Employer costs for health coverage are rising twice as fast as general price increases. This is leading to more employers dropping health coverage for employees.

Mercer brings us this evidence in their new health cost survey, to be published in March 2008.

The consultancy found that health costs increased 6.1%, equivalent to 2006 cost increases. This equated to $7,983 per employee. The forecast for 2008 is a 5.7% health cost price increase.

These cost increases are outpacing wage increases.

More small employers – where job growth is – are exiting health coverage, according to Mercer. The percentage of small employers (defined as those with fewer than 200 employees) covering health for employees fell from 66% in 2002 to 61% in 2007.

Mercer contents that employers’ adoption of consumer-directed health plans (CDHPs) is slowing the rise of health care costs. Cost-shifting to employees is expected to continue at roughly 10-11% increases.

In 2007, CDHP health costs averaged $5,970 per employee, compared to $7,120 for HMOs and $7,352 for PPOs.

For part-time workers, Mercer found that just 62% of large employers provide some type of health coverage. The growing trend here is to offer “mini-med” health plans which limit the total health benefits each year. These are offered by 7% of all large employers – and 19% of employers in the wholesale/retail sector — to part-time workers.

Speaking of the retail sector, Wal-Mart has recently attracted some negative attention for its health plan. While the company was promoting the fact that it was expanding access to its plan, a watchdog group contends that many part-timers are still excluded from coverage in the first year of working at the mega-retailer. The Center for a Changing Workforce points out, “Given that Wal-Mart has anywhere from 30 to 50% turnover per year, half of the employees will never get healthcare insurance.”

The Center found that Wal-Mart’s most affordable plan with a $2,000 deductible still takes up 15% of an employee’s income.

Health Populi’s Hot Points: Workers and their families are experiencing price increases across several spending categories, primarily driven by energy prices and the cost of food. See my blog post on gas versus health care from 9/11/2007; it explains the impact of health costs on the household. This situation is getting more challenging for Americans this year and will moreso for 2008. Tough spending choices are ahead for more households, and this holiday season Wal-Mart and the other retailers will be faced with families choosing between heat and driving the car to Grandma’s on Christmas Day versus spending on gifts. We anticipate the arrival of Black Friday this week, the day after Thanksgiving. As in past years when the economy was tough on consumers, expect to see spending on more practical things…like food, shelter (and home-related purchases), clothing…and, perhaps, gift cards for health care? Yes, you can buy one from Highmark, the Blues plan in Pittsburgh.

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