Despite Economic Downturn, Health Care Costs Keep Rising

National Business Group on Health

Given the current economic crisis. one might think that with all the bargains available in cars and real estate, that there might be some to be had in employer sponsored health care costs.  One would be wrong.

A recent study by by Watson Wyatt for National Business Group on Health shows that most medium to large employers still expect health care costs to rise by 6% as they did throughout the recent economic boom.

The survey of 489 large U.S. employers found that the median rate of health cost increases is expected to remain at 6 percent in 2009, although this is still nearly twice the rate of inflation. The increase is the same rate that employers experienced in both 2007 and 2008. In 2006, health care costs increased by 8 percent.

“Cost increases have stabilized, but the financial crisis is causing many companies to reevaluate their health plan strategies,” said Ted Nussbaum, group and health care practice leader at Watson Wyatt. “While large-scale changes appear unlikely, economic realities are leading companies to adopt strategies that emphasize greater personal health accountability to their workers.”

Just more than half (51 percent) of companies now offer workers a CDHP, up from 47 percent in 2008. Another 8 percent are expected to adopt a CDHP by 2010. CDHPs are helping employers control costs — companies with at least half of their workers enrolled in a CDHP have a two-year cost trend (4.6 percent) that is 25 percent lower than non-CDHP sponsors (6.1 percent). Still, challenges remain for employers trying to provide more affordable coverage to their workers.

Two-thirds of employers (67 percent) cite the poor health habits of their employees as a considerable challenge to managing their health care costs. Other challenges include underuse of preventive care services (42 percent), the high cost of catastrophic and end-of-life care (36 percent), and poor employee understanding of how to use the plan (30 percent).

While companies will be taking a close look at benefit offerings because of the recession, most do not plan major changes. A large majority of employers do not plan to delay or cancel their planned program offerings (86 percent) or changes to plan design (87 percent).

“Given the current economic climate, high costs are clearly top of mind for workers and their employers,” said Helen Darling, president of the National Business Group on Health. “By promoting healthy habits for workers, companies can mitigate cost pressures and build a healthier, more productive workforce. Strong support from senior management and effective communication around these initiatives will help employees grow more comfortable taking greater responsibility for their health.”

Other findings include:

• Nearly one-third of employers (30 percent) have revamped their health  care strategy, with another 30 percent planning to do so in 2009. A  smaller number of companies are working on contingency plans for  midyear changes to benefit offerings (13 percent).
• Employers’ confidence in the health benefit system remains high,  though market conditions have caused this sentiment to dip. Nearly  two-thirds (62 percent) of employers are very confident in their  ability to provide health benefits 10 years from now, down from 73  percent a year ago.
• For employers, the average health care expenditure per employee in  2008 was $7,173 and is expected to increase to nearly $7,400 in 2009.  Employees paid an average of 20 percent of their total medical premium  costs in 2008, a number that will likely stay the same in 2009.

The full report will be released in mid-March.