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Employer health care costs predicted to rise in 2011

Michelle Hicks

Michelle Hicks

Published surveys by several business and HR consulting firms predict health care costs will increase for employers by between 8.8 to more than 10 percent in 2011. Their analysis is being reported just as employers are working hard to comply with new provisions under the Affordable Care Act, signed into law last March. But the firms hesitate to place the blame for rising costs solely on health care reform.

In a statement this week releasing its 22nd National Health Care Trend Survey, Buck Consultants’ consulting actuary Harvey Sobel, said, “The trend factors reported in our survey reflect, in part, that health insurers anticipate higher claim costs under health care reform.” Buck predicts employer costs in 2011 to go up by more than 10 percent.

Sobel said higher costs not only reflect pressures from the new health care reform law, but also continued economic uncertainty and the possibility that the workforce remaining after recent layoffs is slightly older. Older workers tend to have higher medical costs than younger employees.

This sentiment is reflected in recent reports from two other firms. Both PricewaterhouseCoopers and Hewitt predict a rise in health care costs for business in 2011 by 9 percent and 8.8 percent respectively. And, in those reports, both organizations say health care reform only modestly contributes to the increases.

For example, in Hewitt’s study released last month, the firm reports an increase in the frequency of high-cost claims, those $50,000 and higher, which it attributes to an older workforce. PWC attributes the most significant cost increases to expected increases in hospital costs. The firm said Medicare payments to hospitals are expected to decrease in 2011 and hospitals are expected to shift those costs to business and private insurers.

Areas where health care reform is contributing directly to increased employer health care costs include provisions that expand coverage to adult children up to age 26 and the elimination of lifetime dollar limits – both impact most employers starting in January. Those costs to business are expected to be offset slightly by shifting more costs to employees.

Still, an independent government analysis says the health care cost increases Americans face is not dramatically more than it would have been without enacting health care reform. A report by independent economists at the Centers for Medicare and Medicaid Services shows that U.S. health care spending by 2019 is expected to be at $4.6 trillion with health care reform, compared to $4.5 trillion without reform.

The study’s authors said that they expect this increase will be offset by new savings in the law. For example, when more uninsured Americans are covered, it reduces the tendency of health care providers to shift costs to those who have insurance.

Nevertheless, in the immediate future, these surveys show businesses can expect to see their health care costs increase at a greater pace than the rest of the economy. These costs will continue to put pressure on employers that could delay their ability to hire, invest in research and development, and engage in other forms of spending.

Employers should be investing in health care modeling to help them anticipate the cost pressures and design the right health care plans for their populations. Plans that incentivize employees to make smarter health care consumer decisions and emphasize disease management, wellness, and prevention can help employers manage rising costs.

Communication and education about correct health plan use, leveraging generic and formulary drugs, and other health care education also helps employees spend less.

Managing health care costs is not a passive activity. Employers need to be proactive in attacking and containing this rising cost trend.

Michelle Hicks is a communications consultant with Buck Consultants. Contact her at michelle.hicks@buckconsultants.com.

About Michelle Hicks

One comment

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