By Joanne Wojcik
Oct. 3, 2011
Increases in group health insurance plan costs spiked this year and are expected to continue climbing in 2012, according to two new surveys.
The Kaiser Family Foundation and the Health Research & Educational Trust survey of 2,088 employers nationwide, released last week, found that premiums for family coverage rose an average of 9 percent to $15,703 in 2011 compared with an average increase of just 3 percent in 2010.
Meanwhile, a report released today by Lincolnshire, Illinois-based benefit consultant Aon Hewitt Inc. of 371 large, mostly self-funded employers, found that health benefit plan costs climbed 7.5percent to an average of $9,792 per employee in 2011 and are projected to grow another 7percent to an average of $10,475 per employee in 2012.
The key difference between the KFF/HRET and Aon Hewitt surveys is that the KFF survey included more fully insured plans, 40 percent, and more small and midsize firms, 85 percent, with fewer than 5,000 workers. More than 75 percent of the data from the Aon Hewitt survey was collected from large, self-funded employers with employee populations of more than 10,000.
Still, benefits experts note that both surveys point out an alarming trend: The cost of health care is surging for all employers, regardless of size or whether they buy insurance or self-fund their health benefit programs.
Perhaps more disconcerting is the fact that other surveys, including one released last week by Consumer Reports, show that health care utilization is down as fewer people seek care in a down economy, these experts say.
Almost half of the 1,226 consumers responding to the Consumer Reports survey didn’t fill prescriptions, took less medicine than prescribed or failed to undergo a medical test advised by their physician. That is 9 percentage points higher than the 39 percent that reported scrimping on medical care in the 2010 annual survey.
“It means prices for health care are up,” said Helen Darling, president of the National Business Group on Health, a Washington-based consortium of the nation’s largest employers. “Doctors and hospitals have been raising their prices steadily.”
“Prescription drug trends have moderated over recent years because of the shift to generics and some blockbuster drugs coming off patent,” said Gary Stanford, a Dallas-based principal and actuary at Aon Hewitt, and one of the survey’s authors. “Those things are helping control that piece of the cost equation. But on the hospital and physician side, we’re still seeing significant price increases.”
Stanford attributed hospital and doctor price increases to impending reductions in Medicare and Medicaid reimbursements, an effort to balance the federal budget. “We see some evidence of price increases in anticipation of what may be coming down the road,” he said.
Darling said the findings of the surveys are in line with a survey NBGH conducted of its members last summer.
“If we’re saying just medical claims alone, with plan design changes, it’s increasing by 7.2 percent in 2012 (for NBGH members, which are mostly self-insured). If I’m an insurance company and have to follow state mandates, pay premium taxes and build in a profit margin, it doesn’t surprise me that it takes you to 9 percent,” she said, referring to the KFF/HRET average increase.
Darling reasoned that insurers, in calculating premiums for their fully insured business and premium equivalents for self-funded employers, also expect utilization to return to normal levels and possibly increase next year.
“They believe that even though utilization has been down, the usual high use is going to return,” she said. “They’re estimating premiums for the whole of 2012, and they will always be conservative in their projections.”
But Cindy Nayer, president of the St. Louis-based Center for Health Value Innovation, said she thinks both estimates are low and that health care costs will climb even higher in 2012 because so many people, especially those that have been affected by the recession, have been putting off treatment of chronic conditions.
“People haven’t been taking care of themselves since 2008 because of the economy,” she said, and “because people are not getting appropriate care … their conditions get worse, which means the total cost of care when they do seek it will be higher.”
Moreover, “we’re covering family members up to age 26,” she said. “Kids aren’t as healthy as before and many cannot find a job, which contributes to unhealthy behavior.”
The KFF/HRET survey found that 20 percent of employers added at least one adult dependent during 2011 in response to the Patient Protection and Affordable Care Act provision requiring employers to extend coverage to employees’ adult children to age 26. The survey did not say what proportion of the 9 percent increase in plan costs for 2011 were attributable to these new members.
The Aon Hewitt survey found about 1 percent of the 2011 cost increase could be traced to the addition of these new plan members, but did not say how many new dependents were added.
The surveys also found increased cost-sharing with employees.
For example, the KFF/HRET survey showed that 31percent of employees are enrolled in plans with a general annual deductible of $1,000 or more for single coverage, up from 27 percent in 2010.
Meanwhile, the Aon Hewitt survey found that employees’ out-of-pocket medical costs jumped 18.7 percent to $2,007 from $1,691 in 2010. Aon Hewitt projects employees’ out-of-pocket costs will grow an additional 13.4percent in 2012 to $2,275, mostly as a result of plan design changes that discourage inappropriate use of medical care.
“A lot of employers realize they can’t simply cost-shift by making employees pay more out of their paycheck for coverage, so they’re doing more through plan design to encourage them to use care more appropriately,” said Stanford.
Marianne Fazen, president of the Dallas-Fort Worth Business Group on Health, says she has noticed a distinct shift among her members toward the use of such value-based benefit designs.
“People just use the health care system excessively, and that drives up the cost. Employers are implementing plan designs that are a little bit more rigorous,” she said. “For example, they’re increasing penalties for going out of network, offering more restricted provider networks, mandating the use of generics. It’s making health care for the correct things—like preventive care—easier and more convenient, but limiting access to the incorrect things.”
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