Health Cost Increases in 2013 Were Lowest in Decade: Aon Hewitt

October 17, 2013

There was some relatively good news in health care this year. U.S. employers and their employees saw the lowest health care premium rate increases in 2013 in more than a decade, according to global consultant Aon Hewitt.

After plan design changes and vendor negotiations, the average health care premium rate increase for large employers in 2013 was 3.3 percent, down from 4.9 percent in 2012 and 8.5 percent in 2011, the talent, retirement and health consulting firm said.

In 2014, however, average health care premium increases are projected to move back to the 6 percent to 7 percent range.

Aon Hewitt said its analysis shows the average health care cost per employee was $10,471 in 2013, up from $10,131 in 2012. The portion of the total health care premium that employees were asked to contribute toward this premium cost was $2,303 in 2013, compared to $2,200 in 2012.

Meanwhile, average employee out-of-pocket costs, such as co-payments, coinsurance and deductibles, increased 12.8 percent ($2,239) in 2013, compared to just 6.2 percent in 2012 ($1,984).

For 2014, average health care costs are projected to increase to $11,176 per employee. Employees will be asked to contribute 22.4 percent of the total health care premium, which equates to $2,499 for 2014. Average employee out-of-pocket costs are expected to increase to $2,470. These projections mean that over the last decade, employees’ share of health care costs–including employee contributions and out-of-pocket costs–will have increased almost 150 percent from $2,011 in 2004 to $4,969 in 2014.

“There are many factors that contributed to the lower rate of premium increases we saw over the past two years that we don’t expect to continue in the long-term. These include the lagged effect from the economic recession on health care spending and continued adjustments as employers and insurers phase out the conservatism that was reflected in earlier premiums due to uncertainty around economic conditions and health care reform. Additionally, employers and insurers will now be subject to new transitional reinsurance fees and health insurance industry fees,” said Tim Nimmer, fellow of the Society of Actuaries, member of the American Academy of Actuaries and chief health care actuary at Aon Hewitt.

Year HMO POS PPO National

2014 $11,696 $12,194 $10,887 $11,176 Projections

2013 $10,880 $11,450 $10,222 $10,471

2012 $10,375 $10,955 $9,955 $10,131

2011 $9,833 $10,553 $9,508 $9,662

2010 $9,103 $9,464 $8,790 $8,903

2009 $8,461 $8,778 $8,363 $8,380

2008 $7,975 $8,321 $8,004 $7,983

2014 Costs by Plan Type

On average, Aon Hewitt forecasts that companies will see 2014 cost increases of 7.5 percent for health maintenance organization (HMOs) plans, 6.5 percent for preferred provider organization (PPOs) plans and 6.5 percent for point-of-service (POS) plans. That means that from 2013 to 2014, the average cost per person for major companies is estimated to increase from $10,880 to $11,696 for HMOs, $10,222 to $10,887 for PPOs and $11,450 to $12,194 for POS plans.

Costs are plan costs (premium or budget rate) on a per employee basis. They include employee contributions, but not their out-of-pocket costs (i.e., co-payments, coinsurance).

2013 Cost Increases

In 2013, major U.S. markets that experienced rate increases higher than the national average included Los Angeles (6.9 percent), Orange County (6.9 percent), Washington DC (5.3 percent) and San Francisco/Oakland/San Jose (4.8 percent). Conversely, New York City (1.6 percent), Milwaukee (2.1 percent) and Atlanta (2.4 percent) experienced lower-than-average rate increases in 2013. Of note, Minneapolis saw a decrease in rate increases at -0.1 percent.

Mitigation Trend

“Health care remains a top priority for U.S. employers, and most are taking action to prepare for increasing cost, risk and change,” said Jim Winkler, chief innovation officer for the U.S. Health & Benefits practice at Aon Hewitt. “As the health care industry continues to evolve, employers realize that a traditional ‘managed trend’ approach will be less effective in mitigating costs increases over time. Instead, they are exploring innovative new delivery approaches, requiring participants to take a more active role in their own health care planning, and holding health care providers more accountable to reduce unnecessary expenses and create more efficiency in the way health care is purchased.”

Source: Aon Hewitt

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