Midsize Firms Bearing Brunt of Healthcare Hikes

July 2, 2002 (PLANSPONSOR.com) - Companies with 200 to 999 workers have been hit the hardest with health-care cost hikes - in part because executives opted for a preferred-provider organization (PPO) plan over a health maintenance organization (HMO), a new study found.

According to a news report in BestWeek, the midsize firms saw a 17% health care increase – higher than small firms at 10% and jumbo employers at 12%, a Mercer Human Resources Consulting study said.

When the study compared midsize employers with larger ones, it found that about 36% of the Fortune 500 companies enroll their employees in HMO plans, but only 25% of midsize employers offer them.

Although HMO costs rose almost as fast as PPO costs, HMOs are still less expensive. They cost about $3,800 per employee, while PPOs cost about $4,600 per employee, the study said.

In addition, midsize employers in general don’t offer disease-management programs, which could lower use and cost.

Trends in Deductibles

Among small employers with PPO plans, the average deductible increased from $250 to $500 in 2001 for employees using the preferred-provider network.

The number of small companies that require a $1,000 or more deductible has increased to one in five, while fewer than one in 10 midsize employers offer the higher deductible.

Nearly all midsize and larger employers offer health insurance, and they offer fuller benefits than smaller employers. The study found that 92% of the midsize employers offer dental benefits, compared with 63% of small employers.

Small employers, on the other hand, feel less pressure to offer benefits, so they have either shifted costs to employees or stopped coverage, the study said.

When asked what the companies were going to do when health costs increase in the future, more than one-third of midsize employers said they would raise employee premiums, while roughly a fourth said they would raise deductibles, copayments or out-of-pocket maximums.

Other Findings

The study also found:

  • HMO enrollment is highest in the West, with 44% covered employees, and offers the lowest cost, at $3,300 per employee
  • Among companies with fewer than 1,000 employees, the overall average cost per active employee in 2001 was $5,400 in the Northeast, $5,100 in the Midwest, $4,400 in the South and $4,000 in the West
  • 17% of employers with fewer than 1,000 employees said they are somewhat or very likely to adopt a new health insurance product, such as using Internet technology, unique funding arrangements or flexible-benefits design, such as consumer-directed health plans
  • 22% of small and midsize companies offer flexible spending accounts for health-care expenses.