Health Care Costs to Continue Rising for Employers, Study Finds

Employers are bracing for changes as the new law continues to unfold.

ByHuma Khan
August 18, 2010, 2:15 PM

Aug. 18, 2010— -- Employers are bracing for more health care cost increases over the next few years as the new health care law unfolds, according to a survey released today.

The National Business Group on Health's annual survey on health care plans found that more than half of the U.S. employers it surveyed were planning to make changes to their plans even though they might lose their "grandfather status." "Grandfather status" applies to those insurance plans that existed on or before March 23, 2010, to which no major changes have been made. It is in keeping with President Obama's pledge that those Americans who like their plan, will be able to keep it.

The NBGH estimates that more than 50 percent of health care plans will lose their "grandfather status" after the first year. But they are likely to still keep offering the older plans for employees who want to keep them, alongside new insurance plans that offer provisions and benefits mandated by the new law.

U.S. employers continue to struggle with health care costs, a trend that began 20 years ago, Helen Darling, the group's president, said at a news conference today.

"They're going to be paying the tab for a very long time," Darling added.

To cut costs and limit spending, employers are promoting cost sharing and shifting more costs to employees, according to the survey.

The survey was conducted from May to June. Even though it was right after the health care law was passed and some rules have since then changed, employers had a "pretty good sense of where this was headed," Darling said.

Most of the changes are expected to come in 2012 and in 2014, when insurance exchanges -- marketplaces where eligible people can shop for coverage -- are expected to start.

Cost Issue for Employers

Employers included in the survey estimated that on average, their health care costs would increase by seven percent in 2010 and 8.9 percent in 2011.

Employers said they are looking at controlling their costs by offering consumer-directed health plans, which emphasize health savings accounts and reimbursement arrangements to keep medical expenses low; wellness initiatives to improve employee health; and increasing employee cost sharing.

Darling said the good news in this year's survey was that employers are offering more incentives to employees for participating in wellness activities.

Seventy percent of employers surveyed said they will remove lifetime dollar limits on overall benefits, while 37 percent said they will make changes to annual or lifetime limits on specific benefits.

Several provisions of the new law go into effect next month, but many Americans may not see those benefits until their insurance plans are renewed.

Plans that are renewed after Sept. 23, 2010 will have to extend coverage to young adults under 26, who will be able to stay on their parents' plans. The law also bars insurance companies from denying coverage to children because of pre-existing conditions and cancelling coverage except in the case of fraud. Insurers will have to provide preventive services such as mammograms and colonoscopies without cost sharing or charging co-pays.

Because of the new law, 63 percent of the employers surveyed said they will be increasing the employee percentage contribution to premium costs in 2011, up from 57 percent last year; while 46 percent said they will raise out-of-pocket maximums compared to 36 percent last year. Darling said the increase could be small, but the survey did not indicate by how much on average the employers planned to raise premiums.

Retiree benefits are also expected to be impacted. According to the survey, 33 percent of employers are planning to eliminate coverage for future retirees to curb costs.

The NBGH surveyed 72 companies, although it would not name the companies.

Another report released today by private research firm Robert Wood Johnson Foundation said that while Americans' confidence in their health care plan fell when the law was passed earlier this year, it has since then gone back up to previous levels.

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