few major U.S. markets experienced rate increases significantly higher than the average, including Cincinnati, (11.1%), Columbus, (9.9%), Orlando, (9.2%) and Minneapolis (9.1%). Meanwhile, Austin, (1%), Houston, (2.6%), and (3.7%) experienced lower-than-average rate increases in 2008.

To keep rate increases of health care costs in the 6% to 7% range, employers are utilizing a variety of strategies, Hewitt found.

An increasing number of companies are beginning to look at cost shifting a portion of their dependent subsidy dollars to employees, either through increased payroll contributions for dependent health care coverage or by applying surcharges to encourage dependent spouses to take coverage under their own employer's plans. More than 40% of Hewitt's clients have conducted a dependent audit in the past five years, and another 10% plan to conduct one in 2008.

Companies are also consolidating plan participants under self-insured arrangements with fewer health plans, enabling them to streamline administration, offer more consistent designs across their markets, and reduce costs. Hewitt data shows employers continue to negotiate aggressively with their health plans to try to reduce initial premium increases.

In addition, companies are continuing to invest significant resources in programs aimed at improving health and productivity of employees and their families. Flu shots, smoking cessation, physical fitness, and weight management programs, as well as health risk questionnaires and online tools, are currently the most popular programs offered by employers. Onsite health services, biometric screening and health/clinical advocacy programs are also gaining increased attention.

To encourage participation in these programs, Hewitt's research shows just under two-thirds (63%) of companies provide or plan to provide employees with financial incentives, most likely in the form of credits or lower premiums.

Almost 17% of companies in 2008 charged or planned to charge higher contributions for employees engaging in certain health behaviors, such as smoking. Another 40% said they were considering this option for a future date. In addition, 5% of companies in 2008 planned to require employees to take health assessments and/or participate in health improvement programs to receive health benefits, and more than half of companies said they are considering doing so at a future date.

Employers are also digging deeper into chronic health conditions. According to Hewitt research, most companies (93%) have already identified the chronic health conditions that are most pressing for their employee populations and plan to target these conditions over the next three to five years. Half currently offer employees enhanced medical and/or prescription drug benefits for at least one or more chronic conditions, and almost a quarter (23%) provide incentives for at-risk individuals who participate in condition management programs and comply with recommended therapies.

Companies also continue to show an interest in value-based design (VBD) programs, which reduce or remove financial barriers for health care services proven to be effective to treat certain conditions, while potentially increasing cost-sharing for those services that have not been proven to be as effective. Hewitt's research shows that while just a small percentage of companies use value-based design programs today (12%), more than half (52%) said they were considering them in the next three to five years.

Of those that currently offer value-based plan designs, 16% plan to expand the program beyond prescription drugs to include preventive care services or medical care services for certain chronic illnesses in 2009, and another two-thirds plan to do so in the next three to five years.

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 U.S., including 400 major employers and more than 13 million health plan participants.