After four years of slower growth in healthcare costs, Orange County businesses could be digging a bit deeper to keep their employees insured in 2008.
Local employers are projected to pay 8.7% more on average in healthcare insurance premiums next year.
That’s up from 2007’s 7.3% increase, but still on the low side of the 8% to 18% jumps seen since 2002, according to Chicago-based human resources services company Hewitt Associates Inc.
The hike appears to be related to a health maintenance organization “profit-taking cycle,” said Paul Klein, a healthcare consultant in Hewitt’s San Francisco office who works with clients throughout the state, including OC.
“After several years of the HMOs battling to gain market share, they feel that they’re in a position now where they can take some profit,” he said.
Consolidation and market share issues have been at the forefront of the HMO world for some time, spurred by Minnesota’s UnitedHealth Group Inc.’s $9 billion buy of Cypress-based PacifiCare Health Systems Inc. in 2005.
Some local employers expect lower prices than what is projected.
Ayres Hotels, a Costa Mesa-based hotel operator with 600 local workers, is looking at a 4% healthcare price hike for 2008, said Gregg Kleminsky, corporate controller. That projection’s “pretty much in line” with what Ayres has seen for the past five years, he said.
Ayres plans to deal with the hike by passing on a portion of the increase to its workers, Kleminsky said.
The company offers a preferred provider organization plan, instead of a HMO.
“We think it works (well) for the company because the team members are encouraged to use a network,” Kleminsky said.
MS International Inc., a family-owned wholesaler of natural stone for construction, just started healthcare premium talks. It anticipates costs will go up 5% to 12% from 2007, said Raj Shah, executive vice president.
MS, which has some 250 workers in Orange, offers an HMO through Kaiser Permanente and allows workers to pay extra for a PPO, Shah said. The company also offers dental and vision insurance.
MS pays for 80% of its workers’ healthcare costs and doesn’t anticipate changing that, he said.
National Comparison
OC employers are set to see an increase on par with companies in most other parts of the country. Next year’s national rate hike is seen at 8.7%, according to Hewitt.
But local businesses still are paying less to insure employees, thanks largely to the dominance of HMOs and other managed care plans that seek to control costs. OC employers are seen paying $7,848 per employee next year, versus $8,676 per worker for employers across the country.
PacifiCare expects its customers to see 2008 premium increases in line with the local and national forecasts, spokeswoman Cheryl Randolph said.
Some of PacifiCare’s larger customers are adding wellness plans, she said. Those plans are voluntary for workers who provide information about their eating habits and exercise routines in exchange for lowered costs.
Karen Nixon, president of Nixon Benefits in Newport Beach, said she’s seeing projected rate increases of 7% to 10% for 2008 for large employers and higher double-digit hikes for midsize employers.
Prescription drugs,a typical bogeyman in the healthcare cost equation,aren’t the reason for higher costs, Nixon said.
“The drug trend has actually gone down a little bit over the past few years,” she said, as employers have urged the use of cheaper generic drugs.
The culprit, according to Nixon: state laws that require coverage of certain items, say mammograms or hospital stays for new mothers.
Most large employers aren’t “cost shifting,” or passing the extra costs to the workers, Nixon said.
Consumer-driven healthcare plans, which have high deductibles and aim to make workers more aware of the cost of healthcare, are another option. But few companies have adopted them.
“I would say that we are seeing a low overall adoption in Southern California,” said Michael Wilson, market business leader in Mercer Human Resources Consulting’s Newport Beach office.
Nixon said she’s seen some inroads for consumer-driven plans but HMOs often win out based on costs.
“For large employers, they’re introducing it more for the owners and officers,” she said. “But a family really can’t afford a $2,000 deductible for healthcare. HMO is still predominant among the labor force.”
