Costs Keep Escalating.

• Author: Marshall, Jeffrey
• Position: Healthcare

While the economy keeps shifting clown, health care costs keep revving up. Several recently released surveys confirm the continuing trend, even if the numbers differ slightly. That's discouraging news for many companies that have aggressively tried to rein in costs, but are finding little success.

The numbers in the table on this page come from a survey of 200 companies with 1.4 million employees conducted by Watson Wyatt, the human resources consulting firm. In addition, the firm found that cost increases for post-65 retirees are expected to accelerate, from 13.3 percent this year to 15.1 percent in 2002.

Watson Wyatt's survey found that 56 percent of employers said they would raise employee contributions by as much as or more than their expected cost hikes. What's more, over 70 percent said they were considering benefit reductions or an increase in employee co-payments over the next year.

The Segal Co., a benefits consulting firm in New York, noted that health management organization (HMO) increases surpassed those at preferred provider organizations (PPOs) for the first time since it began measuring annual changes. "In general, HMO and POS (point-of-service) plans have relaxed their managed care rules and needed to raise the provider fees, resulting in higher than expected increases, Segal said.

Segal, which surveys health plan costs annually, noted that PPO and traditional fee-for-service (FFS) plan costs rose between July 2000 and July 2001 at a rate around 1 percentage point over the previous year, and managed dental plan increases were up 1 to 2 percentage points. Prescription drug costs, however, rose at a rate 1.5 points below last year's results. "The likely reason behind this decline is that many clients have aggressively renegotiated [prescription] contracts, which helps to offset increases in both drug costs and utilization," Segal noted.

Insurance giant Marsh Inc.'s healthcare survey found that in 2000, for the third consecutive year, benefit cost increases for small and mid-sized employers were more than twice the inflation rate, nearing double digits. Expenses were driven up by escalating prescription drug costs and steeper prices charged by managed care organizations. Health care costs for employers with 10-999 employees rose 9.2 percent in 2000, following increases of 8.5 percent in 1999 and 5.1 percent in 1998, Marsh...