Towers: Health Care Costs Up 12% in 2004

September 30, 2003 ( - Next year's 12% increase will mark the fifth consecutive year employees will be hit with double-digit advances in their health care costs.

The 12%-increase in 2004 pushes the average reported cost of medical coverage for all types of health plans combined to $314 per month ($3,768 annually) for employee-only coverage; $627 per month ($7,524 annually) for employee-plus-one dependent and $888 per month ($10,656 annually) for family coverage. Especially pronounced will be hikes in retiree employer-sponsored medical plans – up 13% compared to 11% for active employees – a trend that has persisted since 1999, according to preliminary results of Tower Perrin’s 2004 Health-care Cost Survey.

The projected increase though is not as high as 2003’s 16% (15% for actives versus 19% for retirees) but this may be of little consolation to employees who continue to see sustained growth for an unprecedented amount of time. “I cannot recall a longer sustained period of double-digit increases in the health care industry,” said Jim Foreman, managing director of Health and Welfare for Towers Perrin, in a statement. “Companies are paying twice as much in health-care costs today as they paid six years ago.”

Employees, though, can take heart knowing that it is the employers who will be expected to pay the “lion’s share of the costs.” Overall, e mployees will contribute an average of $59 a month in 2004 for employee-only coverage and contributions for family coverage will average $196 a month in 2004.Thus, employees will pay only 19% of the total costs for employee-only coverage and 22% for family coverage, nearly the same percentages they paid in 2003.

Comparatively, retirees will see a much larger share of the total cost of health care, coughing up nearly half of the total cost of their coverage.Retirees 65 and older will pay an average of $111 a month for retiree-only coverage and contributions for family coverage will average $232 monthly.

Cost Comparison

Towers points to many of the same factors in the rising costs as 2003. “The causes are pretty much the same as last year,” said Rich Ostuw, a Towers Perrin Principal and senior health care consultant. “It’s the solutions that require a fresh approach.” Among those causes:

  • higher HMO rates
  • high core medical and pharmacy fees and usage
  • sharp increases in the price of hospital services
  • greater demand for more expensive diagnostic tests such as MRIs and CT scans
  • higher utilization of certain physician specialists.

To combat this, employers are taking steps to reduce the escalating costs. Some actions include:

  • changing plan designs
  • stepping up employee communications
  • targeting clinical programs
  • implementing care management programs
  • reviewing and updating vendor management selections
  • adopting consumerism strategies encouraging employees to be more effective purchasers of health-care.

“However, many employers are taking baby steps when bold steps are needed,” added Foreman. “If companies are serious about lowering their health-care cost increases into the single digits, they must review their plans from top to bottom and commit themselves to take the necessary steps to align their health-care strategy with their overall business strategy. Employers must also find a way to enlist their employees as partners in this effort.”

The survey was conducted during August and September 2003. The full survey report is expected to be available in December 2003. More information and a copy of the preliminary results are available at .