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Study: Health care costs to rise 7.7% in 2007

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Showing more evidence that group health plan cost increases are easing, a Hewitt Associates Inc. analysis of health plans sponsored by 400 major employers projects that costs will rise by an average of 7.7% to $8,340 per employee next year.

The actual cost increase may be even less than Lincolnshire, Ill.-based Hewitt projects. Hewitt's projection is based on a survey of budgets that employers have set and the health insurance premium increases they have received through the end of September. The actual increases could be lower if, for example, employers drop their most expensive health care plans or, in the case of self-funded employers, greater cost-shifting to employees reduces utilization.

A similar analysis Hewitt conducted a year ago projected that 2006 health care plan increases--which do not reflect copayments or coinsurance for medical, hospital and prescription drug coverage--would average 9.9%. In fact, the 2006 cost increases averaged 7.9%.

The rate at which health care plan costs have been increasing has slowed dramatically in recent years. From 2001 through 2004, costs increased annually by double-digit amounts with the biggest increase in 2002, when they increased 15.2%.

Cost increases, though, moved back into single digits in 2005, when costs rose by 9.2% and increases have been slowing ever since.

There are several reasons, benefit experts say, for easing health care plan increases, with the most frequently cited reason being higher deductibles, which shift costs to employees.

Indeed, Hewitt projects that employees next year will, on average, pay $1,627 in out-of-pocket costs, up 9.3% from this year. Additionally, employees, on average, will pay $1,678 for health insurance premiums, up 6.5% from this year.

Average plan costs--which reflect employer and employee premium contributions for coverage--in point of service plans increased the most in 2006, climbing by an average of 11.4% to $8,287 per employee; health maintenance organization costs rose by an average of 7.9% to $7,547 per employee; and preferred provider organization costs increased by an average of 6.3% to $7,735 per employee.

Regionally, health plan costs in 2006 were highest in the Southwest, averaging $8,075 per employee, up 7.6%; followed by the East, where costs averaged $8,041 per employee, up 7.9%.

Costs were lowest in the Western states, averaging $7,206 per employee in 2006, up 7.8% from the prior year.

Other recently released surveys projected 2007 average health care plan cost increases of approximately 6% range.

A summary of the survey is available at www.hewitt.com.