Insurers Expect Health-Care Costs To Rise More Than 10% Next Year
Associated Press
The Wall Street Journal
Tuesday, August 12, 2008

Health-care costs are expected to rise more than 10% into next year, according to a survey of insurers by Aon Consulting Worldwide.

But that increase is the smallest Aon has seen in six years. Experts say it shows that efforts to tame costs, such as employee wellness or disease management programs, may be paying off.

"There's a variety of tactics that employers have been employing over the last 3 to 6 years that has had an impact on the market," said study director Bill Sharon, an Aon Consulting senior vice president.

Aon Consulting surveyed about 70 health insurers around the country, including companies such as Aetna Inc. and Cigna Corp. It found that actuaries expect costs to rise an average of 10.6% during 12-month rating periods starting this year between April and September.

That represents a slight drop from last year's forecast of 10.9% and a bigger fall from 2002, when health care costs were expected to rise by more than 16%. But the percentage likely won't be what the average employee faces for a premium hike next year. It doesn't reflect insurance plan designs or changes an employer might make to benefits plans.

"Pretty much every employer has to do something or is doing something in an effort to bring that number down," Mr. Sharon said.

He said actual cost increases have wound up being three to four percentage points lower than preliminary estimates in the past couple of years. Still, he said Aon Consulting's survey gives employers a benchmark to use as they consider premium renewals.

Many employers have started researching their benefit options for 2009. Consultants say it's too early for predictions on next year's health care plan costs.

But Ken Ambos of Equity Risk Partners Inc. said midsize employers could see a cost increase of roughly 9 to 12% that they pare down to 6 to 9%. Equity Risk Partners is a risk management and employee benefits consulting firm

Costs are still rising to keep up with growing patient demand for services, the needs of an aging population and prescription drug and technology costs, according to Aon Consulting, a subsidiary of Aon Corp.

Overuse and misuse of services and an "out-of-control medical liability system" also contribute to increases, said Robert Zirkelbach of America's Health Insurance Plans, a trade association representing nearly 1,300 insurers.

"It is encouraging that the growth in health care costs is going down, but there is still more work to be done," he said.

Mr. Zirkelbach said health insurers have offered disease management programs and encouraged the use of cheaper generic drugs to help contain costs.

Employer wellness programs also have played a role, Mr. Sharon said. He noted that doctors, hospitals and employers all have worked to curb costs.

"When costs go up as great as this, there's a lot of market pressure brought to bear on all of the parts of the market to bring those costs down, and I think that's what's been happening over the last six years or so," he said.

Aon Consulting has forecast a steady decline in cost increases since 2002. But Mr. Sharon said this decline has grown smaller the past few years, a sign the reductions may be bottoming out.

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