Large employers in Northern California saw their average health care costs rise 12.3 percent in 2003, and they expect those costs to jump an additional 15.4 percent next year, according to a survey being released today by a human resource consulting firm.

Those rate hikes -- driven by factors such as changes in medical technology and rising drug costs -- are higher than what large employers nationwide reported in a survey by the Mercer Human Resource Consulting of employer-sponsored health plans. Employers with 500 or more workers estimated a 10.2 percent hike in health care costs this year and a 12.5 percent increase in 2004.

There's obviously some limitations, in terms of employee revolt or at least in terms of employee relations.

Facing a fourth year of double-digit premium hikes, companies have been getting tough this year, pushing a lot more of those costs back onto their employees in the form of higher co-payments and other cost-sharing arrangements. Recognizing the limitations of those tactics, the survey found employers looking to longer-term solutions and possible government intervention to head off the unrelenting increases.

"Costs have been going up, and they're not stopping," said Kirby Hutson, a Mercer consultant based in San Francisco. "Employers had been absorbing a lot of the cost increases. It seemed like in 2003, they got pretty darn aggressive in shifting those costs to employees."

Although Northern California employers appear to be more pessimistic about health care costs than employers nationwide, Hutson cautioned against drawing any broad conclusions because the Northern California sample was based on just 56 employers with more than 500 workers.

Among 3,000 businesses -- both large and small -- that participated in the nationwide survey, total health benefit costs rose 10.1 percent in 2003.

The average expected increase in 2004 is 13 percent, according to the survey, which is considered the oldest and largest of its kind. As high as those increases appear, they have come down from the nearly 15 percent hike reported by survey participants in 2002 and the 14 percent they predicted for this year.

Huston said the fact that this year's rates came below what was forecast was not due to any reduction in health care costs but to aggressive shifting of some of those costs onto employees through higher premium sharing, co- payments and other costs. Dropping costly plans, reducing covered services and changing the design of existing plans were some of the other tactics employers used to curb costs.

The average contribution from a single employee on a health maintenance organization plan, or HMO, rose from 31 percent of the premium last year to 35 percent this year, and the family contribution increased from 50 percent to 57 percent. For some employees, those higher contributions may mean a reduction in total compensation because salaries have increased on average by just 3 percent.

Family coverage for the costlier but more flexible preferred provider organization plans, or PPOs increased from 53 percent to 58 percent from last year to 2003, while single coverage remained the same at 27 percent, the survey found.

In dollars, that means the average U.S. worker kicked in $101 a month for an HMO and $82 for a PPO this year. Families paid $352 for the HMO and $381 for the PPO.

Among large Northern California employers, the average employee-only contribution for an HMO in 2003 was $44 and $84 for a PPO, according to the survey. Families contributed $161 a month for an HMO and $205 for a PPO.

Premiums in California generally remain lower than in many other parts of the country because of the state's higher penetration rate of lower-cost HMOs. But Huston said the state, especially Northern California, has come under mounting cost pressures from the increased negotiating power for rates that hospital and groups have gained from consolidating their operations.

Another survey of employer health costs issued last week found that firms expect a 14 percent increase in health care costs. In the survey of 650 major U.S. companies by Hewitt Associates, the employers said they can only afford to absorb an increase of 9 percent.

Just how long employers can continue to shift costs remains to be seen.

"There's obviously some limitations, in terms of employee revolt or at least in terms of employee relations. But we are in a pretty tight economy, and employers feel like they can do more of this cost shifting," Hutson said. "It's painful to them ... but employees are starting to expect it as well."

Hutson said some longer-range solutions obviously need to be found, whether through government intervention or other employer-sponsored methods such as disease-management programs.

The survey questioned companies about whether or not they favored legislation that would require employers to offer a baseline medical benefit to all their workers.

It found there wasn't much employer support for such a plan in California, where former Gov. Gray Davis signed an employer-mandated health care law just before he was ousted in the recall election. While 42 percent of businesses nationwide said they favored such a law, complete with employer tax benefits and subsidies for low-income workers, just 28 percent of California businesses surveyed expressed their support.

Many employers and health experts believe that requiring employees to pick up more of their health care tab and pay more for more expensive plans makes them more cost-sensitive and conscientious health care consumers.

On the other hand, a study released last week by the Center for Studying Health System Change, a nonpartisan think tank, warned that low-income workers and people with serious illnesses will be hardest hit by increased out-of- pocket expenses and other cost-sharing measures.

RISING HEALTH CARE COSTS

Employers and their workers have borne the brunt of rising health care costs over the past five years. .

Annual change in average total health benefit cost
1998 6.1%
1999 7.3%
2000 8.1%
2001 11.2%
2002 14.7%
2003 10.1%.

Total health benefit cost per employee for active employees
1998 $3,817
1999 $4,097
2000 $4,430
2001 $4,924
2002 $5,646
2003 $6,215.

Note: Charts are based on all medical, dental and other health benefits for all covered active employees and their dependents. They show what employers and employees contributed.Source: Mercer National Survey of Employer-Sponsored Health Plans 2003

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©2003 San Francisco Chronicle

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