Health Costs Eat Up Quarter of Profits: Poll

Health-care costs have risen so fast in the past two years that many American corporations now spend an amount equal to one-fourth of their earnings to provide medical coverage for their employees, according to a survey released Monday.

The survey by Foster Higgins & Co. of New York, a major benefits consulting firm, shows that the average company spent 21.6% more last year to provide doctor and hospital care to their employees than the year before. During the past two years, the cost to employers has risen 46.3%.

The annual survey of 1,955 employers is one of the largest of its kind, covering primarily large and medium-sized firms. On average, companies spent $3,161 per employee on medical costs last year, up from $2,600 in 1989.

John Erb, who directed the study, said an increase in large catastrophic claims and increased use of medical care as a result of the recession were major factors in the sharp rise in medical costs last year. The increased costs relating to the recession, he said, tend to come from people who, fearing they might soon lose their jobs, have elective surgery.

A third factor, Erb said, was a continuing increase in the use of mental-health and substance-abuse benefits.

Erb said advanced medical technology has increased dramatically the amount of some claims. “We’ve seen companies with a $2-million claim for one person. That wasn’t possible 10 years ago because we didn’t have the (expensive) technology,” he said.

To curb rising mental-health costs, Erb said, many employers are simply cutting back on coverage, particularly in-patient care.

The latest survey results may accelerate the shift by many employers toward so-called managed health-care programs--in which companies limit the medical care of their employees to doctors and hospitals that agree to provide care for a set price.

“Controlling medical expenses through traditional health plans has become a losing proposition,” Erb said.