updated 10/11/2006 8:13:26 PM ET 2006-10-12T00:13:26

There's good news, and there's bad news. Health care costs aren't accelerating as quickly as they were five years ago. But they're still rising nearly twice the rate of inflation, leaving both businesses and their employees struggling to keep up with pricier premiums.

A recent the Kaiser Family Foundation study found that employers paid 7.7 percent more for health care this year than they did in 2005. That's down from an 11.2 percent growth rate in 2004, and 9.2 percent in 2005.

And in a separate report released the same day, Towers Perrin, a human resources consulting firm, found that employers expect health care costs to rise another 6 percent in 2007. "That's the lowest it's been in several years," says Dave Guilmette, managing director of Towers Perrin's Health and Welfare practice.

There is, however, another small slice of good news: Employers are getting savvier about controlling their costs, according to Towers Perrin, which surveyed 170 companies with an average of 20,000 employees. The companies with the lowest expenses — one-third of the respondents — expect to pay an average of $7,224 per employee for health care next year. But the top third plan to pay $10,428.

That's not because the low-cost companies are passing on expenses to their employees. Workers at those firms are saving money, too. Employees will pay $1,728 per year for health care at the low-cost firms, versus $1,884 at the high-cost companies.

In other words, corporations that are working to lower their health care costs are seeing significant results. "If you really work hard, you can not only work against the current but outpace your competitors," says Guilmette.

So what are the low-cost companies doing differently? They are holding their vendors accountable, Guilmette says. Insurers today take on multiple roles. Many of them run disease management programs, for example, which help employees learn how to live with illnesses like diabetes. But those programs are worthless if no one is enrolling, says Guilmette. Employers should establish performance agreements with their health care vendors and conduct periodic reviews.

They are also choosing their health insurance vendors carefully. Different health plans are appropriate for different cities, says Johan DeKeyzer, a principal in the health care practice at consulting firm Hewitt Associates.

Insurer X might have great deals with the hospitals in New York, but Insurer Y might be a better bet in Nebraska. Overall, however, employers should use as few insurance companies as possible, because working with several health plans reduces bargaining power with each one.

There's a softer side to reducing health care costs. Employers should encourage healthy living. That means serving healthy food in the cafeteria, encouraging employees to get the proper screenings, and offering a discount for workers who join a gym. "It's not just about reducing your health care costs," says DeKeyzer. "It's about maintaining a healthy, productive workforce."

One great tool, if used effectively, is the health risk questionnaire. Most insurers offer an online wellness assessment, which can expose employees' risk factors and identify follow-up steps.

But these questionnaires are useless if no one uses them. Employers should offer an incentive to workers who take the quiz and follow up on any recommendations, Guilmette says.

If none of that works, here's another solution: pixie dust. "I have a little bottle," says Dr. Peter Kongstvedt, a partner in the Health and Life Sciences department of consulting company Accenture. "It's got a picture of Tinkerbell on it."

© 2012 Forbes.com


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