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Employers' health insurance costs soar in Boston

Per-employee price closing on $10,000

Email|Print| Text size + By Jeffrey Krasner
Globe Staff / November 20, 2007

The average cost of providing a worker's health insurance will soon top $10,000 a year for Boston-area employers, according to a survey of local companies by Mercer, a national consulting firm that specializes in health plans. That figure averages the costs of providing coverage for single employees and those insured under family plans.

The results of Mercer's annual survey emphasize that healthcare costs continue to increase at a rate faster than inflation, despite efforts by employers, hospitals, and insurance companies to control expenses.

"This is at the top of the list of cost pressures that CEOs are feeling," said Rick Lord, chief executive of Associated Industries of Massachusetts, the state's largest business lobby. "We've made great progress in Massachusetts expanding access to coverage, but we have to tackle the second phase of healthcare reform - we have to control cost increases or our reform is not sustainable."

There is a bright spot in the survey for Massachusetts employers with least 500 workers. At those companies, Mercer said, healthcare costs increased 3.6 percent this year, compared to a national average of 5.1 percent for similar-size firms. But the survey only covered 39 large firms in the state, and Mercer says the results may not be sta tistically valid. The state's biggest health insurers have told the Globe average increases for their plans in 2007 were about 10 percent. They have also predicted similar or slightly higher increases for 2008.

Increased use of so-called consumer-directed health plans, in which employees have higher out-of-pocket expenses for deductibles and copayments, could explain the moderating rate of premium increases among companies responding to the survey, said Deb Katilus, a principal at Mercer's Boston office. Such plans move more of the expense from employers to employees.

"The fact Massachusetts business saw percentage increases that are less than the national average suggests to me that employers have gone back to cost-shifting through contributions or plan design after a few years of fairly moderate activity in that area," said Katilus. "Consumer-directed health plans continue to see moderate growth."

She said the switch to consumer-directed plans is analogous to the shift from traditional indemnity plans to HMOs in the 1990s. But the impact on prices has been much smaller. When companies shifted coverage to HMOs - which have restricted networks of physicians and care management to control use of healthcare - rates nationwide actually stopped increasing for a brief period, and even decreased in 1994.

By contrast, the Mercer survey shows premiums have increased an average of 6.1 percent the past three years - more than twice the rate of inflation.

Consumer-directed plans account for only 5 percent of all employees covered by a company health plan, according to the survey.

The survey also shows continued erosion of the US healthcare system, in which most people receive health insurance through an employer. Nationwide, only 61 percent of companies with fewer than 200 employees offered health coverage, compared to 63 percent last year and 66 percent five years ago.

Jeffrey Krasner can be reached at krasner@globe.com.

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