LINCOLNSHIRE, Ill., Oct. 3, 2011 /PRNewswire/ -- While health care costs are projected to increase at a lower rate in 2012 compared to 2011, the average cost per employee will surpass the $10,000 mark for the first time next year, according to Aon Hewitt, the global human resource consulting and outsourcing business of Aon Corporation (NYSE: AON).
According to Aon Hewitt's analysis, the 2012 average health care premium rate increase will be 7.0 percent, which is slightly lower than the 7.5 percent mark in 2011, and on par with the 6.9 percent increase in 2010. However, the average total health care premium per employee for large companies is projected to be $10,475 in 2012, up from $9,792 in 2011, and $9,111 in 2010. The amount employees will be asked to contribute toward this premium cost in 2012 is $2,306 (or 22 percent of the total health care premium), compared to $2,084 in 2011 (or 21.3 percent of the total health care premium), and $1,952 in 2010 (or 21.4 percent of the total health care premium). Meanwhile, average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, are expected to be $2,275 in 2012, compared to $2,007 in 2011, and $1,691 in 2010.
According to Aon Hewitt, a number of factors are driving the projected increase in health care cost for 2012. Employers continue to experience an increase in the quantity and cost of catastrophic claims, as slower levels of hiring have resulted in slightly older workforces who are more prone to costly medical conditions. In addition, generally poorer health – leading to increases in costly conditions such as diabetes and heart disease – make it difficult for employers to deploy tactics that drive short-term cost savings. As a result, employers continue to ask employees to absorb increases through a combination of out-of-pocket cost and increased payroll contributions.
"In what continues to be an uncertain economic environment, organizations cannot afford health care costs growing at 7 percent each year," said John Zern, executive vice president and the Americas Practice Director for Health & Benefits with Aon Hewitt. "While health care reform continues to represent potential systemic change in a few years, employers will continue to shift cost to employees in order to keep company costs to a manageable level."
Cost by Plan Type
On average, Aon Hewitt forecasts that companies will realize 2012 cost increases of 7.8 percent for health maintenance organization plans (HMOs), 6.6 percent for preferred provider organizations (PPOs) and 6.6 percent for point-of-service (POS). That means from 2011 to 2012, the average cost per person for major companies is estimated to increase from $10,344 to $11,151 for HMOs, $9,417 to $10,038 for PPOs and $10,375 to $11,059 for POS plans.
Costs are plan costs (premium or budget rate) on a per employee basis. They include employee contributions, but not their out-of-pocket costs (i.e., co-payments, coinsurance).
"HMO trend continues to be a cause of concern for employers," said Tim Nimmer, Aon Hewitt's chief health care actuary. "While HMOs have higher premium costs, they offer lower out-of-pocket costs that employees value. If HMO trend continues to outpace PPO and POS trends, employers will be forced to discontinue current HMO contribution levels or eliminate HMO offerings altogether."
2011 Cost Increases by Major Metropolitan Area
In 2011, major U.S. markets that experienced rate increases higher than the national average included Orlando (11.1 percent), New York City (9.5 percent), Orange County (9.1 percent), Houston (8.9 percent), Boston (8.6 percent) and Los Angeles (8.5 percent). Conversely, Detroit (5.8 percent), Atlanta (6.6 percent), Minneapolis/St. Paul (7.2 percent) and San Francisco/Oakland/San Jose (7.2 percent) experienced lower-than-average rate increases in 2011.
Employer Action to Mitigate Trend
Against this backdrop, employers are focused on both short- and longer-term trend mitigation, while awaiting further regulations related to health care reform.
"In addition to sharing costs with employees, organizations are implementing more aggressive strategies to incent participants to understand, and manage, their health," said Jim Winkler, Large Market Segment leader of the Health & Benefits Practice with Aon Hewitt. "Some employers are adopting the mindset that says, 'if you are going to spend a lot of house money, you need to play by house rules,' including completing a health-risk questionnaire, participating in prevention and wellness plans, and better managing chronic conditions."
About the Data
Aon Hewitt's data is derived from the Aon Hewitt Health Value Initiative database, which captures health care cost and benefit data for 371 large U.S. employers representing 13.1 million participants, 1,300 plans and $51.4 billion in 2011 health care spending.
About Aon Hewitt
Aon Hewitt is the global leader in human resource consulting and outsourcing solutions. The company partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit www.aonhewitt.com.
Aon Corporation (NYSE: AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital solutions and outsourcing. Through its more than 59,000 colleagues worldwide, Aon unites to deliver distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally in over 120 countries. Named the world's best broker by Euromoney magazine's 2008, 2009 and 2010 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on revenues in 2007, 2008 and 2009, and Aon was voted best insurance intermediary 2007-2010, best reinsurance intermediary 2006-2010, best captives manager 2009-2010, and best employee benefits consulting firm 2007-2009 by the readers of Business Insurance. Visit http://www.aon.com for more information on Aon and http://www.aon.com/unitedin2010 to learn about Aon's global partnership and shirt sponsorship with Manchester United.
SOURCE Aon Corporation