Employers Face 10.6 Percent Health Care Cost Increases, Says Aon Consulting

Aon
August 12, 2008

Health care costs are expected to increase on average 10.6 percent in the next 12 months, according to Aon Consulting Worldwide, the global human capital consulting organization of Aon Corporation.

Aon Consulting surveyed more than 70 leading health care insurers, representing more than 100 million insured individuals, and found that health care costs are projected to increase by 10.6 percent for HMOs, 10.5 percent for POS plans, 10.7 percent for PPOs and 10.5 percent for CDH plans. These represent the lowest trend rate increases since the study began in 2001.

http://aon.mediaroom.com/index.php?s=43&item=1285

And…

PwC Health and Wellness Touchstone Survey Results

PricewaterhouseCoopers
June, 2008

561 companies across the United States responded to the survey.

Self-insurance is the primary funding mechanism for respondent companies.

Over 65% of survey participants said that their medical plan cost increases for 2007 over 2006 and 2008 over 2007 (before plan design changes) will be in excess of 5%.
– Over 30% believe increases will be over 10%
– Over 7% believe increases will be over 15%
(A bar graph indicates that the ‘07/’08 average trend is about 7.4% for companies with less than 5000 employees, and 6.0% for those with greater than 5000 employees.)

Future Solutions: Cost Shifting

– 41% of survey participants plan to increase employee contributions over the next two years
– 38% of survey participants plan to increase medical plan cost sharing through plan design changes over the next two years

http://www.pwc.com/extweb/pwcpublications.nsf/docid/574877A4F50E390285257483005250AE?OpenDocument

The health care cost data from these two consulting firms are important because they represent the increases in the costs of employer-sponsored coverage – the Aon survey representing the costs of private health insurance plans, and the PricewaterhouseCoopers survey representing the costs for self-insured employers. A few conclusions can be drawn from these surveys.

• Although reports of the Aon survey celebrated the “lowest trend rate increases since the study began in 2001,” the increases continue to be far in excess of the rate of inflation. The mainstay of health care coverage for the majority of us – employer-sponsored plans – is becoming ever less affordable. Private insurers and self-insured employers have not been able to moderate this trend.
• The increases for self-insured employers are not as great as for employers that depend on private health insurance plans. This is further evidence that the private insurers have fallen far short of their claims that they have been effective in controlling health care costs. The opposite is true. The waste of their administrative excesses is placing a greater financial burden on the purchasers of their plans.
• Although the increases for the self-insured are not as great, they still demonstrate that employers themselves have not been successful in harnessing the excessive costs in health care.
• The Aon survey demonstrates that the rates for consumer-directed plans (CDH) continue to increase as much as the other models of private insurance plans. CDH plans are not a solution for rising health care costs.
• Employers are continuing to seek relief by shifting more of the costs to their employees through greater employee contributions and innovative plan designs that will only compound the rapidly growing problem of under-insurance.

Employers control health care coverage for close to 60 percent of us. In spite of this buying power, they have been unable to control cost increases. The private insurers have only made the problem worse. We do understand where much of the waste is occurring (administrative excesses, detrimental high-tech excesses, inappropriate pricing, lack of an adequate primary care infrastructure, etc.), but we haven’t established an effective financing system that would address these cost and quality problems.

The solution is simple. We merely need to combine all health care funds into a single national health program. The monopsony that would be created (a single buyer of health care services) would have the market power to reduce the waste while realigning incentives to provide us with affordable access to a high quality health care delivery system. Monopsonies in the private sector can be quite nefarious, but our own beneficent public monopsony would serve us all well.