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Health Costs Seen Hitting Five-Year High

Hewitt Associates is projecting that health plan costs will rise nearly 9% in coming year.
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BOSTON (TheStreet) -- Health insurance costs in 2011 are likely to be at their highest level in five years, according to data from Hewitt Associates (HEW) , a global human resources consultant.

An 8.8% average premium increase for employers is projected for next year, compared with 6.9% this year and 6% in last year.

The average total health care premium per employee for large companies is projected to be $9,821 next year, up from $9,028 now. The amount employees will be asked to contribute toward this cost is $2,209, or 22.5% of the total premium, up 12.4% from last year.

Average employee out-of-pocket costs (copayments, coinsurance and deductibles) are expected to be $2,177 next year -- a 12.5% increase from this year. These projections mean that in a decade, total health care premiums will have more than doubled, from $4,083 in 2001 to $9,821 next year. Employees' share of medical costs -- including employee contributions and out-of-pocket costs -- will have more than tripled, from $1,229 in 2001 to $4,386 next year.

A variety of factors are driving the increase, Hewitt said Monday.

"Employers are seeing an increase in the amount of charges and frequency of catastrophic claims," its analysis reads. "This is particularly true today, as slower levels of hiring have left employers with slightly older work forces who are more prone to costly medical conditions."

Hewitt estimates that the most immediate applications of health care reform -- including covering dependents to age 26 and the elimination of certain lifetime and annual limits -- contributed about 1% to 2% of the projected increase.

"Reform creates opportunities for meaningful change in how health care is delivered in the U.S., but most of these positive effects won't be felt for a few years," Ken Sperling, Hewitt's health care practice leader, said in a statement. "In the meantime, employers continue to struggle to balance the significant health care needs of an aging work force with the economic realities of a difficult business environment. While health care reform cannot be blamed entirely for employers' increasing cost, the incremental expense of complying with the new law adds fuel to the fire, at least for the short term."

Some U.S. markets experienced rate increases this year significantly higher than the national average. Five major metropolitan areas in California, for example, experienced increases of 10% or higher, including Los Angeles and San Francisco. Other U.S. cities experiencing higher-than-average increases included Charlotte (9.7%); Newark, N.J. (10.8%); Philadelphia (10%); and Tampa, Fla. (9.2%). Conversely, Columbus, Ohio (4.3%); Dallas/Fort Worth (3.7%); Portland, Ore. (4.6%); and Washington, D.C. (4%) experienced lower-than-average rate increases.

With the cost of providing health care benefits continuing to rise, employers continue to pass some of these costs to employees. In a recent Hewitt survey, "increasing employee cost sharing" was ranked by employers as one of their top five health care tactic priorities over the next three to five years.

An increasing number of employers are also trying to cut costs by reviewing the eligibility of dependents covered by their plans. According to Hewitt, on average, 11% of people enrolled in an employer's health plan are ineligible. For a company with 10,000 enrollees, this can equate to millions of dollars in costs.

-- Written by Joe Mont in Boston.

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