Health Care Costs Up 7.5 Percent; Estimate Still the Lowest Nationwide in Five Years, Report Says

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Byline: Marguerite Higgins, THE WASHINGTON TIMES

Health care costs to employers rose 7.5 percent this year, slowing from double-digit increases in the past few years, according to a study released yesterday.

Health care still outpaced inflation, but the newest estimate is the lowest nationwide since 1999, according to a report by Mercer Human Resource Consulting, a New York business consulting company.

The average cost of health benefits for an employee climbed from $6,215 in 2003 to $6,679 this year, the study said. The amount includes employer and employee premium contributions but does not include employee out-of-pocket medical expenses.

Total health care costs rose 5.4 percent for Baltimore- and Washington-area employers to an average of $7,541 per employee, the study said.

The annual salary nationwide averaged $36,764 in 2002, according to the most recent data by the U.S. Bureau of Labor Statistics.

The slowdown was caused primarily by small businesses, which have shifted more of the cost onto employees by raising deductibles and co-payments, the study said.

In the past three years, more companies have changed their health care plans from health maintenance organizations (HMOs), which provide basic health services to members on a prepaid basis, to preferred provider organizations (PPOs), networks of doctors who agree to provide medical services at a discount to a group of employees, often under contract with a private insurer.

A PPO is similar to an HMO, but care is paid for as it is received instead of in advance in the form of a scheduled fee. PPOs may also offer more flexibility by allowing for visits to out-of-network professionals for a higher fee.Fifty-eight percent of all covered employees nationwide were enrolled in PPOs in 2004, while 37 percent of employees in the Baltimore and Washington area had PPOs, the report said.

Paul Fronstin, with the Employee Benefit Research Institute, said companies also are providing incentives for employees, like discounted co-payments for generic drugs instead of brand-name ones. …