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Per-Employee Health Coverage to Cross $10,000 Threshold
 

By Stephen Miller, CEBS  10/7/2011

While health care costs in the U.S. are projected to increase at a lower rate in 2012 than in 2011, the average cost per employee (taking into consideration all coverage levels) will surpass the $10,000 mark for the first time, according to Aon Hewitt, an HR consulting and outsourcing firm.

According to the firm's forecast:

The 2012 average health care premium rate increase will be 7 percent in 2012, slightly lower than the 7.5 percent mark in 2011 and on par with the 6.9 percent increase in 2010.

The average total health care premium per employee for large companies will be $10,475 in 2012, up from $9,792 in 2011 and $9,111 in 2010.

Employee contributions toward the premium cost will be $2,306 (or 22 percent of the total health care premium) vs. $2,084 in 2011 (or 21.3 percent of the total health care premium) and $1,952 in 2010 (or 21.4 percent of the total health care premium).

Average employee out-of-pocket costs, such as co-payments, co-insurance and deductibles, will be $2,275 in 2012 vs. $2,007 in 2011 and $1,691 in 2010.

Aon Hewitt's data is derived from the firm's Health Value Initiative database, which captures health care cost and benefit data for 371 large U.S. employers representing 13.1 million participants.

As previously reported…

In a survey by the National Business Group on Health, large U.S. employers estimated that their health care benefit costs will increase an average of 7.2 percent in 2012—slightly lower than the 7.4 percent average increase in 2011 (see the SHRM Online article "Large U.S. Employers Revamping Health Benefits for 2012").

According to a survey by HR consultancy Mercer, in 2012 the average growth in U.S. health benefit costs is expected to slow to 7.1 percent for group health plans that make no cost-cutting benefit changes and to 5.4 percent for plans that make benefit changes—still well above general inflation and growth in workers’ earnings. In 2011, Mercer found that health plan costs rose by 9.8 percent for plans that made no benefit changes and by 6.4 percent for plans that cut back or otherwise redesigned their benefits (see the SHRM Online article "Slower Health Benefit Cost Growth Seen for 2012.")

Annual premiums for employer-sponsored family health coverage in the U.S. increased to $15,073 in 2011, up 9 percent from 2010, according to the Kaiser Family Foundation (KFF)/Health Research & Educational Trust (HRET). On average, American workers paid $4,129 and employers paid $10,944 toward those annual family coverage premiums. For worker-only health coverage, premiums increased 8 percent in 2011 to reach $5,429 annually. Workers on average paid $921 toward this coverage (see the SHRM Online article "Average Family Health Premiums Top $15,000 in 2011.")

Upward Pressure

A number of factors are driving the projected increase in health care costs for 2012. Among these:

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 whose members are more prone to costly medical conditions.

Generally poorer health—leading to increases in costly conditions such as diabetes and heart disease—make 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 health care costs growing at 7 percent each year," said John Zern, executive vice president and the Americas practice director for health and benefits with Aon Hewitt. "While health care reform continues to represent potential systemic change in a few years, employers will continue to shift costs to employees in order to keep company costs to a manageable level."

Cost by Plan Type

On average, Aon Hewitt forecasts that companies will experience 2012 cost increases of 7.8 percent for health maintenance organization plans (HMOs), 6.6 percent for preferred provider organizations (PPOs) and 6.6 percent for point-of-service (POS) plans.

From 2011 to 2012, the average cost per person for major companies is estimated to have increased from $10,344 to $11,151 for HMOs, from $9,417 to $10,038 for PPOs and from $10,375 to $11,059 for POS plans. Costs are plan costs on a per employee basis, including employee premium contributions. 

Year

HMO

PPO

POS

National

2012*

$11,151

$10,038

$11,059

$10,475

2011

$10,344

$9,417

$10,375

$9,792

2010

$9,506

$8,821

$9,541

$9,111

2009

$8,821

$8,297

$8,925

$8,527

2008

$8,213

$7,888

$8,467

$8,044

2007

$7,604

$7,528

$8,153

$7,586

2006

$6,995

$7,350

$7,851

$7,206

2005

$6,488

$6,913

$7,048

$6,677

*Projections.
Source: AON Hewitt.

"The HMO cost trend continues to be a cause of concern for employers," said Tim Nimmer, Aon Hewitt's chief health care actuary. "While HMOs have higher premium costs, they offer lower out-of-pocket costs that employees value. If the HMO cost trend continues to outpace PPO and POS cost trends, employers will be forced to discontinue current HMO contribution levels or eliminate HMO offerings altogether."

2011 Cost Increases by Major Metropolitan Area

In 2011, major U.S. markets that experienced rate increases higher than the national average included Orlando (11.1 percent), New York City (9.5 percent), Orange County (9.1 percent), Houston (8.9 percent), Boston (8.6 percent) and Los Angeles (8.5 percent).

Conversely, Detroit (5.8 percent), Atlanta (6.6 percent), Minneapolis/St. Paul (7.2 percent) and San Francisco/Oakland/San Jose (7.2 percent) experienced lower-than-average rate increases in 2011.

Employer Action to Mitigate Trend

Against this backdrop, employers are focused on short- and longer-term cost trend mitigation while awaiting further regulations related to health care reform, AON Hewitt found.

"In addition to sharing costs with employees, organizations are implementing more aggressive strategies to incent participants to understand, and manage, their health," said Jim Winkler, large market segment leader of the health and benefits practice at the firm.

"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," he noted.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related Articles:

Costs of Employer Health Plans Vary Widely by State, SHRM Online Benefits Discipline, October 2011

Slower Health Benefit Cost Growth Foreseen in 2012, SHRM Online Benefits Discipline, September 2011

Average Family Health Premiums Top $15,000 in 2011, SHRM Online Benefits Discipline, September 2011

Higher Health Spending Wiped Out Income Gains, SHRM Online Benefits Discipline, September 2011

Large U.S. Employers Revamping Health Benefits for 2012, SHRM Online Benefits Discipline, August 2011

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