Nationally, health benefit costs rose more than 10 percent in 2003, compared to general inflation of about 2 percent. Why the huge difference?

	Nationally, employer health cost increases outpace CPI (consumer price index) indicators

To track trends, national consulting firm Mercer Human Resource Consulting annually surveys American employers. According to Cynthia Chilton, Health and Group Benefits Consultant at Mercer, the 2003 results show a veritable patchwork of factors behind the increases:

Among the drivers:

• Consumers feel they are entitled to low-cost, high-technology health care.
• Low co-pays and deductibles insulate patients from the high cost of new drugs and cutting-edge procedures – even for the increases in primary care.
• Drug companies market directly to consumers, building a demand for products that may be no more effective than their generic counterparts.
• As baby boomers age, they need more health care.
• Federal and state regulations require more administration and recordkeeping.
• In Oregon and elsewhere, doctor shortages lead many physicians to push back on discounts demanded by insurers.
• State Medicaid programs shrink and more people go without insurance. When they do need care, it’s usually an emergency room visit and the costs are passed on to those with insurance.

“Everybody wants to blame the insurance companies,” Chilton says. “The truth is, it’s a complex situation, and no one is taking ownership.”

Higher costs, reduced benefits

The Mercer survey shows employee costs going up across the board.

• In 2003, the average monthly employee contribution toward family health benefit costs increased $103 (from $278 in 2002 to $381.)
• The median out-of-pocket maximum rose from $1,500 to $2,000.
• More than a third of plan sponsors set doctor visit co-pays at $20 or more.

As “consumer directed” health plans emerge, high deductible PPO (Preferred Provider Organization) options are more commonly part of an employer’s offerings. In 2002, 20 percent of PPOs required a deductible of $1,000 or more. That percentage rose to 34 percent in 2003.

This upward trend will continue, Chilton says. Regence, a major health plan provider in the Northwest, predicts that in 2004 the cost of medical coverage and prescription drug benefits will go up 16 and 19 percent respectively.

Other examples of increases based on the entire cost of health benefits, nationally, for school employees: If costs increased only seven percent, the cost goes from $6,000 per school employee in 2004 to $8,415 by 2009. If costs increased 15 percent, the figure doubles – to more than $12,000 per year.

	What happens to employer costs if double-digit rate hikes continue.

If there is any good news in this story, it is that despite increases in co-pays and deductibles, employees are paying a smaller share of overall health benefit costs than before. On the average, employees now pay about 15 percent of benefit costs, compared to 35 percent in 1970.

	Employee cost-sharing has steadily declined compared to total health care expenditures.

Informed choices

To rein in increasing costs, some employers are beginning to introduce consumer-driven health plans. These plans emphasize choice, information and economic incentives. For example, in a consumer-driven plan, you may be able to choose from a large number of providers and treatment options. Your choices will be based on detailed information about the quality, service and outcomes these providers deliver. Your costs will be determined by your choices: you control the amount you spend by choosing less expensive options. But a consumer-driven health plan is not a silver bullet, Chilton says.

“We used to think HMOs would control costs, but we’ve gotten all the savings we can out of those plans, and we still have double-digit inflation,” she says. “There is no single strategy that will solve this situation.”

The answer may come down to individual health management choices. “The more proactive we are at making good health choices, following a healthy life style and managing chronic conditions, the less expensive care we’ll need,” Chilton says. “That may be the most effective way of slowing cost increases.”

2003 Mercer Human Resource Consulting National Health Benefits Survey