Orange County businesses will pay more to provide healthcare for their workers in 2007, but the rate of growth in premiums could be the smallest in years.
Local employers are projected to pay 7.7% more in healthcare premiums in 2007, down from this year’s 8.4% rise and increases of 10% to 19% from the prior four years, according to Chicago-based human resources services company Hewitt Associates Inc.
Next year’s projected increase could be the smallest since 2001, when rates rose 5.4%.
Some employers expect to present their workers with even less of a hike.
Advanced Medical Optics Inc., the Santa Ana-based maker of contact lens solutions and eye surgery devices, expects a 5% healthcare cost rise for 2007, said Francine Meza, senior vice president of human resources.
“Our outlook for 2007 is good,” Meza said.
Advanced Medical funds most of its own plans, paying for healthcare claims incurred by workers and dependents. It also has insurance to cover claims that exceed a certain amount.
With self-funded plans, Advanced Medical and others don’t pay monthly premiums for health plans for their workers. Instead, they pay only for the healthcare their workers actually receive.
“Changes in our rates are in direct proportion to actual claim costs,” Meza said.
Advanced Medical plans to offer more preventative healthcare under its preferred-provider organization plan, including wellness and disease management programs, Meza said.
The company is seeing what Meza called a significant rate increase in its Kaiser Permanente health maintenance organization plan.
The increase is being passed on to workers:
“While we want to offer our employees a choice in their medical plans, the plans that give us significant cost increases are those where the employee also experiences an increased cost to participate in that plan,” Meza said.
Co-payments and other out-of-pocket costs are low with the Kaiser plan, according to Meza.
“So we anticipate it remaining popular with some employees,” she said.
Advanced Medical picked up Kaiser after it bought Santa Clara-based laser maker Visx Inc. some two years ago.
Advanced Medical doesn’t have much interest in “consumer-driven healthcare” plans, Meza said. Those are plans with high deductibles that put more responsibility in the hands of enrollees.
Instead, the company is trying to control costs with programs to keep workers healthy or to manage conditions they might have, Meza said.
Advanced Medical has about 450 workers in Orange County and 3,750 worldwide.
Healthcare costs for the University of California system, including more than 16,000 workers at the University of California, Irvine, are expected to go up 11.7% in 2007, according to the system’s human resources and benefits Web site.
Within that, individual rates may vary, based upon a worker’s salary, health plan and how many dependents are covered.
The university operator isn’t cutting benefits, “unlike many other employers who are trying to keep up with the rising cost of healthcare,” the UC Web site says.
OC’s projected 7.7% increase next year is on par with what’s expected nationally, according to Hewitt. This year, rates are expected to rise 9.7% nationally.
Local employers are expected to pay $7,665 for healthcare per employee next year, versus a projected $7,115 for this year.
Nationally, employers are seen paying $8,340 per worker next year, compared to $7,744 this year.
PacifiCare Health Systems, a Cypress-based unit of Minnesota’s UnitedHealth Group Inc., expects its customers will see average increases in the high single digits for 2007, spokeswoman Cheryl Randolph said.
“It’s an average, so small group (increases) may be a bit higher and some large groups may be a bit lower,” Randolph said.
Greg Haack, regional sales manager with insurance brokerage Pacific Group in Laguna Hills, said he’s seeing overall increases of 8% to 12% for local clients in 2007, regardless of whether they’re offering HMOs or PPOs.
To cope, Haack said employers are using various strategies, including modifying benefits, charging deductibles for brand name drugs and pushing more costs to workers, particularly for dependents.
“They’re usually going to cut the dependent portion versus the employee portion,” Haack said.
Consumer-driven healthcare, a much-hyped way to control rising health costs in recent years, hasn’t panned out as some expected.
But Haack said some of his clients are starting to slowly adopt plans that feature health savings accounts, a component of consumer-driven healthcare.
“And a lot of people are sliding over to the least-expensive HMO, which might be Kaiser, and putting a health savings account program alongside,” Haack said.
Consumer-driven plans haven’t grown here because of historically low HMO prices, according to brokers.
It’s “just not grown as much as we thought it would be,” said Debra Lambert, president of the LBL Group, a Los Alamitos-based brokerage.
As for 2007, Lambert said her clients are seeing preliminary quotes that indicate about a 12% premium hike, in comparison to a wide variety of hikes this year.
A year ago, clients got increases of 6% to 28%, she said.
The 12% projection is a “starting point for most carriers, but then they build from there depending on claims experience, etc.,” she said.
Clients, she said, are making plan design changes, such as raising HMO co-payments for doctors’ visits to $15 or $20 from $10, adding co-payments of $250 for a hospital admission, and, in the case of PPOs, increasing deductibles.
As for this year’s premium hikes, Lambert said most of her clients ate the increases and didn’t pass them down to the work force.
“Those that did pass it, they were very small increases to the employees, very minimal increases,” she said. “Most of the employers in Orange County are feeling the pinch of competitiveness when it comes to hiring those employees, so they’re trying to keep their benefits rich.”
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