Survey: Company Health-Care Costs to Rise 9% in 2010

Despite the worst recession in 25 years, U.S. employers can expect to see their health-care costs rise by 9% next year, according to a new report by PricewaterhouseCoopers' Health Research Institute. As a result, 42% of employers expect to increase the amount that employees must contribute to health benefit plans, and 41% expect to increase the amount of co-pays, deductibles, and other health costs the employee must pay.

The only good news: The 9% climb is slightly lower than the increases of the past two years. Medical costs to employers rose 9.2% in 2009 and 9.9% in 2008. But the health-care inflation rate for corporations still significantly outpaces overall inflation and the increases in worker earnings. It is even higher than the health-care inflation rate for the nation as a whole, currently running at 6.9%.

The consulting firm said that, in the last five years, health insurance premiums for employees have increased four times faster than wages. And the recession is actually having a somewhat perverse effect on costs, according to Pricewaterhouse principal Michael Thompson, because employees worried about losing their jobs, and thus their insurance coverage, are accelerating their use of health care while they can still afford it. Other factors driving the increase: the rising cost of care, the aging of the workforce, and the increasing rate of obesity.

Shifting Costs to Employees

Employers do not plan to get out of the insurance game, however. "Health insurance is a benefit that is very much valued by employees," Thompson says. "Companies will literally try everything else before dropping coverage altogether." Instead, they are shifting more and more of the cost of that coverage onto employees. Workers now pay roughly 25% of their insurance premium, says Thompson, and that share is heading toward 30%.

The PricewaterhouseCoopers report, Behind the Numbers: Medical Cost Trends for 2010, is based on interviews, analysis of published reports, and a survey of more than 500 employers and numerous provider-based health plans.Health-care reform legislation now under debate in Washington may be partly responsible for the slight downtrend expected in health-care costs next year, Thompson said. Health-care providers may be voluntarily holding down increases in their charges to avoid forced controls from any federal law. "The focus on health-care reform during the Clinton Administration had a significant impact on medical inflation," he said. "Providers were very cognizant of not being outliers in a period of high scrutiny."

Meanwhile, employers are trying to hold down costs by offering work-related wellness plans that encourage healthier lifestyles. The benefit of such programs is still very much up in the air, however. The survey found that more than two-thirds of employers offer wellness and disease management programs but few said they are very effective at lowering costs.

There has also been an accelerating shift to high-deductible health plans. The insurance industry estimates the number of workers in such plans at 6 million in 2008, about 15% of all workers, up from 1 million in 2005. The fastest growing type of policy in this category is the health savings account that allows workers to set up a tax-deductible fund for health costs. But in the Pricewaterhouse survey, 42% of employers said that less than half of employees with health savings accounts were adding money to their tax-deductible account, making them more likely to delay seeking care.

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