Health-Care Costs Expected to Rise

Companies in the Los Angeles area expect their health-care costs to grow 13.5% in 2004, slightly more than this year’s 12.6% increase, according to a survey to be released today.

The cost increases continue to be driven mostly by bigger insurance claims stemming from higher prices for hospital services and prescription drugs. This year, Los Angeles-area companies reported spending an average of $6,335 per employee on health benefits, according to the survey by Mercer Human Resource Consulting.

The employee-benefits consulting firm polled 67 employers in the area as part of a survey of nearly 3,000 companies across the country.

Nationally, employers are expecting their health benefit expenses to rise 12.5% next year on top of a 10.2% bump in 2003. The figure for this year marks a notable decline from the 14.7% increase in 2002 and reflects aggressive moves by companies to reduce their employee health expenses by changing insurance plans, shrinking coverage and passing more of the costs on to workers, especially those with families.

In recent years, employers generally have tried to shield workers from the added health-care costs, said Praveen Thadhani, a senior health-care consultant at Mercer’s office in Los Angeles. But this year, he noted, “employers reclaimed the lost ground” by increasing employee contributions for health insurance.

In some cases, Thadhani said, that meant the added costs to workers for their health-care coverage “wiped out” pay raises they received this year.

Employees with families continue to shoulder the biggest increases in health-care costs, the study found, as companies pass the expenses of insuring children and other relatives back to workers.

The average share of employees’ contributions for health insurance premiums covering themselves and their families was 57% this year -- up from 50% in 2002. By comparison, the average worker’s share for employee-only coverage rose more modestly, from 31% in 2002 to 35% this year.

“Many employers are feeling that they want to cover their workers and that’s who they should take care of, not subsidize their dependents,” Thadhani said.

Workers at smaller firms typically are paying more out of pocket for medical coverage than those at larger firms.

Nationally, an employee at a company with 500 or more workers was contributing an average of $224 a month for family health care covering a spouse and two children. An employee at a firm with fewer than 500 workers, meanwhile, typically was paying $389 a month for comparable coverage, according to the survey.

Even as many companies continue to shift the burden of rising costs to workers, other employers, especially larger ones, are taking the longer view, according to the Mercer study. Among other things, these companies are adopting programs to change the ways employees interact with the health-care system.

This year, the survey found, more employers adopted disease-management programs for workers with chronic illnesses. Asthma programs, for example, now are offered by 43% of employers nationwide with 500 workers or more, up from 34% last year.

“Employers know that simple cost-shifting is a temporary solution that has some significant downsides -- namely unhappy employees,” Thadhani said.