US health crisis turns chronic

Sep 29 2005 by Brian Amble Print This Article

America's health crisis is turning chronic, with a further eight per cent increase in employers' health care expenditure predicted to push costs in 2006 above $8,000 per head - 140 per cent more than 10 years ago.

The latest hike mean that next year's gross health care expenditure is expected to rise by an average of $597 per employee, reaching an average total cost of $8,424.

The cumulative effect of years of double-digit increases means that employers are paying 140 per cent more now than they were 10 years ago.

The figures, from the 17th annual survey by Towers Perrin's HR Services Business, show that employers are continuing to shoulder the lion's share of the burden, absorbing three-quarters of the total cost increase Ė an increase of $442 per employee Ė meaning they are paying almost 80 per cent more than they spent five years ago.

Employees on average will pay $155 more in 2006, representing a 10 per cent increase from the year before and 64 per cent more than they spent five years ago.

Although cost-shifting has increased the proportion paid by employees, the 2006 survey suggests that employers recognize the need to look beyond stopgap "fixes" that simply shift costs and may have negative consequences for effective workforce management over the longer term.

Overall, the data gathered from more than 200 of America's largest employers suggests that employers will pay 80 per cent of premium costs and employees will pay 20 per cent.

But it also emerges that the average cost increase per employee would have been close to $750 were it not for efforts by employers to aggressively manage costs through vendor selection and performance management, prescription drug expenditures, care management, employee engagement and other initiatives.

"The health care cost crisis has become a chronic problem for U.S. employers and employees alike," said David Guilmette, Managing Director of Health and Welfare for Towers Perrin.

"There is a fundamental tension between managing costs and managing people that constrains how much of the cost can be shifted to employees. Given the huge cost base built up over the years and continuing inflation at rates well above CPI, employers simply have to take a longer-term view.

"With this perspective as a platform, some employers are moving toward a model that increases employees' responsibility and accountability - engaging them in a long-term solution to a problem that is not going away. And these companies are beginning to see positive outcomes and a significant difference in program performance."

Earlier this month, United Benefit Advisors, an alliance of independent benefit advisory firms, suggested that spiralling health-care costs will force a growing number of American employers to adopt a "total compensation" approach to remuneration, paying employees a single amount that they allocate themselves as take-home pay, health benefits, retirement or savings plans, or non-health benefits.

Whether or not this proves to be the case, as David Guilmette points out: "at the end of the day, employees need to recognise that a larger piece of the total compensation pie is being taken up by health care costs."

"The money has to come from somewhere, and increasingly we're seeing it come from resources set aside to reward employee performance," adds Ron Fontanetta, Principal in the Towers Perrin Health and Welfare practice.

"Health care has become a tremendous financial burden on employers, and unless health care cost increases moderate, the funds available for compensation and rewards will be reduced.

Moreover, he added: "as employees plan for retirement, they need to factor in health care premium costs because future retirees will often have to pay the entire amount."