Hewitt Data Reveals Little Change in U.S. Health Care Cost Increases for 20092008 Health Care Cost Increases (Graphic: Business
September 22 2008 - 9:00AM
Business Wire
After enjoying a steady decline in health care cost trends over the
past eight years, U.S. companies have seen average rate increases
settle in around 6 percent to 7 percent, according to Hewitt
Associates, a global human resources consulting and outsourcing
company. In 2008, average health care costs increased 6.0�percent,
up from 5.3 percent in 2007. Hewitt is projecting a 6.4�percent
average increase for employers in 2009. According to Hewitt, the
average health cost per person for major companies will increase
from $8,331 in 2008 to $8,863 in 2009. The amount employees are
being asked to contribute toward this cost will be $1,946,
representing approximately 22 percent of the overall health care
premium and up from $1,806 in 2008. Average employee out-of-pocket
costs, such as copayments, coinsurance and deductibles, are also
expected to increase from $1,707 in 2008 to $1,880 in 2009.
Overall, employees� total health care costs�including employee
contribution and out-of-pocket costs�are projected to be $3,826 in
2009, up 8.9 percent from $3,513 in 2008. �Employers continue to
diligently manage health care costs through a combination of
approaches, including continued cost shifting, tougher negotiations
with health plans, and expanded health and wellness programs with
incentives to encourage behavior change, which is why we�re seeing
rate increases level out a bit,� said Jim Winkler, North American
practice leader of Hewitt�s Health Management Consulting business.
�The challenge now will be sustaining or even lowering those rate
increases in an environment where the legislative, economic and
political landscape is rapidly changing, and where companies are
under more pressure than ever to balance their needs with the needs
of employees and their families. Over the next few years, they will
need to take a more rigorous and aggressive approach to getting
employees healthy�which means implementing a combination of
programs that drive actual behavior change, eliminate barriers to
health and encourage people to take more responsibility for their
personal health. These are the steps that will ultimately make an
impact in lowering overall benefit costs and putting more money in
the wallets of employees.� 2008 Cost Increases by Major
Metropolitan Area While Hewitt�s data shows relatively flat overall
cost increases in 2008, a few major U.S. markets experienced rate
increases significantly higher than the average: Cincinnati, OH
(11.1 percent), Columbus, OH (9.9 percent), Orlando, FL (9.2
percent) and Minneapolis, MN (9.1 percent). Conversely, Austin, TX
(1.0 percent), Houston, TX (2.6 percent) and Chicago, IL (3.7
percent) experienced lower-than-average rate increases in 2008.
2008 Cost Increases by Plan Type In 2008, Hewitt saw average cost
increases of 10.1 percent for traditional indemnity plans, 8.0
percent for health maintenance organizations (HMOs), 3.9 percent
for point-of-service (POS) plans and 4.8 percent for preferred
provider organizations (PPOs). For 2009, Hewitt forecasts that
companies will receive cost increases of 6.5 percent for
traditional indemnity plans, 8.0 percent for HMOs, 5.5 percent for
POS plans, and 5.5 percent for PPOs. That means from 2008 to 2009,
the average cost per person for major companies will increase from
$9,296 to $9,900 for traditional indemnity plans; $8,442 to $9,117
for HMOs; $8,986 to $9,480 for POS plans; and $8,048 to $8,491 for
PPOs. �Over the past few years, HMO rates have averaged almost two
times higher than the rate increases of PPO or POS plans, mainly
due to the fact that local and regional fully insured HMO plan
offerings have higher administrative costs and are subject to
state-mandated benefit requirements that drive up premium costs,�
said Bob Tate, chief health care actuary at Hewitt. �We expect to
see this trend continue, particularly because premiums translate
directly into profit and loss for fully insured HMOs, and higher
rate increases for these plans ensure higher profit margins.�
Employer Response to Rate Increases To keep rate increases in the 6
percent to 7 percent range, employers continue to take proactive
steps to mitigate costs and implement initiatives focused on
improving employee health and productivity. These steps include:
Increasing attention on plan dependents. While cost-shifting in its
traditional sense has tapered, an increasing number of companies
are beginning to look at cost shifting a portion of their dependent
subsidy dollars to employees, either through increased payroll
contributions for dependent health care coverage or by applying
surcharges to encourage dependent spouses to take coverage under
their own employer�s plans. In addition, employers are becoming
increasingly interested in conducting dependent audits, which are
designed to assess and remove plan costs for dependents who don�t
qualify for coverage based on the employer�s eligibility
requirements. More than 40 percent of Hewitt�s clients have
conducted a dependent audit in the past five years, and another 10
percent planned to conduct one in 2008. Eliminating
�cost-inefficient� plans. As fully insured HMO rates increase in
excess of overall medical cost increases, an increasing number of
companies are consolidating plan participants under self-insured
arrangements with fewer health plans. This enables them to
streamline administration, offer more consistent designs across
their markets and reduce costs�all of which help them avoid
additional cost shifting to employees, either in the form of
reduced benefits or higher payroll increases. Aggressively managing
health plans. As in past years, employers continue to negotiate
aggressively with their health plans to try to reduce initial
premium increases, and they are coming to the negotiations table
with clear expectations and requests. In addition to negotiating
costs, an increasing number of employers are holding health plans
accountable for delivering on specific measures in their health and
productivity programs, including participation levels, clinical
outcomes, reductions in claim costs and member satisfaction levels.
