Surveys: Health Costs to Rise more than 8%

Large U.S. employers are expecting to pay an average of $9,821 in health insurance premiums per employee in 2011, up from an average of $9,028 this year.

Hewitt Associates Inc., Lincolnshire, Ill. (NYSE:HEW), has published those figures in a summary of results from an analysis of benefits data from 350 large U.S. employers.

The 8.8% year-over-year increase is the largest Hewitt has recorded in the past 5 years.

Changes resulting from the Affordable Care Act – the federal legislative package that includes Arrow pointing up the Patient Protection and Affordable Care Act (PPACA) – are probably causing just 1 percentage point to 2 percentage points of the average 2011 increase, Hewitt analysts say.

But Ken Sperling, Hewitt’s health care practice leaders, says the extra Affordable Care Act costs come as employers are facing the effects of a weak economy, an increase in the frequency of catastrophic claims, and a general increase in medical costs.

“Reform creates opportunities for meaningful change in how health care is delivered in the U.S., but most of these positive effects won’t be felt for a few years,” Sperling says in a statement about the health cost analysis. “The incremental expense of complying with the new law adds fuel to the fire, at least for the short term.”

The average employee contribution at the employers Hewitt studied may increase about 12%, to $2,209, and average expected employee out-of-pocket cost total is also increasing about 12%, to $2,177.

The out-of-pocket cost total includes co-payments, coinsurance and deductibles.

Preferred provider organization (PPO) plans dominate the group plan market in most states. Hewitt expects the cost of PPO coverage to increase 8.5% between 2010 and 2011, to $9,408.

Between 2009 and 2010, the average PPO coverage cost increase was 6.3%.

To go with the cost data analysis, Hewitt commissioned a survey of 600 large employers. The firm found that some employers will be charging more for spousal coverage, or charging separately for each individual in an employee’s family rather than simply providing “employee-only” and “family” coverage. The idea of penalizing employees who fail to participate in health improvement programs is also getting more attention.

A Hewitt competitor, Towers Watson & Company, New York (NYSE:TW), came up with similar results recently when it looked at underlying health care costs.

Employer health care costs are expected to rise 8.2% as the impact of health care reform is assessed.

The annual cost of health care for active employees is projected to rise to an average of $10,730 in 2011, according to a recent survey from consulting firm Towers Watson & Company, New York.

Not since the 1980s have leading employers spent so much time thinking about their health benefit plans as companies look to make sense of the potential impact from health care reform, Towers Watson said. Senior managers are taking a larger role in coming up with the best plan, it said.

The study of 466 large and midsized employers found 86% plan to increase efforts to encourage employees’ well being. According to the survey, 57% percent said compliance with the Patient Protection and Affordable Care Act is their top priority.