Companies Brace For Record Hikes In Health Costs

Companies have hit the wall in terms of how they're going to provide health benefits to employees, thanks to the largest two-year increase in costs since 1990, a new survey finds.

According to a poll by Mercer Human Resource Consulting, employers nationwide expect health care costs to rise 14.6 percent in 2003, a little less than 2002's 14.7 percent. The two-year increases are about 7 times the rate of overall inflation.

The pain is being felt nationwide.

“Our members are tearing their hair out; they're really pretty desperate,” Chris Biddle, spokesman for the New Jersey Business and Industry Association, tells the Star-Ledger of Newark.

Sally Welborn, Wells Fargo's vice president of corporate benefits, tells the Los Angeles Times that “Certainly, the company cannot withstand increases of this magnitude in the future.”

The Mercer survey says that companies' health costs increased from an average of $3,594 per employee in 1997 to $5,646 per worker this year, a 56-percent increase.

The reasons are varied, say experts, and include managed care backlash, hospital charges, and the costs of new technology and medicines.

The increases seem to be affecting small- and medium-sized businesses the most.

“Some small companies are seeing 20- to 40-percent increases in their health benefits costs,” Tom Bryon, president of SS&G and Associates, an employee benefits consultant, tells the Kansas City Star. “In lieu of absorbing the 40 percent, they're slashing benefits, passing on premium costs to employees, or eliminating coverage entirely.”

Peter Boland, PhD, a health care consultant, says that any other time costs have risen this steeply, there has always been some sort of intervention. Don't count on it this time.

“Now, managed care is dead as a cost-containment vehicle,” he predicts.

Bryon makes an even bolder pronouncement. “We're on a fast train to national health care,” he says.

MANAGED CARE January 2003. ©MediMedia USA