Aon Hewitt: Average Cost of U.S. Health Coverage per Employee Is Expected to Exceed $10,000 in 2012
While health care costs are projected to increase at a lower rate in 2012 compared to 2011, the average cost per employee will surpass the $10,000 mark for the first time next year, according to Aon Hewitt, the global human resource consulting and outsourcing business of Aon Corporation.
According to Aon Hewitt, a number of factors are driving the projected increase in health care cost for 2012. Employers continue to experience an increase in the quantity and cost of catastrophic claims, as slower levels of hiring have resulted in slightly older workforces who are more prone to costly medical conditions. In addition, generally poorer health – leading to increases in costly conditions such as diabetes and heart disease – make it difficult for employers to deploy tactics that drive short-term cost savings. As a result, employers continue to ask employees to absorb increases through a combination of out-of-pocket cost and increased payroll contributions.
"In what continues to be an uncertain economic environment, organizations cannot afford health care costs growing at 7 percent each year," said John Zern, executive vice president and the Americas Practice Director for Health & Benefits with 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."
Cost by Plan Type
On average, Aon Hewitt forecasts that companies will realize 2012 cost increases of 7.8 percent for health maintenance organization plans (HMOs), 6.6 percent for preferred provider organizations (PPOs) and 6.6 percent for point-of-service (POS). That means 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," said 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."
In 2011, major U.S. markets that experienced rate increases higher than the national average included Orlando (11.1 percent), New York City (9.5 percent), Orange County (9.1 percent), Houston (8.9 percent), Boston (8.6 percent) and Los Angeles (8.5 percent). Conversely, Detroit (5.8 percent), Atlanta (6.6 percent), Minneapolis/St. Paul (7.2 percent) and San Francisco/Oakland/San Jose (7.2 percent) experienced lower-than-average rate increases in 2011.
Employer Action to Mitigate Trend
Against this backdrop, employers are focused on both short- and longer-term trend mitigation, while awaiting further regulations related to health care reform.
"In addition to sharing costs with employees, organizations are implementing more aggressive strategies to incent participants to understand, and manage, their health," said Jim Winkler, Large Market Segment leader of the Health & Benefits Practice with 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."
About the Data
Aon Hewitt's data is derived from the Aon Hewitt Health Value Initiative database, which captures health care cost and benefit data for 371 large U.S. employers representing 13.1 million participants, 1,300 plans and $51.4 billion in 2011 health care spending