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  The Herman Trend Alert

June 28, 2006

Healthcare Costs Continue to Rise

According to Mercer's recently released 2005 National Survey of Employer-Sponsored Health Plans, United States employers are expected to spend an average of $7,564 per employee in 2006 for health benefits. This number represents an increase of 6.7 percent over the amount of $7,089 paid in 2005. The increase between 2004 and 2005 amounted to 6.1 percent. When we look at the 7.5 percent increase between 2003 and 2004 and the 14.7 percent increase between 2002 and 2003, the 6.7 percent does not seem like a lot. However, when compared to the previous year, we notice that the rate of increase grew by more than 10 percent.

The "Health Benefit Cost per Employee" includes all medical, dental, drugs and other health benefits for all employees and dependents. It also includes contributions from employers as well as employees. It does not include out-of-pocket deductibles, co-pays or coinsurance.

The Mercer study concludes that the rise in healthcare costs has been slowed by four factors: Care Management, i.e. disease management programs and complex and case management; reduction in health plan alternatives, i.e. dropping health maintenance organizations, and looking at other less expensive alternatives, etc.; drug management, i.e., encouraging the use of generic pharmaceuticals and instituting a three- and four-tier system where the co-payment is variable, depending on the age and cost of the medications; and finally, the Consumerism Movement, including Consumer Driven Health Plans (CDHPs).

CDHPs may include higher deductibles, flexible spending accounts, and the new Medical Savings Accounts. While the purpose is purported to reduce costs for the consumer, these plans are usually designed to reduce costs for the employer as well. Also, the trend in healthcare is towards higher co-payments to discourage excessive visits to doctors.

What will the future bring in healthcare? For the United States, expect increasingly higher health costs and more attempts at interventions like care management. For countries that have universal healthcare, as your populations age, your resources will be stretched more and more. Finally, on a more hopeful note, the developed countries will provide more pharmaceuticals to the developing countries to attack the AIDS and other epidemics.


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