- The Washington Times - Monday, November 22, 2004

Health care costs to employers rose 7.5 percent this year, slowing from double-digit increases in the past few years, according to a study released yesterday.

Health care still outpaced inflation, but the newest estimate is the lowest nationwide since 1999, according to a report by Mercer Human Resource Consulting, a New York business consulting company.

The average cost of health benefits for an employee climbed from $6,215 in 2003 to $6,679 this year, the study said. The amount includes employer and employee premium contributions but does not include employee out-of-pocket medical expenses.

Total health care costs rose 5.4 percent for Baltimore- and Washington-area employers to an average of $7,541 per employee, the study said.

The annual salary nationwide averaged $36,764 in 2002, according to the most recent data by the U.S. Bureau of Labor Statistics.

The slowdown was caused primarily by small businesses, which have shifted more of the cost onto employees by raising deductibles and co-payments, the study said.

In the past three years, more companies have changed their health care plans from health maintenance organizations (HMOs), which provide basic health services to members on a prepaid basis, to preferred provider organizations (PPOs), networks of doctors who agree to provide medical services at a discount to a group of employees, often under contract with a private insurer.

A PPO is similar to an HMO, but care is paid for as it is received instead of in advance in the form of a scheduled fee. PPOs may also offer more flexibility by allowing for visits to out-of-network professionals for a higher fee.

Fifty-eight percent of all covered employees nationwide were enrolled in PPOs in 2004, while 37 percent of employees in the Baltimore and Washington area had PPOs, the report said.

Paul Fronstin, with the Employee Benefit Research Institute, said companies also are providing incentives for employees, like discounted co-payments for generic drugs instead of brand-name ones.

The shifting of health care costs onto employees has driven down the overall use of health care services, said Blaine Bos, an author of the study and a consultant at Mercer’s Minneapolis office.

“The downside, of course, is that you may also put off getting necessary care. And that’s not good for anyone,” Mr. Bos said.

Additionally, more competitive pricing from insurers and the pickup in use of long-term cost-management plans by larger companies contributed to the smaller increase, Mr. Bos said.

While large employers are not likely to shift as much of the costs as small companies, they are moving toward consumer-directed health plans like health savings accounts or health reimbursement arrangements, the study said.

One percent of all covered employees this year was enrolled in a consumer-directed health plan, but the study said more companies will likely offer the plans by 2006. About 2 percent of Baltimore- and Washington-area employees participated in consumer-directed health plans.

Mr. Fronstin said he expected more employees to pay higher out-of-pocket medical expenses and more companies to explore and switch to account-based health plans.

“We haven’t seen the potential growth of these type of health plans and probably won’t until 2006,” said Mr. Fronstin, the health research and education program director at the Washington nonprofit organization.

The federal government released guidelines on the health savings accounts in July, too late for most large employers to change their health plans for 2005, he said.

Many employers, including federal agencies, are in their “open enrollments,” which allow eligible employees to register for or change health plans.

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