Mercer: Health-Care Cost Up 10.1% in 2003

December 8, 2003 ( - Even though the annual change in average total health benefit cost was up 10.1% in 2003, it was also the first year cost increases were not higher that the previous year since 1997.

With the increase, the total health benefit cost per employee for active employees came in at $6,215 in 2003, up from 2002’s $5,646. Even though 2003’s increase was still in the double-digits, it was a welcome relief after a 14.7% hike in the previous year, according to data supplied by Mercer Human Resource Consulting.

This year’s rate hikes were held down after employers took serious steps to cut costs, such as changing plan designs, reducing covered services, and dropping costly plans. Going forward though, the average increase expected in 2004 is 13%.

Even though increases in 2003 were kept in check, Mercer consultant Blaine Bos, one of the study’s authors said, “In 2003, employers took back lost ground.” In particular, Health Maintenance Organization (HMO) average employee-only contribution rose to 35% of premium from 31% of premium, while the family contribution rose to 57% from 50%. This trend was also carried out in Preferred Provider Organizations (PPO), where the family contribution jumped to 58% of premium from 53%. However, employee-only coverage remained the same at 27% of premium in 2003.

By employer size, those employers with fewer than 500 employees noted an average monthly contribution for a family with PPO coverage of $389 and $359 for HMO coverage. Those plans that cover companies with more than 500 employees said the average family contribution for PPO coverage was $224 per month.

Plan Enrollment

Cost increases or not, the popularity of PPOs only improved in 2003. While the other three plan options – HMOs, Point-of-Service and Indemnity – all either lost ground or were stagnant in total enrollment, PPOs now account of 54% of the national employee enrollment, up from 50% in 2002. Among the other plans in 2003, HMOs made up 27%, down from 29%, POS plans remained even at 14% and Indemnity plans now accounted for 5%, down from 2002’s 7%.

As costs continue to increase, on the wane is the number of employers with 500 or more employees insuring their retirees. The percentage of companies offering coverage to pre-Medicare-eligible retirees slid to 28% from 29% in 2002 off from 46% in 1993. Similarly, the percentage of companies offering coverage to Medicare-eligible retirees is now down to 21% from last year’s 23% and 1993’s 40%.

To combat rising health-care costs, employers are adopting cost management initiatives. Specifically, Mercer noted an increase in the number of companies offering disease management programs – outreach to individuals with diagnosed chronic diseases. As evidence, Mercer notes Asthma programs are now offered by 43% of employers with 500 or more employees, up from 34% last year. Employers also added health risk appraisals, nurse advice lines, and health information Web sites. Also on the rise among employers is the use of “health care consumerism,” strategies now utilized by 39% of the survey’s respondents.

Mercer’s survey of nearly 3,000 employers and weighting methodologies allow the results to be projected to all US employers with at least 10 employees. Therefore, the survey results represent about 600,000 employers and more than 90 million full- and part-time employees. The National Survey of Employer-Sponsored Health Plans 20003 report will be available in early March for $500 at .