News and Commentary

Premium Costs Rise At Higher Rate

In 2011, high medical claim costs, the aging population, and changes brought about by health care reform are all going to contribute to a health care cost increase that will be higher than in any of the past five years. Hewitt Associates, the human resources consulting and outsourcing company, projects an 8.8 percent average premium increase for employers, compared to 6.9 percent in 2010 and 6 percent in 2009.

“These data should be seen as an alarm and a rallying cry,” says Jim Winkler, managing principal in Hewitt’s health management consulting practice. “At a certain level it’s an indictment of our collective inability to control health care costs.”

In the analysis, when cost by plan type was broken out, health maintenance organizations saw an increase of 7.8 percent in 2010, point-of-service plans had a jump of 6.9 percent, and preferred provider organizations saw an increase of 6.3 percent.

Hewitt forecasts that in 2011, purchasers will have average cost increases of 8.5 percent for PPOs and POS plans. They will see an average cost increase of 9.4 percent for HMOs. That means that from 2010 to 2011, the average cost per single member for major companies will increase from $8,671 to $9,408 for PPOs; $9,373 to $10,254 for HMOs; and $9,747 to $10,575 for POS plans.

Another factor driving the cost increase, says the analysis, is the amount of charges for, and frequency of, catastrophic claims. The analysis also cites a slower pace of hiring, which leaves employers with slightly older workforces that are more prone to costly medical conditions.

The outlook appears bleak, but Winkler says that “there’s clearly an opportunity for health plans to ramp up their game, and the more that plans can develop measurably effective programs that can help mitigate those costs, employers are going to be interested. Organizations that can come up with those ideas will create opportunities for revenue growth, especially if they can prove that their solutions work.

“The rallying cry is for employers, health plans, and individuals to start thinking and acting differently to find ways to reduce the rate of cost increase, he says. Despite passage of health reform, we had high cost before and we have high cost after. It doesn’t matter if the bill promotes the use of health exchanges — or any other programs. If the employer model falls apart, we’ve got a big problem.”

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