Health insurance hikes ease into single digits

By Kris B. Mamula

Pittsburgh Business Times

Updated: 8:00 p.m. ET Oct. 9, 2005



The torrid pace of health insurance cost increases will ease next year in Pennsylvania, rising a projected 8 percent -- down from the double-digit jolts seen in recent years.



A Towers Perrin survey released this week also found business increasingly squeezed by health care costs but slowing the shift of those costs to employees. Instead, business is taking the sting out of rate hikes by encouraging work force involvement in insurance cost-containment efforts. Still, some Pittsburgh-area companies say they have no choice but to pass along the cost increases to the consumer in the form of higher prices for goods and services.



"All of us are paying for these increases," said Tom Forster, vice president of Beaver Valley Alloy Foundry in Monaca, which employs 44 people. "Any increase in cost makes us less competitive in the marketplace.



"How long can it go on?"



Hourly employees at Beaver Valley already pick up about 20 percent of their health care costs, Forster said, so customers will have to absorb any additional increases.



The Towers Perrin survey, which included an equal number of health plans in the Pittsburgh and Philadelphia markets, found that gross health benefit expenditures will rise $588 per worker next year from an average annual cost of $7,800 per employee in 2005, according to Dan O'Malley, principal at Towers Perrin, an international benefits consulting company with offices in Pittsburgh. The nationwide increase is expected to be slightly higher at $597, to $8,424 annually. This amounts to a 140 percent



increase over the past decade.



Employers continue to shoulder most of the health care benefit burden, despite a trend in recent years to shift costs to the employee, O'Malley said. In Pennsylvania, cost shifting seems to have abated, he said, holding around 19 percent. Nationwide, employees pick up about 21 percent of health care coverage costs. Health care benefits are essential to a benefit package that attracts and retains a talented work force, so shifting too much of the burden to employees may be counterproductive, he said.



Among the ways business is coping with higher benefit costs is working with insurers to promote wellness and providing case management services for employees with chronic health problems, such as diabetes and asthma.



"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," said David Guilmette, managing director of health and welfare at Towers Perrin. "These companies are beginning to see positive outcomes and a significant difference in program performance."



David Taylor, vice president of communications for the Harrisburg-based Pennsylvania Manufacturers' Association, said it has been difficult for business to simply pass along higher benefit costs. Options that manufacturers are using to hold down costs include higher deductibles and co-pays for employees, he said.



The Towers Perrin national analysis found that companies with the highest per employee costs for health benefits will pay $10,022 next year, compared to $6,866 per employee for companies with the lowest costs. The disparity among some 200 health benefit programs surveyed, which cover some 5 million employees, retirees and dependents, were in measures used to hold down increases, according to Guilmette.



Retirees will pay approximately 43 percent of the total cost of their coverage next year, according to the Towers Perrin survey. Retirees under 65 will pay an average of $244 a month, or $2,928 annually, for retiree-only coverage, while retirees age 65 and older will pay an average of $108 a month, or $1,296 annually, for individual coverage.



Instead of 8 percent, small employers in the Pittsburgh area will see increases of 10 percent to 12 percent, partly because of a generally older work force, according to Cliff Shannon, president of SMC Small Business Councils, a trade group based in Churchill. What's more, some smaller businesses will be dealing with much higher increases still.



"Eight percent -- that means nothing to me," said Eileen Anderson, who with her husband, Anders, own Red Clay Tileworks, a custom ceramic tile maker in Bellevue. "If I had an 8 percent increase, I would be in heaven."



Despite having a $10,000 deductible on a policy offered by Assurant Health of Milwaukee, Wis., the Andersons saw health care premiums jump 40 percent last year, mostly because Anders Anderson reached age 55, Eileen Anderson said. The couple has been switching among insurers in recent years in an effort to reduce costs, without relief. "It's the age demographic that kills us," she said.