Hewitt research shows that almost 60 percent of companies planned
to ask their vendors for quarterly reports on their contribution to
their health and productivity strategy within the next five years.
Continuing emphasis on employee health and productivity. Companies
are continuing to invest significant resources in programs aimed at
improving health and productivity of employees and their families.
Flu shots, smoking cessation, physical fitness and weight
management programs, as well as health risk questionnaires and
online tools, are currently the most popular programs offered by
employers. On-site health services, biometric screening and
health/clinical advocacy programs�while still emerging trends�are
also gaining increased attention, as companies look for more
effective ways to motivate consistent and long-term employee
behavior change. To encourage participation in these programs,
Hewitt�s research shows just under two-thirds (63 percent) of
companies provide or plan to provide employees with financial
incentives, most likely in the form of credits or lower premiums.
While most companies work on the �honor system,� expecting
employees to participate in a program once they enroll, a smaller
minority are beginning to require completion of a program as a
prerequisite for obtaining the incentive. On the opposite end,
almost 17 percent of companies in 2008 charged or planned to charge
higher contributions for employees engaging in certain health
behaviors, such as smoking. Another 40 percent said they were
considering this option for a future date. In addition, 5 percent
of companies in 2008 planned to require employees to take health
assessments and/or participate in health improvement programs in
order to receive health benefits, and more than half of companies
said they are considering doing so at a future date. �Over the past
two years, we�ve seen health and productivity programs become
fairly well established in large organizations, and now we�re
seeing increased efforts on the part of the employer�through both
carrot and stick approaches�to ensure employees are actually
getting value from the programs that are offered,� said Winkler.
�The next step will be for companies to determine whether these
programs are providing a return on investment. Most currently
measure the effectiveness of their programs by looking at changes
in overall costs from year to year, or by the levels of employee
participation in these programs. While these measures provide some
short-term insight, companies that measure performance in actual
outcomes will be in the best position to determine whether their
programs have made an impact on truly improving employee health and
productivity.� Digging deeper into chronic health conditions.
According to Hewitt research, more than half (51 percent) of
employees or their dependents have a chronic health condition that
requires ongoing care. Most companies (93 percent) have already
identified the chronic health conditions that are most pressing for
their employee populations and plan to target these conditions over
the next three to five years, with particular emphasis on tackling
diabetes. Half (50 percent) currently offer employees enhanced
medical and/or prescription drug benefits for at least one or more
chronic condition, and almost a quarter (23 percent) provide
incentives for at-risk individuals who participate in condition
management programs and comply with recommended therapies.
Companies also continue to show an interest in value-based design
(VBD) programs, which reduce or remove financial barriers for
health care services proven to be effective to treat certain
conditions, while potentially increasing cost-sharing for those
services that have not been proven to be as effective. Hewitt�s
research shows that while just a small percentage of companies use
value-based design programs today (12 percent), more than half (52
percent) said they were considering them in the next three to five
years. Of those that currently offer value-based plan designs, 16
percent planned to expand the program beyond prescription drugs to
include preventive care services or medical care services for
certain chronic illnesses in 2009, and another two-thirds planned
to do so in the next three to five years. About Hewitt�s Data
Hewitt�s health care cost data is derived from the Hewitt Health
Value Initiative, a cost and performance analysis database of more
than 1,800 health plans throughout the U.S., including 400 major
employers and more than 13 million health plan participants. About
Hewitt Associates For more than 65 years, Hewitt Associates (NYSE:
HEW) has provided clients with best-in-class human resources
consulting and outsourcing services. Hewitt consults with more than
3,000 large and mid-size companies around the globe to develop and
implement HR business strategies covering retirement, financial and
health management; compensation and total rewards; and performance,
talent and change management. As a market leader in benefits
administration, Hewitt delivers health care and retirement programs
to millions of participants and retirees, on behalf of more than
300 organizations worldwide. In addition, more than 30 clients rely
on Hewitt to provide a broader range of human resources business
process outsourcing services to nearly a million client employees.
Located in 33 countries, Hewitt employs approximately 23,000
associates. For more information, please visit www.hewitt.com.
Hewitt Assoc A (NYSE:HEW)
Historical Stock Chart
From Jun 2024 to Jul 2024
Hewitt Assoc A (NYSE:HEW)
Historical Stock Chart
From Jul 2023 to Jul 2024