The cost of employees' health benefits at big firms will grow between 8 percent and 10 percent next year, outstripping this year's increase and demonstrating anew managed care's failure to keep a lid on medical spending, according to a survey released yesterday.
As recently as 1995, costs were rising by only 0.6 percent, according to benefits consultant Hewitt Associates, which conducted the annual survey. In 1999, costs grew 7.8 percent.
At large corporations, the average employee will pay $110 more next year, while employers will pay an additional $331 per employee, the survey by Hewitt Associates found. That means employees will pay proportionally more of the cost increase than they have in past years, Hewitt said.
This year, the cost of health care has increased by 11.1 percent in the Washington metropolitan area, which trails only New York City among 16 metropolitan areas Hewitt studied.
Hewitt surveyed 600 employers that provide health benefits for about 5 million employees and relatives of employees. The companies have at least 1,000 workers each. Smaller firms have less bargaining power and might experience larger cost increases, Hewitt said.
"We are clearly in a position right now where the managed-care system is stalling for employers," said Tom Beauregard, a Hewitt principal in Connecticut.
The cost increases are driven in part by managed-care companies raising premiums to improve profit margins and make up for losses that resulted from past underpricing, Beauregard said.
The rapidly rising cost of prescription drugs is adding to the bill, though money spent on pharmaceuticals can help avoid the need for other costly treatments, analysts said. The pharmaceutical industry has been introducing expensive new products and advertising directly to consumers.
"We've got mass marketing that never happened before, and so we've got people who don't even know the medical implications of going to their doctor and asking for medications," said Lois Morris, who manages health benefits at Rohm and Haas, a chemical company based in Philadelphia.
As Congress considers legislating new controls on managed care, such as giving employees the right to sue health plans for punitive damages, some health plans "are pricing against the risk of future legislation," Beauregard added.
In response to rising costs, some employers are offering their workers fewer choices of health plans in an effort to maximize their leverage in premium negotiations, Beauregard said. Employers also have resorted to online auctions in which managed care companies bid to undercut competitors' premiums.
For the average employee at the large firms, the cost of coverage will rise to $4,853 next year from $4,412 this year, and the employee will pay $1,213 of that, Hewitt said. Those figures include the employees' contribution to medical premiums but not the money they spend on co-payments and the like.
At Towers Perrin, another health benefits consultant, Joe Martingale, agreed that "premiums for next year are going up faster than they did in '99 over '98." But Martingale, a principal in the firm's New York office, said health plans do not appear to be getting "less generous" and "the proportion paid by employees is not going to be changing dramatically or significantly."