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September 20, 2005
Health Costs to Grow More Slowly in '06 (If Benefits Are Trimmed)


A consultant's survey of 1,883 employers shows their projected healthcare costs "moving in the right direction" for 2006--as long as they continue to cut benefits and take other steps to manage costs.

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Mercer Human Resource Consulting said it found that if employers simply renewed their current medical plans, making no changes, their average cost increase would be nearly 10 percent, which is about three times the rate of general inflation. "For many employers," Mercer remarked, "an increase of that size just isn't manageable."

So when asked what their actual cost increase for 2006 will be, after making changes in their plans, employers predicted an average increase of 6.4 percent.

For many, plan changes will mean shifiting more costs to employees, Mercer said.

"We used to think of cost-shifting as something you could do only every so often. But we're seeing a new willingness on the part of employers--born of desperation--to shift cost in successive years to achieve acceptable cost increases," said Blaine Bos, Mercer's Minneapolis office leader for health and group benefits. "At the same time, we're helping many employers with longer-term initiatives such as health management and consumerism, with encouraging results."

Last year, according to Mercer's National Survey of Employer-Sponsored Health Plans 2004 , costs rose 7.5 percent for all employers. But large employers (500 or more employees) experienced a much sharper increase (9.0 percent) than smaller employers (5.5 percent). Small employers are much more likely to use insured, rather than self-funded, health plans, and an effect called the underwriting cycle brought lower prices in the insured health plan market, Mercer said.

In 2006 small employers will again fare better than large ones, although the difference will not be as marked as in 2004, according to Mercer. Large employers predict an average final increase of 6.8 percent for 2006, compared to 5.8 percent among small employers.

When asked about the types of changes they would make to reduce their cost increase for 2006, nearly two-thirds of the large employers surveyed (62 percent) said they would shift cost to employees. Cost-shifting tactics include increasing the percentage of premium paid by the employee (39 percent of large employers), or raising deductibles, copayments, coinsurance, or out-of-pocket maximums (32 percent). An additional 17 percent said they will increase cost-sharing some other way.

With cost rising more slowly for small employers, a smaller percentage of them (35 percent) said they would shift cost to employees in 2006. "Small employers also have less flexibility to tinker with plan design," Bos said. "They're most likely to shop around for a cheaper plan."

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