HEALTH CARE BENEFITS: COSTS KEPT IN CHECK LAST YEAR
While health care benefit costs were kept "at bay" lastThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
year, costs are expected to rise in coming years, according to a
new William Mercer/Foster Higgins survey. The Wall Street
Journal reports that a "strong surge of workers into managed-care
plans ... helped hold the increase in overall medical costs for
active and retired employees to just 0.2%" (Winslow, 1/20). The
survey found that the percentage of people enrolled in managed
care plans increased from 52% in 1993 and 77% in 1996 to 85% in
1997 (Findlay, USA Today, 1/20). That increase "has been at the
root of corporate America's success in reversing several years of
double-digit inflation in the late 1980s and early 1990s."
However, "it also means the days of holding down costs by moving
employees to lower-cost health plans essentially are over" (Wall
Street Journal, 1/20).
Costs increased around four percent in companies whose
health plans "were basically unchanged." However, the shift to
managed care helped keep overall cost increases to an average
0.2%, or $3,924. Costs increases were shared by employers and
employees. The New York Times reports that "[c]osts for active
employees averaged $3,165 in HMOs, $3,321 in [PPOs], $3,481 in
open-access HMOs and $3,521 in fee-for-service plans." For early
retirees, the average cost decreased 4.3% to $4,985, as "many
employers pushed retirees into HMOs." In addition, employers
offering coverage to retirees under 65 dropped to 38% from 40% in
1996 and 46% in 1993 (Freudenheim, 1/20). Employers who shifted
workers into managed care plans saw savings ranging from $40 to
$356, depending on the type of plan.
John Erb, a chief author of the study, said, "Now that they
have driven all of their people into managed care, employers have
to worry just where the costs go now" (Wall Street Journal,
1/20). According to Erb, employers expect a seven percent cost
increase in 1998. Tom Billet, a vice president of the Medstat
Group, said his clients are expecting cost increases of between
five percent and 10% in 1998. He said, "A lot of the easy cost
reductions have now been accomplished, through converting people
from indemnity" plans (New York Times, 1/20). In addition, the
Wall Street Journal reports that many managed care companies
"have offered such plans with aggressive prices that threaten
profitability and other measures of financial health." Managed
care plans are now taking more of the high-cost members, which is
"driving up the portion of premium revenues that the plans must
spend on medical care." The Journal notes that several large
insurers, including Aetna U.S. Healthcare, Oxford Health Plans
Inc., and Pacificare Health Systems Inc., have all "taken
financial hits recently because they underestimated health costs
and struggled with troublesome information systems" (1/20).
Other problems cited were merger costs and rising prices for
medical services and prescription drugs.
AROUND THE NATION
The Los Angeles Times reports that employers in California
are concerned that the large "number of major mergers and
acquisitions among California HMOs last year will lead to ...
increases in 1998 and beyond." Mercer consultant Kirby Bosley
said, "[E]mployers are concerned that the ... decline in the
number of players in the marketplace will make their negotiations
more difficult in 1998" (Olmos, 1/20). The Mercer study found
that "Atlanta led the country with an 8.6% hike in costs, while
Cleveland tied with Philadelphia for second at 5.2% (Stark,
Philadelphia Inquirer, 1/20). Health costs in the Baltimore-
Washington area dropped 2.3% in 1997, the Baltimore Sun reports,
but costs in the region are already increasing (Salganik, 1/20).
In Atlanta, costs increased 8.6% to $3,978. The Atlanta Journal-
Constitution reports that according to Mercer analyst Lew Yeouze,
most of the increases came from the popularity of point-of-
service plans in Atlanta, which are more expensive than HMOs.
Although the South in general had higher average increases than
the rest of the country, health care costs in the South are still
the lowest nationally (Miller, 1/20). The cost of health care in
Tennessee remained lower than the national average, and
enrollment in managed care is also lower in that area than in
other regions (Campbell, Memphis Commercial Appeal, 1/20). In
Connecticut, large employers saw 2.2% decreases in the cost of
health insurance in 1997 (Levick, Hartford Courant, 1/20).