HEALTH CARE COSTS: May Be On The Rise Again
Today's Investor's Business Daily takes a look at early signs that health care costs may be on the rise again. While "[i]ncreases in per-worker health costs have run below the inflation rate each year since '94," recent surveys indicate that "medical care inflation may be getting a second wind." A new survey by Bethesda, MD-based Watson Wyatt Worldwide "found that employers expect health benefit costs to rise 7.5% annually, on average, over the next two to three years." Investor's Business Daily reports, "[w]hile no one expects a return to the double-digit jumps seen in the late '80s and early '90s, many companies think costs will ramp up soon," in part because most of the potential savings have already been wrung out of the shift from indemnity to managed care plans. "Only 15% of U.S. workers remain in a traditional indemnity plan, so there's not much more fruit to pick from that tree," said John Erb, a principal with New York-based William M. Mercer, Inc.
Choice Is More Expensive
Experts predict the increase will come as HMOs raise premiums to buttress their slim margins and as more employers begin to offer more expensive point-of-service (POS) plans to employees. Last year, according to Mercer, the cost of providing a worker with HMO coverage was $3,165. The cost of providing coverage through a POS plan was $3,481 -- almost 10% more. And the percentage of firms offering POS options grew from 17% in 1996 to 22% in 1997, according to a Mercer/Foster Higgins survey. If benefits experts are correct in their predictions, Investor's Business Daily reports, "rekindled inflation could not only hurt businesses but revive reform efforts at both ends of Pennsylvania Avenue" (Litvan, 3/16).