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Employer health plans stabilize at single-digit increases

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Cost increases for self-insured and fully insured employer-sponsored health care plans will remain in the single digits for 2008--similar to 2007--thanks to increasing use of wellness and disease management programs and the consumerism movement, benefit experts say.

Employers that have impressed on employees the benefits of taking better care of their health likely will have the most favorable experience, while those that have done little more than pass on previous years' cost increases are likely to be hit the hardest, the experts say.

Even though health care cost trends may be steady for the moment, employers shouldn't breathe a sigh of relief, experts warn. Changing demographics, particularly among aging baby boomers, advances in medical technology and the anticipated introduction of genetically tailored drugs are likely to spur another cost surge in the not-too-distant future, they predict.

Lea Gerber, director of risk management and benefits at Elixir Industries, a diverse manufacturer based in Mission Viejo, Calif., said two fully insured preferred provider plans that came up for renewal recently in Tennessee and Alabama had rate increases between 3% and 7%.

For Elixir's self-insured plan, she said the 10 divisions renewing July 1 will see premium equivalents ranging from steady to increasing by 5% to 10%.

Meanwhile, at the other end of the country, the self-insured PPO plan sponsored by Towson, Md.-based Black & Decker Corp. is seeing cost increases between 7% and 9% for 2008, said Raymond Brusca, vp-benefits.

Indianapolis-based WellPoint Inc., the nation's largest health plan with nearly 35 million members, is projecting a medical cost trend of less than 8% based on first-quarter 2007 experience, a company spokesman said.

Thomson Healthcare is projecting a 6% growth rate in health care costs for 2008 based on analyzing the experience of 150 large employers in its client base, said Elizabeth Dudek, vp, practice leadership, in Ann Arbor, Mich.

"We feel the trend has held steady," she said, noting previous years' cost increases of 7.8% in 2004, 6.1% in 2005, 5.5% in 2006, and 6% this year. "We think it's going to hover there."

"I don't see any clear evidence that the pricing cycle is going one way or another. We're seeing increases in self-insured plans and HMOs in the 7% to 10% range, similar to last year," said Mark Olson, a principal at Towers Perrin in Boston. High-deductible consumer-driven plans linked to either health savings accounts or health reimbursement arrangements are "a point or two lower," he added.

By contrast, Lincolnshire, Ill.-based Hewitt Associates L.L.C. reports that initial HMO premium rates will increase by an average of about 14.1% in 2008--the highest rate increase in four years. But Jeff Smith, a senior consultant and co-leader of Hewitt's HMO rate analysis project, also pointed out that these are preliminary rate hikes that will likely decrease once negotiations are complete, as they have in previous years. The estimate is based on data collected from 160 large employers, according to a press release Hewitt issued late last week.

"In California, we're seeing some improvements in the medical trends from a year ago," said John Scatterday, senior vp at Keenan & Associates Inc. in Oakland.

He attributed the decline to a combination of forces, including a reduction in general medical inflation and increased competition among health plans.

"The competitive market pressures are better now than they were a year ago," Mr. Scatterday said. There have been a lot of mergers on the health plan side. Now they've transpired and they're refocused on the business."

Part of the reason health plan rate increases appear to be tempering somewhat is the fact that employers have adopted a range of cost containment techniques that go beyond increased cost-sharing with employees, benefit experts said.

Benefit cuts and increased employee contributions are "getting old," said Bill Sharon, a senior vp at Aon Consulting in Tampa, Fla. "They've been doing this for six years now. Instead, employers are turning to chronic condition management, wellness and consumer-driven health plans to slow the rate of cost increases."

"Were seeing the fruits of the changes employers have made in health care as far as health management," agreed Blaine Bos, a worldwide partner at Mercer Health & Benefits in Minneapolis. "So trends that were in the very low double-digits are going to be closer to 7% to 9%."

By contrast, "companies that rely on cost-sharing and cutting benefits have a higher trend than those that take a multifaceted approach around disease and population health management," said Tom Billet, a senior consultant at Watson Wyatt Worldwide in Stamford, Conn. "There is no research that shows that continually cutting benefits does anything for you long-term. It's a loss for the company, and it's a loss for the employees," he said.

The consumerism movement that began with the introduction of account-based high-deductible health plans also is having a mitigating impact on the rate of increase in health care costs overall, said Mike Thompson, a principal at PricewaterhouseCoopers L.L.P. in New York.

"The consumerism movement is far broader than consumer-driven health plans," Mr. Thompson said. "The net effect of increased cost-sharing and transparency of information is causing people to be more thoughtful in how they use the system," regardless of their health plan type.

"Some of those subtle changes are taking place in the PPO population because they're getting the same message as the people in consumer-directed. Like secondhand smoke--in a good way," Ms. Dudek said.

Though most health benefit experts acknowledge that employers are enjoying a respite from skyrocketing health plan costs, they were also quick to point out it will very likely be short-lived if history is any indicator.

"We may be hitting the bottom on the underwriting cycle," said Mr. Billet of Watson Wyatt. "It's good short-term news, just as it was back in the mid-90s, which proved to be temporary. I think that this will also prove to be temporary."

"There are major forces driving health care costs up that aren't going to change," Mr. Billet said. "Those are big-picture historical forces around issues like demographics, increasing use of technology and all sorts of other things that are underlying what's happening. I'll call those the tectonic plates of health care and health care costs," which can shift at any time.

Another example is genetically tailored drugs, he said.

"We're at the front end of the development of genetically tailored drugs that hold tremendous promise for what they can do for people clinically, but will also come at a huge cost," Mr. Billet said.