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Health care costs to rise 8 percent in 2006

Health care expenses for U.S. companies will rise at a slower rate in 2006 than in recent years but will still cost an average of more than $8,400 per employee, according to the 17th annual Towers Perrin Health Care Cost Survey released on Wednesday.
/ Source: Reuters

Health care expenses for U.S. companies will rise at a slower rate in 2006 than in recent years but will still cost an average of more than $8,400 per employee, according to the 17th annual Towers Perrin Health Care Cost Survey released on Wednesday.

Employers will see an 8 percent increase next year, or about $600 per employee, the survey found. Employees will pay about $155 of that increase in 2006, a 10 percent rise from 2005 levels.

While the rate of increase over the last two years has improved from the double-digit inflation of years past, ”sustained rates at this level still are unacceptable for most employers,” said Ronald Fontanetta of Towers Perrin.

The increasing burden of health care costs has weighed heavily on both employers and employees, the survey found, with employers still bearing the lion’s share despite a continuing shift that has seen workers taking on more of the expense.

Employees are paying 64 percent more for health care than they spent five years ago. In that same time frame, employer costs have risen 78 percent — both far outpacing other inflation gauges.

Workers will contribute about 20 percent of total health care premiums in 2006. But the survey found that employers now appear to be looking beyond simply shifting more of the costs to employees as a means of controlling expenses.

“Employers have concluded there are inherit limits in controlling costs through cost shifting,” Fontanetta said. ”They are trying now to focus on core drivers of health care expense.”

He cited a push toward heavier use of cheaper generic prescription drugs, and utilizing health risk assessment programs and wellness initiatives.

Where before there was corporate resistance to spending for preventive or interventional care, they are now much more willing to do so, with a focus on avoiding expensive chronic illnesses such as heart disease and diabetes.

“We are clearly seeing a trend in willingness to invest in wellness and health management programs to prevent chronic illnesses and to keep those that exist from becoming more significant,” Fontanetta said.

There was a wide disparity in costs between companies in the top third and bottom third of respondents, the survey found, with an expected 14 percent rise for the higher-cost companies compared to 7 percent for those at the lower end.

A key distinguishing factor was the relationship between the companies and their health care vendors, with lower-cost companies more aggressively working with vendors on efficiency and implementing processes to monitor care management initiatives.

Costs for retirees under age 65 will rise by 10 percent over 2005 levels, 3 percent higher than for Medicare-eligible retirees, the survey found.

But 53 percent of companies offering retiree benefits that participated in the survey said Medicare changes in 2006 — including the new prescription drug plans — will prompt them to rethink their commitments to all retirement programs.

Data for the survey was collected from more than 200 of the nation’s largest employers, covering more than five million individuals, including active workers, dependents and retirees.