While healthcare costs are projected to increase at a lower rate in 2012 compared with 2011, the average cost per employee is expected to surpass the US$10,000 mark for the first time next year, according to research by Aon Hewitt.
The 2012 average healthcare premium rate increase will be 7%, which is slightly lower than the 7.5% mark in 2011 and on par with the 6.9% increase in 2010. However, the average total healthcare premium per employee for large companies is projected to be US$10,475 in 2012, up from US$9,792 in 2011 and US$9,111 in 2010.
The amount employees will be asked to contribute toward this premium cost in 2012 is US$2,306 (22% of the total healthcare premium), compared with US$2,084 in 2011 (21.3% of the premium) and US$1,952 in 2010 (21.4% of the premium).
Meanwhile, average employee out-of-pocket costs, such as co-payments, co-insurance and deductibles, are expected to be US$2,275 in 2012, compared with US$2,007 in 2011 and US$1,691 in 2010.
A number of factors are driving the projected increase in healthcare costs for 2012. Employers continue to experience an increase in the quantity and cost of catastrophic claims, as slower levels of hiring have resulted in slightly older workforces that are more prone to costly medical conditions. In addition, generally poorer health—leading to increases in costly conditions such as diabetes and heart disease—makes it difficult for employers to deploy tactics that drive short-term cost savings. As a result, employers continue to ask employees to absorb increases through a combination of out-of-pocket costs and increased payroll contributions.
“In what continues to be an uncertain economic environment, organizations cannot afford healthcare costs growing at 7% each year,” says John Zern, executive vice-president and the Americas’ practice director for health benefits with Aon Hewitt.
“While healthcare reform continues to represent potential systemic change in a few years, employers will continue to shift cost to employees in order to keep company costs to a manageable level.”
Cost by plan type
On average, Aon Hewitt forecasts that companies will realize 2012 cost increases of 7.8% for health maintenance organization plans (HMOs), 6.6% for preferred provider organizations (PPOs) and 6.6% for point-of-service (POS). That means, from 2011 to 2012, the average cost per person for major companies is estimated to increase from $10,344 to $11,151 for HMOs; $9,417 to $10,038 for PPOs; and $10,375 to $11,059 for POS plans.
“The HMO trend continues to be a cause of concern for employers,” says Tim Nimmer, Aon Hewitt’s chief healthcare actuary. “While HMOs have higher premium costs, they offer lower out-of-pocket costs that employees value. If the HMO trend continues to outpace PPO and POS trends, employers will be forced to discontinue current HMO contribution levels or eliminate HMO offerings altogether.”
Employer action to mitigate trend
Against this backdrop, employers are focused on both short- and longer-term trend mitigation while awaiting further regulations related to healthcare reform.
“In addition to sharing costs with employees, organizations are implementing more aggressive strategies to incent participants to understand, and manage, their health,” says Jim Winkler, large market segment leader of the health benefits practice with Aon Hewitt.
“Some employers are adopting the mindset that says, ‘If you are going to spend a lot of house money, you need to play by house rules,’ including completing a health-risk questionnaire, participating in prevention and wellness plans, and better managing chronic conditions.”