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Health care costs outpace inflation

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Two national surveys show that employers' health care costs are rising at a faster rate than overall inflation, although one survey concludes that employers that aggressively monitor and address these costs are doing a better job of keeping them in check.

The 2006 Employer Health Benefits Survey released last week by the Menlo Park, Calif.-based Henry J. Kaiser Family Foundation and the Health Research & Educational Trust found that the cost of employer-sponsored health care coverage rose by an average of 7.7% in 2006 to an average of $4,242 for single coverage and $11,480 for family coverage. Premiums in fully insured plans grew more by 8.7% compared with premium equivalents in self-funded plans, which grew by 6.8%.

Looking ahead to 2007

Meanwhile, according to preliminary results of the Towers Perrin 2007 Health Care Cost Survey, also released last week, employers will pay an average of 6% more for employee health benefits in 2007, or $4,392 for single coverage and $12,948 for family coverage.

While both surveys found a downward trend in health care price increases--the 7.7% average increase reported by Kaiser is less than the 9.2% it reported in 2005 and the 13.9% peak in 2003--both rates of increase are significantly more than the overall inflation rate, projected at 3.5% for 2006.

Moreover, the Kaiser survey indicates that premiums and premium equivalents have grown 87% over the past six years, and the survey by Stamford, Conn.-based Towers Perrin estimates that employers' health care costs have increased more than 60% over the past five years.

The surveys differed in their findings on the effectiveness of employers' attempts to manage certain diseases among their employees.

Disease management

While the Kaiser survey found that just 17% of small employers and 28% of large employers believe disease management is "very effective" in helping reduce health care spending, the Towers Perrin survey found that employers paying the lowest average premiums for their health insurance were early adopters of disease management and other types of health promotion programs.

The Towers Perrin survey found per-employee annual costs vary as much as $3,000 among similar-size companies. Total health care premiums at low-cost companies are expected to grow just 4% next year to an average of $7,224; high-cost companies are projected to pay 8% more in 2007, with premiums averaging $10,428.

Eighty-four percent of low-cost companies focus on disease management compared with 61% of high-cost companies, the Towers Perrin survey found. Low-cost companies also were found to invest in the health of their employees by providing programs and resources that encourage them to better understand and manage their health risks, the Towers Perrin survey found.

High-cost vs. low-cost

For example, 83% of low-cost companies focus on health improvement vs. 58% of high-cost companies. In addition, 76% of low-cost companies do at least some measurement of health status or risks vs. 47% of high-cost employers.

"Nearly half of low-cost companies (46%) identified themselves as either 'early adopters' or 'fast followers' in describing their organizations' approach to health benefits, while over two-thirds (69%) of high-cost companies identified themselves as 'middle of the pack' or 'wait and see,' " the Towers Perrin survey states.

The Kaiser Family Foundation/ Health Research and Educational Trust 2006 Employer Health Benefits Survey is derived from a telephone survey conducted between January and May. It includes responses from 3,159 randomly selected fully insured and self-insured public and private employers of all sizes. The full survey is available online at www.kff.org/insurance.

The Towers Perrin survey, which began in August and is still under way, includes responses from 170 of the nation's largest employers. The complete survey, expected to include responses from 350 employers, will be published later this year.