Firms passing on cost of care

Companies are passing more of their health care costs on to employees in an effort to cut business expenses.

Businesses already have reported a reduction in some costs this year as they share more of their health care burden with employees, said Kate Sullivan Hare, executive director for health care policy at the U.S. Chamber of Commerce, which represents 3 million businesses.

The shift in costs has employees “rethinking the necessity of numerous doctors appointments” as they are pushed to pay more of the bill, she said.

Employees are expected to see a 12 percent increase in health insurance costs this year and an average 2 percent reduction in their benefit levels, according to an October study by global consulting firm Towers Perrin, the most recent study available.

Companies will post an 8 percent rise, but they still face an average increase of $603 per employee, the study said.

Analysts and industry officials said the soaring costs — which once again will outpace the rate of inflation — boil down to two causes: more use and higher prices.

More Americans, especially senior citizens, are using medical services and buy prescription drugs at a higher rate than ever, said Jill Rivers, a senior consultant with human resources consulting firm Watson Wyatt Worldwide.

“People are living longer but not necessarily healthier,” with rates surging for those treating chronic diseases such as diabetes and high blood pressure, Ms. Rivers said.

Ten percent of the U.S. population, those with high-cost illnesses, account for two-thirds of America’s health care spending, said Alwyn Cassil, a spokeswoman for the Center for Studying Health System Change, a District health-policy research group.

Changes that affect the larger percentage of insured workers could help slow costs but “thinking that will bring costs under control is somewhat naive,” she said.

Health insurance companies have driven up rates to offset rising costs and improve their profitability. Minneapolis insurer UnitedHealth Group recently reported record first-quarter profits of $779 million. Philadelphia insurer Cigna Corp. said its 2004 income more than doubled to $1.44 billion from $632 million in 2003.

Insurers provide fewer discounts for businesses that are moving away from heavily managed plans to more flexible provider plans, Ms. Cassil said.

About 18 percent of insured workers are enrolled in an HMO, compared with 40 percent in 2001, according to the Towers Perrin study.

Fifty-six percent of businesses last year shopped around for a new health insurance plan, according to a 2004 survey by the Kaiser Family Foundation, a Menlo Park, Calif., health research organization. About 31 percent of those companies changed insurance carriers.

The penchant for plans with broader physician access has given hospitals more pricing power, Ms. Cassil said. “And hospitals are using that power to pay for their growing payroll,” she said.

Story Continues →