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Health care costs will breach 10K per employee in 2012

October 3rd, 2011

AonWhile 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 (NYSE: AON).

We’re not sure how long this can go on. Many health insurers are tussling with state regulators on how much they will be allowed to raise premiums. With the country skidding along the edges of a double-dip recession, the added burden of health care costs far outrunning any income growth except among the wealthy, health care costs continue to take a larger and larger chunk of not only employer funds, but also of their already cash-strapped employees.

According to Aon Hewitt’s analysis, the 2012 average health care premium rate increase will be 7.0 percent, which is slightly lower than the 7.5 percent mark in 2011, and on par with the 6.9 percent increase in 2010.

However, the average total health care premium per employee for large companies is projected to be $10,475 in 2012, up from $9,792 in 2011, and $9,111 in 2010.

The amount employees will be asked to contribute toward this premium cost in 2012 is $2,306 (or 22 percent of the total health care premium), compared to $2,084 in 2011 (or 21.3 percent of the total health care premium), and $1,952 in 2010 (or 21.4 percent of the total health care premium).

Meanwhile, average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, are expected to be $2,275 in 2012, compared to $2,007 in 2011, and $1,691 in 2010.

Older workers lead to catastrophic claims increases

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.

2011 Cost Increases by Major Metropolitan Area

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.

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