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Increase in Employer-Sponsored Health Care Costs Expected to Hit 8 Percent for 2006

According to the 2006 "Towers Perrin Health Care Cost Survey," U.S. employers could face an 8 percent increase in health care costs this year. Another hit comes in the form of the cumulative effect of years of double-digit increases that have produced a record high for employer-sponsored health care costs in America.

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According to the findings, heath care expenditures are expected to rise by an average of $597 per employee, an average total cost of $8,424 - an overall increase of 140 percent over the last 10 years.

The survey reports that over the last 10 years, large employers have faced a double-digit increase in their health insurance. This year's prediction says health care expenditures are expected to rise by an average of $597 per employee, for an average total cost of $8,424. These increases represent a 140 percent increase over the last 10 years for health care coverage.

Average 2006 monthly health insurance costs and increases for group health plans

Group Employee/ Retiree only

Employee/ Retiree plus dependent

Family

Active Employees
$355
$715
$1,033
Retirees under age 65
$562
N/A
N/A
Retirees over age 65
$108
N/A
N/A

According to the survey, on average, employees will pay an extra $155 in 2006, representing yet another 10 percent increase from the year before. Employers, on the other hand, will see an increase of $442 per employee, taking in more than 74 percent of the total cost increase. Employers will pay 80 percent of premium costs and employees will pay 20 percent, on average.

"The health care cost crisis has become a chronic problem for U.S. employers and employees alike,” said David Guilmette, Managing Director of Health and Welfare for Towers Perrin, in a statement. “There is a fundamental tension between managing costs and managing people that constrains how much of the cost can be shifted to employees. Given the huge cost base built up over the years and continuing inflation at rates well above CPI, employers simply have to take a longer-term view. With this perspective as a platform, some employers are moving toward a model that increases employees’ responsibility and accountability -- engaging them in a long-term solution to a problem that is not going away. And these companies are beginning to see positive outcomes and a significant difference in program performance."

Medical costs continue to climb

For active employee-only coverage, the average 2006 medical coverage for all types of health plans combined is $355 per month, or $4,260 annually. For employee-plus-one-dependent, coverage was about $715 per month and $8,580 annually, and for family coverage, the cost was about $1,033 per month and $12,396 annually.

In flat dollar terms, according to the results, the employee contributed about 18 percent of the premium cost for employee-only coverage, and 21 percent for dependent coverage - an average of $63 a month, or $756 annually, for employee-only coverage, and about $217 a month, or $2,604 annually, for family coverage in 2006.

On the other hand, retirees contribute about 43 percent of the total cost of their coverage, paying on average $244 a month, or $2,928 annually, for retiree-only coverage. Retirees over 65-years-old are projected to pay about $108 a month, or $1,296 for retiree-only coverage.

“As health care costs continue to rise faster than the rate of general inflation, it’s more important than ever for employees to actively participate in controlling the overall spending and realize that increasing costs will affect them in both direct and indirect ways,” says Guilmette . “Clearly, as the company’s health care costs increase, the employee’s cost goes up as well. Continuing high inflation rates mean that employees’ out-of-pocket health care expenses will also rise. And, at the end of the day, employees need to recognize that a larger piece of the total compensation pie is being taken up by health care costs.”

About the Survey

The findings from the survey, now in its 17th year, are conducted by Towers Perrin's HR Services Business. The results are from 200 of the nation's largest employers, covering more than 5 million U.S. employees, retirees and dependents.

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