Small companies took a hit for health costs in 1999
Small companies took a hit for health costs in 1999
Small and mid-sized employers’ health benefits costs grew more steeply than those of larger employers in 1999, and the disparity is expected to widen this year, according to recently released data.
Employers with 10 to 999 employees saw their health benefits costs rise 8.5% last year, vs. a 7.2% increase for employers with 1,000 or more workers, the report said. The smallest businesses, employing fewer than 50 workers, shouldered 13% increases.
Marsh, a unit of the giant insurance brokerage Marsh & McLennan Companies (MMC), prepared the report, which is based on an annual survey by the benefits consulting firm of William M. Mercer, another MMC unit.
On average, mid-sized employers’ total health benefits costs rose to $3,836 per employee in 1999. Costs were highest in the Northeast, averaging $4,500 per employee, and lowest in the West, at $3,490 per person. Prescription drug costs shot up 14.5% among employers with 500 to 999 employees.
As the report notes, mid-sized employers have less bargaining clout with health plans than Fortune 1000 companies. In a flourishing economy, many cannot afford to trim back their health care benefits. In fact, employers sweetened benefits packages in 1999 to attract and retain workers, the report indicates.
Sixty-two percent, for example, offered dental coverage last year, compared with 58% in 1998.
With little opportunity to shed expenses, mid-sized employers are expecting their health benefits costs to rise by an average of 7.1% this year.
"In this environment, mid-sized employers need to sharpen their focus on cost-management tactics that don’t result in benefit reductions from the employees’ perspective," says Roger Edgren, head of Marsh’s employee benefits operations.
He says employers should be reviewing vendor choices, funding alternatives, and making subtle design changes, such as encouraging the use of generic prescription drugs. The report shows growth in HMO offerings and enrollment in 1999. HMO coverage cost an average of $3,055 per person, by far the least expensive option available to mid-sized employers, according to the report.
Half of all mid-sized employers in the survey offered preferred provider organizations in 1999, up from 48% in 1998. Point-of-service plans, by contrast, were offered by just 21% of employers, down from 23% in the prior year.
Another report says that despite rising costs and daily management hassles, few employers are prepared to pull the plug on their health benefits programs. The conclusion comes from benefits human resources firm William M. Mercer. Just 5% of the 276 major employers surveyed by Mercer’s consulting business say they have a high interest in getting out of the practice of providing health benefits. Merely 4% say they are highly likely to implement an exit strategy.
Rather, employers are embracing strategies to make their plans run more efficiently. Ninety-one percent of respondents are interested in Web-based "self-service" applications, such as using the Internet to help employees enroll in a health plan or choose a physician group. Almost all of them say they are likely to implement a self-service solution.
Yet many employers remain wary of "defined contribution," one of the most talked-about strategies in health benefits today. Only 45% of survey respondents are interested or moderately interested in such a strategy, while merely 8% report a high level of interest. Perhaps employers are hesitant to move ahead because of their lack of clarity on the issue, Mercer suggests. Survey respondents gave widely differing definitions of the term "defined contribution."
Some said the term describes an Internet-based health plan that includes an employer-funded savings account and catastrophic coverage. Others say it is a contribution strategy that gives employees a flat dollar amount to use with an employer-sponsored plan or to use as a voucher to buy coverage from an independent plan. Still others indicated that the strategy means limiting employers’ duties to managing and administering plans and allowing employees to buy their own plan.
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