Employer Premiums to Rise 12.7% in 2002, Mercer Survey Finds

The cost of employers' health premiums rose 11.2% in 2001 reaching an average of $4,924 for every worker, and will likely rise an additional 12.7% next year, according to a new nationwide survey of 2,800 large and small businesses by the consulting firm William M. Mercer (Freudenheim, New York Times, 12/10). The increase was roughly five times the overall rate of inflation, and marked the fourth straight year of premium increases (Loyd, Philadelphia Inquirer, 12/10). Blaine Bos, a Mercer principal and co-author of the survey, said, "We're going to be looking at a period of about four years of double-digit inflation" (Martinez, Wall Street Journal, 12/10).

As a result of the premium increases, many employers are looking to increase employee cost-sharing next year, the New York Times reports. The new survey found that 40% of employers with 500 or more employees -- a group whose costs rose 12.1% this year, to $5,162 per employee -- said they would require employees to pay a greater share of their health expenses next year (New York Times, 12/10). That increase will follow a year in which the median "in-network" deductible among preferred provider plans -- now the most popular type of managed care plan -- rose from $250 to $500 (Wall Street Journal, 12/10). Seventeen percent of small employers -- those with fewer than 500 employers -- required PPO deductibles of $1,000 or more (Silber, Contra Costa Times, 12/10). The previous largest median deductible increase in the 16 years the survey has been conducted was $50, Bos said. He added that employees can expect to pay an average of 18% more in premiums in 2002. More employers also said they are looking to introduce defined contribution plans, in which employees receive a fixed yearly sum to spend as they wish on their health care, giving them a greater incentive to seek cheaper alternatives such as generic drugs and less expensive providers. In the Mercer survey, 29% of employers with more than 20,000 workers said they were "somewhat or very likely" to adopt this type of plan within the next two years (Wall Street Journal, 12/10). The survey also found that 23% of large employers offered supplemental health coverage to Medicare-eligible retirees this year, down from 24% last year and 41% in 1995.

The Mercer survey also found that the percentage of large employers offering health coverage to domestic partners increased from 12% in 2000 to 16% this year. Among companies with at least 20,000 workers, the rate rose from 24% to 34%. Tracy Cassidy, a principal in Mercer's Washington, D.C., office, said that domestic-partner benefits, including those for same-sex partners, are becoming an "important tool" for recruiting and retaining employees (Brubaker, Washington Post, 12/10).

The following is a quick look at some state- and local-level coverage of the Mercer survey:

• California: Among large employers in Northern California, health costs increased 13.5% to $5,480 per employee (Colliver, San Francisco Chronicle, 12/10).
  
• Connecticut: Employers expect a 14% increase in costs next year, slightly higher than the national average (Levick,
  Hartford Courant, 12/10).
  
• New Jersey: The 66 large state employers surveyed by Mercer said they expected an average 11% premium increase next year (Fitzgerald, Newark Star-Ledger, 12/10).
  
• North Carolina: The state's 13.5% increase in health costs this year "le[d] a wave of increases across the South that lost the region its longtime reputation as the nation's most affordable health care market" (Fisher, Raleigh News and Observer, 12/10).
  
• Virginia: Employers reported a 12% rise in health costs this year (Rayner,
  Richmond Times-Dispatch, 12/10).