The good news on healthcare cost inflation is that it's no worse than it was last year and the three years before that. The bad news is that it's no better either–and remains stubbornly at more than double the rate of consumer inflation.
Despite a flurry of noise and new offerings around consumer-directed health plans (CDHPs) in the past couple of years, total health benefit costs for all the companies surveyed rose 6.1% in 2007 on average, according to the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer Human Resource Consulting. The average spending per employee reached $7,983, the survey reports. Nearly 3,000 companies with 10 or more employees participated. For larger companies (500 employees or more), the average increase was 5.1%.
Mercer notes that the persistent inflation has resulted in lower profitability for companies. For employees– whose wage increases have not kept pace and who have had to shoulder a greater portion of the cost in recent years because of cost shifting–it has resulted in less disposable income or inadequate care. For employees of some smaller companies (10 to 499 employees), the pain can be even greater–the elimination of coverage entirely. The percentage of employers with fewer than 200 workers that offer healthcare benefits dipped to 61% this year from 63% in 2006–despite the increased availability of lower-cost options such as CDHPs. There has been steady attrition in that number since 2001 when 69% offered healthcare benefits. This raises the stakes for state and federal programs that absorb some of the costs for the uninsured.
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Of course, the picture is much prettier than it was in the late 1980s and early 1990s when healthcare inflation was rising at a double-digit rate annually. Contributing to the slower growth, the survey showed that 80% of large employers use some kind of health management program as a way to control costs; 52% are promoting an employee consumerism that makes workers more aware of both the cost of individual procedures and drugs and steers them toward less expensive options.
CDHPs–which include tools such as health savings accounts or health reimbursement accounts–are one approach based on this kind of educated healthcare shopper, and according to Mercer worldwide partner Blaine Bos, CDHPs have been a factor in the recent slower growth. The numbers are still relatively low–about 5% of all covered employees use either a HSA or HRA. Only about 14% of larger companies and 7% of small and midsize companies offer CDHPs as a benefit option.
The biggest factor has no doubt been cost shifting from employer to employee. According to the Mercer survey, the average in-network PPO deductible at larger companies rose 11% for both individuals and families. Already higher deductibles at smaller companies rose a more conservative 2% for individuals and 5% for families.
However, none of the new approaches has produced the sizable declines in inflation that companies enjoyed in the mid to late 1990s with the advent of health maintenance organizations and other managed care programs. Healthcare inflation at its lowest in 1994 actually was a negative number.
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