Once again employers are being hit with health care costs rising faster than general inflation and once again employees are being asked to absorb much of the increase.
Early indications for 2006 show that costs will rise nearly 10 percent from a year earlier, about three times greater than the increase in costs for food, clothing and other necessities.
While that's less than the hikes that businesses have seen over most of the past five years, it comes on top of a cumulative 73 percent growth in employer premiums since 2000, according to the Kaiser Family Foundation and Health Research and Educational Trust.
As a result, employees will again be asked to absorb higher health care premiums, deductibles and co-payments, among other cost-sharing moves. In the past, employers had been reluctant to pass on such increases in successive years.
Employers also are moving into so-called consumer driven health plans, which require their workers to shoulder a higher share of their health care costs.
Preliminary results from an employer survey by Mercer Human Resources Consulting show that health insurers are demanding average cost increases of 9.2 percent, although companies expect to whittle that down to 6.4 percent by the cost-sharing.
"We used to think of cost-shifting as something you could do only so often," said Blaine Bos, a benefits consultant for Mercer Human Resource Consulting. "But we're seeing a new willingness on the part of employers, born of desperation."
Mercer has not yet broken out regional results for its survey, but its L.A.-area consultants report seeing slightly higher increases in the costs for HMO plans and slightly lower ones for PPOs, according to Kirby Bosley, a partner in the firm's L.A. office.
The cost drivers are population growth, the impact of an aging Baby Boom population with its higher incidence of chronic disease, escalating drug prices and new technologies.
At this rate, the U.S. Department of Health and Human Services projects that health care spending will double to $3.6 trillion by 2014, consuming 18.7 percent of the nation's economy. Two years ago it consumed about 15.3 percent.
As a result, more employers are no longer offering full family benefits, instead only covering their direct employees.
"Businesses have tried a lot of things, cut about all they can cut and it hasn't taken hold," said Tom Morrison, senior vice president in the Los Angeles office of the business consulting firm Segal Co. "Employers are paying just for the single employee the dependents are all on you and that's a dramatic change from five years ago."
Mike Quiroga, who runs a Van Nuys roofing company, said that if he could afford it, he would cover the full cost of health insurance premiums for his entire 20-person workforce. But in an industry where he's bidding for jobs against companies that avoid paying worker's compensation premiums, let alone health insurance, he said he's scraping to pay half of his workers' premiums.
"It's actually easier for a small company like mine to get group insurance than it used to be, but the costs go up every year and if I passed that on to my customers I wouldn't get any work," Quiroga said.
The unrelenting rise in health care has caused employers to look more closely at high-deductible plans. Linked to a traditional PPO, these plans carry annual deductibles that can range from $1,000 to as much as $5,000.
High-deductible plans were originally designed to have employers fund a percentage, while employees are offered tax incentives to squirrel away part of their paychecks to cover the rest. But to cut costs, some employers are instituting them without providing any money up front, according to the Kaiser national survey.
Rising interest in these plans has raised concern among consumer groups and some public officials who say that workers are being pressured into choosing these plans with little guidance and higher out-of-pocket costs.
At a public hearing in San Francisco last week, state Insurance Commissioner John Garamendi characterized a variety of high-deductible plans as offering "skeletal benefits."
"I see the erosion of benefits shifting more and more costs onto the individual," he said. "I am afraid that this trend will result in people foregoing necessary care to the long range detriment of the entire population."
Kaiser's national survey found that 20 percent of employers who offer health insurance now provide a high-deductible health plan option, which the survey defined as plans with at least a $1,000 deductible for single coverage or $2,000 for family coverage. Large firms those with 5,000 or more workers are more likely than smaller firms to offer a high-deductible plan option, with 33 percent offering one in 2005.
"With just a couple of million people now enrolled, it's too early to know whether they'll have a meaningful effect on the health system," said Kaiser study co-auther Gary Claxton. "The jury is still out on whether employees feel that these arrangements work for them, particularly when they get sick, and on whether employers feel that they have a real impact on costs."
There is evidence that the plans remain less popular in California, especially in the Los Angeles area, which has a higher HMO penetration rate than much of the rest of the nation.
"Employers here actually have more options than employers in other states or even in Northern California, where the market is dominated by hospital and doctor chains that are larger and more powerful and make it harder to hold down costs," Bosley said.
Woodland Hills-based Health Net Inc. reports that high-deductible plans comprise only a fraction of its new business, but it could not provide exact numbers.
At Thousand Oaks-based Blue Cross of California, a unit of newly formed WellPoint Inc., about 7 percent of new business in the fewer-than-50 employee category came from high-deductible plans.
"We knew there would be a market but for a lot of people who work for a small business, many may not have the income to afford a $2,000 to $4,000 deductible," said Brian Sassi, general manager of small group plans.
However, Cypress-based PacifiCare Health Systems Inc. considers its hybrid self-directed plan a modest success. Some 5,000 businesses signed up for the plan during its first year in 2004, and about 90 percent of those were new business for the company. Also, 10 percent had never offered health care before, indicating the plans were swaying businesses to offer a health benefit for the first time.
Geared toward younger, relatively healthy employees, the typical premium for a single person under age 30 would be $110.90 a month, with a $2,000 deductible. That's about 44 percent less than a standard HMO. A family of four pays about $375 in monthly premium, as much as 50 percent less.
Cheryl Randolph, a PacifiCare spokeswoman, says her company has attempted to deflect the typical sink-or-swim perception of self-directed plans by contributing at least $1,000 toward the employee's health savings account.
"We think that's what's been driving the growth," she said, "because employers feel more comfortable about offering it to their employees."
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