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HEALTH CARE
Benefits
Controlling costs requires a holistic approach to reduce utilization.
According to a recent U.S. Chamber of Commerce survey, benefits cost an average of 36.8% of total compensation, or an average of $14,060 per employee. The cost of health insurance has historically been one of the largest of these cost items, averaging around 10% of payroll. Health care, often funded in the form of medical insurance, is one of the most common nonstatutory benefits. In reviewing employee benefits for the full-time employees of firms with 100 or more employees, the Labor Department's Bureau of Labor Statistics found that 76% of all employers offered medical insurance to their employees.
This article briefly reviews the cost trends in health care for employers based on a review of benefit industry research as well as legislation over the past five years, offers some insight into potential future cost, and outlines strategies for employers to offer attractive benefits in spite of cost constraints.
Five benefit consulting firms recently released separate surveys that projected health care cost trends for 2002, and all anticipated similar results-double-digit increases. The surveys projected health care costs to increase 12% to 18% in 2002, with HMOs experiencing the lowest increase and indemnity plans the highest. According to Hewitt Associates, the average cost per person will increase from $4,522 to $5,336 for HMOs, $4,834 to $5,463 for PPOs, and $4,857 to $5,482 for indemnity plans. Hewitt also reported that the largest increases are predicted for prescription drugs, which are expected to rise by about 20% in 2002.
The Hewitt survey stated that health plan costs for active employees are projected to increase by 15.6% in 2002, compared with increases of 9.4 and 10.2% for 2000 and 2001, respectively. (See Exhibit 1.)
Cost Trends
According to the Health Care Financing Administration (HCFA), national health care spending is expected to double from $1 trillion in 1996 to $2.1 trillion in 2007-from 13.6% to 16.6% of gross domestic product.2 Several factors have contributed to the rebound in health care spending, according to Sheila Smith, an HCFA economist. In particular, managed care enrollment gains have occurred at a slower pace. The study questioned whether managed care in the absence of enrollment shifts could be expected to...