Survey: Health Care Costs Expected to Climb at Slower Pace in 2007

September 26, 2006 ( - Health care costs are expected to escalate by 6% in 2007, with the cost per employee rising an average $518 to a total of $8,748, according to a recent survey.

Even though increases have slowed since last year’s prediction, the survey by professional services firm Towers Perrin found that over the last five years, health care costs have climbed 60%. In 2002, the average total cost per employee stood at $5,386.

However, the survey found that the employers continue to take up most of the burden. Of the $518 increase, employers will pay $374 per employee, and employees will pay an average of $144.

The Towers survey addresses the heath care costs in comparison to the Consumer Price Index (CPI) – particularly in respect to affordability for employers and employees. According to the survey, the 6% predicted increase in 2007 is two-thirds higher than the CPI, which the survey authors warn could put pressure on businesses’ ability to provide adequate coverage and employees’ ability to absorb more of the cost responsibility.

“The protracted rise in health care costs – whether by single or double digits – is eating into company profit margins and employee wage increases, and taking significant dollars away from other benefit and reward programs,” said Ron Fontanetta, a principal in the Towers health and welfare practice, in a press release. “In fact, because most employers can’t pass costs to customers in the form of higher prices, we estimate that, in every year for the last five years, about 1% of wage increases has gone to health care costs.”

For 2007, the average cost of medical coverage for active-employee-only coverage is expected to be $366 per month, or $4,392 annually. For employee-plus-one-dependent, coverage costs are predicted to be $749 per month, or $ 8,988 annually, and for family coverage, $1,079 per month, or $12,948 annually.

Even though the average increase will be 6%, that figure varies among employers, with one in five survey respondents experiencing increases of 11% or more.

Low-cost companies – those with health care costs at about $7,224 per employee – are not simply shifting the burden to employees to try and keep costs down, with employees at low-cost companies tending to pay less than employees at high-cost companies. However, 63% of the low-cost companies have implemented some form of consumer-driven health plan (CDHP) or plan to do so in 2007, whereas 38% of high-cost companies — those with health care costs at about $10,428 per employee — fall in that category.

The survey includes information on health benefits plans by 170 of the nation’s largest employers.