Employers Expect Rate of Increase in Health Benefit Costs to Slow in 2006

8 Percent Increase Still a Strain on Businesses

For the fourth consecutive year, the increase in the cost of providing health care benefits to U.S. workers slowed as companies stepped up their efforts to control rising costs, according to the results of a forthcoming survey conducted by Watson Wyatt Worldwide and the National Business Group on Health.

According to the survey, employers expect health care benefit costs to increase a median 8 percent this year, down from the 10 percent increase they expected in 2005. The vast majority of employers surveyed ó 86 percent ó also said their health care benefit costs came in at or below budget in 2005. Employers expect prices to increase about 8 percent again in 2007.

Although health care cost increases have declined steadily since 2002, U.S. per capita spending on health care remains twice that of many other industrialized countries. In addition, the increase in health benefits prices continues to outpace the rate of growth in wages and other business costs.

Employersí Anticipated Median Annual
Health Care Benefit Cost Increase
(for current employees)

Year Percent
Increase
2002 14.7%
2003 13.0%
2004 12.0%
2005 10.0%
2006 8.0%

ìDespite slower increases and better budgeting, health care costs remain a financial burden for most U.S. employers,î said Ted Nussbaum, Watson Wyattís director of group and health care consulting in North America. ìEmployers need to think strategically about ways to control their health care costs, and they need to evaluate all proposed changes for evidence of effectiveness. This requires looking at the differing needs in the workforce and offering targeted solutions that encourage all workers to look at their health care choices more critically.î

Although virtually all employers are very or somewhat confident that they will continue to offer health care benefits 10 years from now, many are planning to implement strategies to better manage their health care benefit programs. Nearly one-third of employers (32 percent) said that in the next one to two years they will start encouraging workers to use health care services wisely while slightly less (30 percent) said they plan to increase accountability of employees to manage their own health. About one-fourth of employers plan to focus on ways to improve their workersí health.

Employers are also implementing a wide variety of cost management strategies. Nearly half of employers (47 percent) are currently auditing or reviewing who is eligible and who enrolls in their health care plans, or plan to begin doing so this year. Forty-two percent said they would absorb cost increases rather than pass additional costs on to workers.

ìMost companies remain committed to providing health care benefits for their workers and families,î said Helen Darling, president of the National Business Group on Health. ìAt the same time, leading employers are providing information and tools to help workers become more educated health care consumers. We all need to help employees understand that they donít have to keep giving their pay raises to the health care system. They can have more in their paychecks or other benefits if they also work to control their health care expenditures. Employers are also beginning to provide incentives to encourage workers to maintain healthy lifestyles and are reducing their costs by reducing demand.î