Employers' health benefit cost continues to rise in USA

Total U.S. health insurance benefit cost rose by 6.1 percent in 2007, the same pace as last year, to an average of US$7,983 per employee, according to the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer and released today.

The good news is that cost increases have held steady for three years (after spiking to nearly 15 percent in 2002) and are likely to slow a bit further in 2008. The bad news is that's still more than twice the rate of inflation. Health cost growth is outpacing wages and material costs and eroding business profitability.

There are consequences for working Americans as well: In the absence of a mandate to provide coverage, some small employers are simply dropping their plans, adding their employees to the growing rolls of the uninsured. Among employers with fewer than 200 employees, health coverage prevalence fell from 63 percent to 61 percent in 2007 - and that's down from 66 percent five years ago. This drop-off is continuing despite the new availability of relatively low-cost consumer-directed health plans (CDHPs), which may be a concern for state and federal policymakers currently debating the future of US health insurance.

Mercer's survey included private and public employers with 10 or more employees. Nearly 3,000 employers participated in 2007.

The Mercer survey also found that employers expect cost to rise 5.7 percent in 2008. That figure takes into account any changes that employers will make in the level of benefits, the type of plan offered, or the plan vendor. If employers made no changes, the cost of their largest medical plan would rise by about 8 percent, they predict.

After the out-of-control cost growth in the early part of this decade, a fourth year of single-digit increases begs the question, why isn't it worse? Cost shifting is one reason. Among large employers (those with 500 or more employees), average in-network PPO deductibles rose by about 11 percent, from $426 to $473 for individuals and from $1,022 to $1,134 for families.

Small-employer deductibles, already much higher, rose by only about 2 percent for individuals (from $859 to $872 among employers with 10-499 employees) but by 5 percent for families (from $1,786 to $1,879).

"Given that the majority of covered employees are in PPOs, an increase in deductibles of this size could dampen employers' total health cost increase by about a point," said Blaine Bos, Mercer worldwide partner and spokesperson for the survey. But even if employers made no benefit cuts at all, the rate of increase still appears to be slowing. Employers estimated that the cost of their largest medical plan would increase 8 percent in 2008 "before changes." That's down from 9 percent in 2007 and 10 percent in 2006.

"The slowdown in the underlying trend reflects slowing utilization," said Mr. Bos. "And that is very likely tied to the proliferation of health management activities and other consumerism strategies."

The survey found that 80 percent of large employers use health management programs as a way to control cost and improve productivity, while 52 percent are actively promoting employee consumerism.