Health-Care Costs for Employers Slow Dramatically

WASHINGTON â€”  In a startling shift, health care is becoming a bargain for employers as inflation disappears and more of health care’s financial burden is shifted to workers, the Labor Department reported Wednesday.

The cost of health care for business rose a minuscule 0.1% during the year ending in June, the lowest medical inflation rate in 13 years of record-keeping, according to a special department study.

“Given the dramatic drop in costs, it is possible for employers to provide more generous wages and salaries,� Labor Secretary Robert B. Reich said.

The national trend echoes an earlier falloff in annual premiums paid by Southern California employers to managed-care plans. Here, however, where the managed-care industry got a foothold long before most of the rest of the nation, the trend is already changing.

It’s getting tougher locally for employers to wring cost savings from the plans. And experts predict Southern California employees, who bear the brunt of premium increases negotiated by their employers, face increasing costs over the next five years.

In the nation overall, health-care costs to workers increased at least $5.5 billion in the past seven years as companies made them pay more of the premium for health insurance.

The average monthly premium paid by workers for family health coverage jumped to $107 in 1993 from $45 a decade before. This figure does not include billions of dollars in higher deductibles and increased co-payments for workers under rapidly changing health plans.

The shift, with companies bringing expenses under control as workers move into managed care, is “the most dramatic change� in compensation costs in recent memory,� Reich said.

In 1984, 95% of workers at medium and large companies were covered by fee-for-service plans that allowed workers to choose any doctor or hospital. This plunged to 50% by 1993, with the other 50% of workers enrolled in health maintenance organizations or other systems that restrict choice and control costs more closely.

Insurance companies and HMOs are becoming increasingly competitive, offering flat--or even reduced--premiums as they bid for business from corporate customers. And on the other end of the delivery system, HMOs and insurers are trimming their payments to doctors and hospitals.

The 0.1% cost increase for businesses in the year ending on June 30 continued a trend toward smaller cost increases. For much of the 1980s and the beginning of the 1990s, business’ health-care costs rose at double-digit rates, but the increases slid to 5% two years ago and 0.6% in the year ending June 30, 1995.

The 0.1% increase for the year ending June 30 represents the first time since 1980 that health costs rose more slowly than the general inflation rate. Competition among health plans and demands by employers for savings have resulted in actual premium reductions for many corporations.

Labor Department officials said they could not say precisely how much of the corporate savings resulted from the general reduction in medical inflation and how much from the transfer of costs from employers to workers.

A disturbing feature in the report, Reich said, is the gradual reduction in the number of workers covered by health insurance. Among firms with more than 100 workers, the share of full-time workers covered by employer-sponsored health care declined from 96% in 1983 to 82% in 1993.