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High-deductible plans and wellness programs keep health care costs low

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Employers' move to high-deductible health plans and greater use of generic drugs and wellness programs are limiting increases in health care costs, with no sign that premiums will surge in the near future.

In 2014, group health plan premiums for family coverage increased 3% to an average of $16,834 per employee, according to a Kaiser Family Foundation survey of more than 2,000 employers released last week. In 2013, premiums for family coverage increased an average of 3.8%.

The cost of single coverage increased an average 2.4% to $6,025 this year, following a 4.8% increase in 2013, according to the survey.

“We are seeing a historic moderation of premium increases,” Kaiser Family Foundation President Drew Altman said during a briefing.

Mr. Altman said employer adoption of high-deductible plans has increased employees' “skin in the game” in paying health care costs.

According to the survey, premiums for family coverage this year are 26% higher than 2009, a major easing compared with the 72% increase in premium costs racked up from 1999 to 2004.

Benefits experts say the surge in employee enrollment in high-deductible consumer-driven health plans, which rose to 20% this year vs. 8% in 2009, is a major reason for the smaller health plan cost increases in recent years.

In fact, plan deductibles have soared. The average deductible for single coverage this year is $1,217 vs. $616 in 2007.

As a result of having to pick up more costs, employees “will seek a less expensive medication, or go to an urgent care center rather than a hospital emergency room,” said Michael Thompson, a principal at PricewaterhouseCoopers L.L.P. in New York.

“With higher deductibles, you think twice about what you need and the best place to go for treatment,” said Tracy Watts, a senior partner and national health reform leader at Mercer L.L.C. in Washington.

Employers say an increased focus on wellness also is helping to keep health care costs in check. For example, the School District of Palm Beach County, Florida, expects health care cost to increase just 2.5% this year, with its wellness programs getting much of the credit.

“We attribute the low cost increase to our wellness programs — targeted diabetes health plan, more preventive care,” said Dianne Howard, the school district's director of risk and benefits management. “Over 80% of employees and covered spouses had a physical and checked their cholesterol and glucose levels in each of the past three years. This has led to catching health problems before they get more serious and more costly.”

Growing use of generic prescription drugs is another factor holding down costs.

“Every year, we see an increase in generic drugs that are dispensed,” said Harvey Sobel, a principal and consulting actuary at Buck Consultants at Xerox in Secaucus, New Jersey.

In addition, the number of people who lack health insurance has declined because of the federal health care reform law. That has resulted in hospitals seeing a reduction in uncompensated care, a cost they shifted to insured patients in the form of higher charges, said Michael Morrow, a senior vice president with consultant Aon Hewitt in Denver.

Still, there is uncertainty about how long health care plan cost increases will remain in check.

“No one knows for sure when and if costs will start to escalate,” Mr. Altman of the Kaiser Family Foundation said.

Others are optimistic that cost increases will remain modest. “I don't see any reasons why 2015 should be that much different compared to where we are now,” Mr. Morrow said.

In a recent Mercer survey, employers expected their health care costs to increase an average of 3.9% in 2015 after making plan design changes. While that projected increase is substantially higher than 2013's average increase of 2.1% — the smallest since 1997 — it still is lower than other recent years. For example, costs increased by an average of 4.1% in 2012 and 6.1% in 2011.

With cost increases remaining low, the once-pervasive employer frustration about their inability to hold health care costs in check has largely evaporated. “There is not a sense of hopelessness. Employers are using cost management tools, and they are having an impact,” said Beth Umland, Mercer's director of research and benefits in New York.

And while the cost of health care services continues to outpace overall inflation, the gap has narrowed. In the 12-month period ending in July, the cost of medical services rose 2.5% vs. a 2% increase in the consumer price index, according to the Bureau of Labor Statistics. By contrast, the cost of medical services rose 3.5% in 2010 vs. 1.6% for the consumer price index.