Per worker health costs could exceed $10K

The average health care premium per employee for large employers is believed to hit $10,475 in 2012, a jump from $9,792 in 2011.

October 3, 2011 By Amanda McGrory

An aging work force, poor employee health and costly medical conditions are expected to push health care costs per employee past the $10,000 mark for the first time in 2012. 

According to an analysis by Aon Hewitt, the average health care premium per employee for large employers is believed to hit $10,475 in 2012, a jump from $9,792 in 2011, and $9,111 in 2010.

Still, health care costs are expected to grow at a lower rate in 2012 than 2011. In 2012, the analysis finds that the average health care premium rate will grow by 7 percent, a decline from 7.5 percent in 2011, which is similar to the 6.9 percent increase in 2010.

The amount employees will be required to contribute toward 2012’s premiums is $2,306, amounting to 22 percent of the total health care premium. In 2011, the contribution amount was $2,084 at 21.3 percent of the total health care premium), and the 2010 cost was $1,952 at 21.4 percent of the total health care premium. The average employee out-of-pocket costs are also growing, as the projected average is $2,275 in 2012, compared to $2,007 in 2011 and $1,691 in 2010.

Aon Hewitt’s analysis reveals that there are several factors driving the projected increase in 2012 health care costs. Employers are still facing more frequently and costly catastrophic claims, and as the work force continues to grow older, there are more employees prone to expensive medical conditions.

Much of the work force is also in poor health, which leads to pricey conditions, such as diabetes and heart. This leads to more employers increasing the combination of out-of-pocket cost and payroll contributions.

“In what continues to be an uncertain economic environment, organizations cannot afford health care costs growing at 7 percent each year,” says John Zern, executive vice president and the Americas practice director for health and benefits at Aon Hewitt. “While health care reform continues to represent potential systemic change in a few years, employers will continue to shift cost to employees in order to keep company costs to a manageable level.”

In 2012, Aon Hewitt anticipates that companies will face average cost increases of 7.8 percent for health maintenance organization plans, 6.6 percent for preferred provider organizations and 6.6 percent for point-of-service.

Based on this data, from 2011 to 2012, the average cost per person for major companies is estimated to increase from $10,344 to $11,151 for HMOs, $9,417 to $10,038 for PPOs and $10,375 to $11,059 for POS plans.

“HMO trend continues to be a cause of concern for employers,” says Tim Nimmer, Aon Hewitt’s chief health care actuary. “While HMOs have higher premium costs, they offer lower out-of-pocket costs that employees value. If HMO trend continues to outpace PPO and POS trends, employers will be forced to discontinue current HMO contribution levels or eliminate HMO offerings altogether.”

The analysis also shows that major U.S. markets underwent rate increases higher than the national average in 2011, including Orlando, Fla., at 11.1 percent; New York City at 9.5 percent; Orange County, Calif., at 9.1 percent; Houston at 8.9 percent; Boston at 8.6 percent; and Los Angeles at 8.5 percent. Other areas experienced lower-than-average rate increases in 2011, including Detroit at 5.8 percent, Atlanta at 6.6 percent, Minneapolis/St. Paul at 7.2 percent and San Francisco/Oakland/San Jose at 7.2 percent.

With this in mind, employers are focused on both short- and longer-term trend mitigation as they await further health care reform regulations.

“In addition to sharing costs with employees, organizations are implementing more aggressive strategies to incent participants to understand and manage their health,” says Jim Winkler, large market segment leader of the health and benefits practice at Aon Hewitt. “Some employers are adopting the mindset that says, ‘If you are going to spend a lot of house money, you need to play by house rules,’ including completing a health-risk questionnaire, participating in prevention and wellness plans, and better managing chronic conditions.”  

Aon’s prediction on health coverage costs is the latest out of string of analysis from health care research groups and consulting organizations. At the end of September, consultant Mercer concluded health insurance costs will rise 5.4 percent in 2012. That compares with an average hike of 6.4 percent this year and it would be the smallest increase since 1997, Mercer said.

On Sept. 27, Kaiser released its health cost study, which estimates a 9 percent hike on family health coverage.