Healthcare Costs Expected to Rise

Employers are facing continued double-digit increases in healthcare costs in 2005 and probably will require their workers to pay a greater share of the bill, according to a survey of more than 900 firms.

The survey, released Thursday by Mercer Human Resource Consulting, found that employers expected healthcare costs to rise 12.9% on average next year if they left benefits unchanged. But companies that participated in the survey, both those that buy insurance and firms that are self-insured, are budgeting an average increase of only 9.6% in their healthcare spending.

The firms are likely to shift much of the difference to employees in the form of higher required contributions and co-payments, or by limiting their choice of insurance plans, the report said.

That would mark the third consecutive year that employers have shifted a portion of healthcare costs to workers in an effort to keep pace with rapidly rising expenses.

Mercer said employers forecast a 13% increase in health costs in 2004 and ended up paying about 10% more, chiefly because employees were asked to pick up more of the tab.

Past cost shifting, though, has done little to solve the underlying problems driving up the price of healthcare, said Blaine Bos, a Minneapolis-based healthcare consultant for Mercer.

“If you get into an environment where you have double-digit inflation year after year after year, essentially both the employer and the employees are having to share a bigger and bigger burden, and that burden at some point can break your back,” Bos said.

Smaller employers, faced with an average 13.4% increase in health expenses next year if they maintain the status quo, will probably shift a particularly large share of the burden to workers, Bos said. That could mean some employers dropping healthcare coverage altogether, he said.

Many employers have already set their healthcare budgets for next year, but it is too soon to know precisely how they’ll bridge the gap between inflation and their spending plans, Bos said.

But the factors driving up the cost of healthcare haven’t changed. The general aging of the population means that more workers and their insured dependents need more healthcare services. They’re tapping into a range of new drugs and healthcare technology, but that is driving up costs as healthcare companies charge high prices to recoup the cost of research and development.

The Mercer survey collected data from 916 employers of varying sizes. It was done over the Internet and by mail.