A second national study predicts substantial increases in healthcare spending by employers this year.
Last week, New York-based management consulting firm Towers Perrin released its annual report on healthcare costs. It said large employers will face healthcare cost increases twice as high as last year's for retirees aged 65 and older.
The report's findings echo the projections of Foster Higgins in its annual healthcare cost report. Foster Higgins, a New York-based benefits consulting firm, released its report last month (Jan. 27, p. 24).
Towers Perrin surveyed 148 employers, primarily Fortune 1,000 companies, which provided data on the cost of insured and self-insured medical and dental plans for 1997.
Medicare-eligible retirees' healthcare costs will increase 7%, vs. a rise of 3% last year, despite a continuing modest growth rate for healthcare costs overall, the report said.
"This is the highest increase in a number of years for any of the categories we measure," said William J. Falk, a Towers Perrin principal.
The rise is tied to prescription drug costs for those retirees, he said.
But to keep matters in perspective, in 1991 the cost increase for retirees age 65 and older was 19%. Cost increases for that group gradually fell to 3% in 1996 from 13% in 1992. That was due to a slowdown in healthcare inflation and to efforts by employers, providers and "everyone associated with healthcare" to try to control costs, Falk said.
The survey showed that the average cost of Medicare risk HMOs is a fraction of the cost of traditional Medicare supplemental indemnity coverage (See chart). That explains the growing popularity of Medicare risk HMOs among employers and government planners.
Twenty-four percent of respondents offer Medicare risk HMOs to their Medicare-eligible retirees, and another 53% are considering doing so in the future. Towers Perrin research found that 12% of retirees offered the option of joining Medicare risk HMOs chose to do so.
"The great news is the relatively modest increases overall," Falk said. Costs will rise 3% for active employees compared with 4% in 1996, reflecting the ongoing shift to managed care, increasing competition between health plans in many markets and the low general inflation rate, he said.
Costs for retirees under age 65 will increase 4% this year, the same as last year.