New York, N.Y. -- According to the 2005 Towers Perrin Health Care Cost Survey, employers can expect an 8 percent increase in 2005 health care costs and, thus, the first significant break in the double-digit cost spiral in over half a decade. But before employers and employees rejoice, closer analysis reveals that, dollar for dollar, next year's cost increase, at an average of $582 per employee, is still unsustainable for most employers. On the positive side, this increase would have been close to $700 but for employer efforts to improve efficiency through vendor management and care management initiatives.
These observations are drawn from top line results of the annual survey, now in its 16th year and conducted by Towers Perrin's HR Services Business. This year's survey includes data on the health benefit programs provided by 200 of the nation's largest employers, covering over 4.5 million U.S. employees, retirees and dependents.
"Don't be fooled into thinking that total costs will be significantly lower this year than in years past," says Jim Foreman, Managing Director of Global Health and Welfare for Towers Perrin. "The cumulative effect of soaring costs year over year has created a bigger cost base, which means that, while this year's percentage increase creates an appearance of lower costs, the increase in the actual dollar amount is similar to years past.
"The good news is that, while employers have simply shifted some costs to employees through benefit design changes, their efforts to control the underlying drivers of health care cost increases are beginning to make a difference," says Foreman. "Specifically, care management and vendor management initiatives have cut approximately two points off the average pace of cost increases for employers who have put these measures into place."
The survey found that the average reported 2005 cost of medical coverage for all types of health plans combined is $328 per month ($3,936 annually) for employee-only coverage; $668 per month ($8,016 annually) for employee-plus-one-dependent coverage and $945 per month ($11,340 annually) for family coverage.
The percentage increase over 2004 is higher for retirees under age 65 than for active employees -- a trend that has persisted in employer-sponsored plans since 1999. This is of particular concern for employers who have large post retirement medical obligations.