Slight Slowing in Growth of Healthcare Costs Expected

Companies in the Los Angeles area expect their healthcare expenditures to rise in 2005 somewhat more slowly than they have in recent years, in part because they plan to shift more costs to workers, according to a new survey.

The survey, to be released today by Mercer Human Resource Consulting, found that employers in the metropolitan area anticipate spending an average 5.1% more in 2005 to provide health benefits than they did this year.

This year, they spent an average $6,565 per employee -- 8.5% more than in 2003.

The 5.1% projection is based on changes employers plan on making to the health benefits they offer workers, such as having workers foot more of the bill and switching to less expensive insurance plans. Without those changes, the survey found, health benefit costs probably would rise 8.6% next year.

Mercer said in a statement that cost-shifting by companies nationwide “was somewhat more restrained this year than in 2003, when employers (especially small employers) sharply raised deductibles and co-payments, seeking immediate relief from three years of double-digit increases.”

Longer-term cost management strategies adopted by companies, more competitive pricing by insurers and an apparent “dampening utilization” of healthcare services by consumers because of steep out-of-pocket costs are among the factors behind the slowing in the growth of health benefit costs, Mercer said.

Mercer polled 69 companies in the Los Angeles area as part of its survey of 3,020 employers across the country.

Nationally, employers expect their health benefits costs to rise 6.6% in 2005, compared with an increase of 7.5% this year over 2003, according to the survey. The increase this year was the slimmest in five years.

“It’s definitely good news in that it is less than it used to be and that it doesn’t appear to be going back up next year. Those are positives,” said Praveen Thadhani, a senior healthcare consultant in Mercer’s Los Angeles office. “But it’s still growing at a faster rate than inflation and wages. That’s not a good thing.”

Thadhani said that in the short term, workers would continue to pay more for healthcare through payroll deductions and out-of-pocket expenses.

The survey found that costs rose more slowly among small companies, or those with fewer than 500 employees, than at large companies. In recent years, smaller firms have been particularly aggressive in shifting costs to workers, thereby reducing use of the healthcare system.

“When you start the year with a $1,000 deductible and don’t see any major expenses ahead, you think twice about going to the doctor if you have a cold,” Thadhani said. “The downside, of course, is that you may also put off getting necessary care. And that’s not good for anyone.”

Among small companies, 31% have preferred provider organization, or PPO, plans with a deductible of $1,000 or more. By comparison, only 6% of similar large-employer plans have deductibles that high, according to the survey.

On a positive note, the survey said, many larger companies have initiated disease management programs aimed at identifying and treating people with chronic conditions such as asthma, diabetes and high blood pressure. The programs are intended to limit medical complications and reduce hospitalizations.

This year, for example, 55% of large companies offered a program targeting diabetes, and 46% of those companies provided a program to deal with heart disease and hypertension. The percentage of companies offering such programs is increasing, the survey found.

Separately, the survey noted that among companies with at least 500 employees, those in the Northeast and West were significantly more likely to include same-sex domestic partners as eligible dependents than those in the Midwest and South. Forty-two percent of larger firms in the Northeast and 38% of those in the West have made same-sex domestic partners eligible. By comparison, only 14% of the larger firms in the Midwest and 10% of those in the South offered such coverage.

Despite the slowing healthcare cost increases, nearly all of the companies surveyed agreed that the U.S. healthcare system was in need of serious reform. Of those surveyed, 97% said such reform was necessary.

“I think it tells us that employers cannot continue to absorb the increases in healthcare costs as they have done these past few years,” Thadhani said. “They feel they’ve done a lot on their own to try to mitigate these cost increases, but they feel additional change needs to come from reforming the system.”