5 Strategies for Managing Health-Care Costs

As companies brace for continued premium increases in 2004, they're pursuing new, creative cost-containment methods.

For the third straight year, companies endured double-digit health-care cost increases in 2003. Premiums for employer-sponsored health insurance rose 13.9 percent -- the biggest jump since 1990 -- according to a survey of more than 2,800 companies conducted by the Kaiser Family Foundation and the Health Research and Educational Trust (HRET).

And this year will likely bring more of the same. "Obviously, the most important issue in health-care benefits is the unrelenting annual increases in costs," says Helen Darling, president of the National Busi-ness Group on Health, a Washington, D.C.-based nonprofit organization that represents large employers' perspective on health-care issues. "This will continue to inform everything that everyone does. Companies can no longer afford to eat these cost increases."

The issue is grabbing the attention of senior executives. "It has gotten to the point where companies are equating increases in health care to [job losses]," says Michael Thompson, a principal and health-care consultant with PricewaterhouseCoopers HR Services in New York City. "That has elevated health care to a business issue."

Faced with skyrocketing costs and the threat of more to come, some organizations are planning major changes in their benefit offerings. Ten percent of the companies in the Kaiser/HRET survey said they will reduce eligibility for health-care benefits. More ominously, a sizable proportion (16 percent) said they will drop health coverage altogether.

Most businesses, however, are looking for ways to continue offering benefit plans while reining in costs. Employees are starting to feel the health-care pinch as companies pass along at least part of their premium increases. The average employee-paid premium has risen nearly 50 percent in the past three years, the Kaiser/HRET study found.

Annual employee contributions now average $508 for single coverage and $2,412 for family coverage. While employees' monthly contribution for single coverage in 2003 was approximately the same as in 2002, the cost of family coverage increased 13 percent. Of course, employee contributions cover only a small part of the total premium cost, which averaged $3,383 a year for single coverage and $9,068 for family coverage in 2003.

What does the longer-term future hold? Companies will be looking for innovative ways to manage and contain their health-care expenses. "The solution will require creative ideas, with both employers and employees working together to address it," says Jeff Husserl, senior vice president of administration with MB Financial Inc., a banking and financial services company in Chicago. "Although health care will continue to be an expected benefit offering, the way we deliver it could change."