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Health care premiums rise, more increases coming

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Group health care premiums continue to outpace inflation, and while most employers are feeling the pressure of rising health care costs, benefits experts say smaller employers may face a heavier burden.

Large employers are projecting health care costs before implementing plan design changes to increase an average of 6% in 2016, according to a National Business Group on Health survey published earlier this month.

And according to an Arthur J. Gallagher & Co. survey of smaller employers, most of which have less than 1,000 employees, released Friday, 44% reported premium rate hikes of 6% or more in 2014. Twenty-three percent saw rates in the double digits, the survey showed.

Dave Ratcliffe, Washington-based principal in the health and productivity practice with Buck Consultants at Xerox, said employer health care cost trends before measures are taken to control costs are actually higher than most surveys show.

“We see trend rates closer to 9%… not at 6%-7%,” Mr. Ratcliffe said.

According to Joe Ellis, Philadelphia-based senior vice president with CBIZ Inc., employer health care cost increases are actually lower than they have been in the past, though he said they are still averaging 7%-8% before plan design changes.

That's a problem for all employers. At a 5% average premium increase after plan design changes, employers are still facing rates “well above inflation,” said Steve Wojcik, NBGH's Washington-based vice president of public policy.

“Health care costs are going up much faster than other costs for the company,” he said, and “faster than they can generate revenue.”

The increases may be more difficult for smaller employers to control, as they are “really dependent on the insurer,” whereas larger firms can create the health plans they offer by working directly with insurers, Mr. Wojcik said. He added that historically, smaller employers have typically faced higher premium rates than large employers.

Smaller employers have a tougher challenge to bring premiums down, because they have fewer health plan members and therefore less leverage than a larger self-insured employer, Mr. Ratcliffe said.

Various factors driving costs

One of the biggest culprits of rising health care premiums is the rise in rising use of expensive specialty drugs, experts say.

The rising cost of “specialty drugs is a big issue for our clients, and we don't have answers to shift costs there,” Mr. Ratcliffe said.

High cost claims and the “sharp rise in specialty pharmacy” are the “two biggest cost drivers,” Mr. Wojcik said. Hepatitis C drugs, cancer drugs, arthritis medication and new cardiovascular medications are sending specialty pharmacy costs soaring, he said.

Changing demographics are also putting upward pressure on employers' health care costs. “As the baby boomers mature, they are working well past 65, and they cost a lot more as they mature,” Mr. Ellis said.

New enrollees in the health care system under the health care reform law may also be causing premiums to increase, as medical providers shift costs to the private sector to make up for low reimbursement rates under Medicare and Medicaid, Mr. Ratcliffe explained.

Most attempts to control health care costs aim to shift costs to workers, rather than actually manage the health care trend, said Mr. Ratcliffe.

Many employers are shifting costs to workers through high-deductible health plans. That can cause problems, however, as employees may forgo care, leading to more severe conditions down the road and subsequent higher health care costs for employers, Mr. Ratcliffe said.

Others opt to self-insure, move to narrower networks, or participate in accountable care organizations, experts say.

To actually manage costs, employers are looking to wellness programs and helping their employees better understand how to use the health care system responsibly by getting regular preventive care and using cost transparency tools, Mr. Ratcliffe said.