insure logo

Why you can trust

quality icon

Quality Verified

At, we are committed to providing the timely, accurate and expert information consumers need to make smart insurance decisions. All our content is written and reviewed by industry professionals and insurance experts. Our team carefully vets our rate data to ensure we only provide reliable and up-to-date insurance pricing. We follow the highest editorial standards. Our content is based solely on objective research and data gathering. We maintain strict editorial independence to ensure unbiased coverage of the insurance industry.

For the fourth consecutive year, large employers will experience a double-digit increase in their health care costs, according to the preliminary results of the Towers Perrin 2003 Health Care Cost Survey.

Towers Perrin found the cost of large employers’ health benefit plans will increase 15 percent on average in 2003, the highest year-over-year percentage increase since Towers Perrin began conducting the survey in 1989. The average increase is $830 per employee per year. 

Towers Perrin also predicts employees will pay more out-of-pocket costs in 2003.

“The effect of these increases is magnified by today’s economic climate,” notes Jim Foreman, managing director of Health and Welfare for Towers Perrin.  “Four years of double-digit increases have taken their toll on many companies.  Employers recognize that they must act now to stem the tide.”

Towers Perrin claims many employers are taking steps to limit increases in health insurance costs, including asking employees to pay more for coverage.  “Employees will be paying more out-of-pocket this year,” notes Ron Fontanetta, a principal in Towers Perrin’s New York office.  “Cost sharing will come in the form of increased monthly contributions, as well as higher deductibles and co-payments.”

The survey found employees will pay 19 percent of their health care costs for employee-only coverage in 2003, compared to 17 percent in 2002.  Employees will pick up 22 percent of the costs for family coverage, compared to 21 percent in 2002. 

Towers Perrin estimates employees will contribute an average of $48 a month in 2003 for employee-only coverage (compared to $38 a month in 2002).  Employee contributions for family coverage will average $160 a month, compared to $134 a month in 2002.

Fontanetta notes while employees are being asked to pay more, their companies are still bearing the brunt of the cost increases.  “Employers recognize that their employees are already feeling a pinch as a result of lower wage increases and a declining stock market.  They also realize that their health benefit package is a key element to their status as an employer of choice,” Fontanetta says. While cost sharing may reduce some of the strain in the short term, employers are exploring several long-term solutions to minimize the total cost, including:

  • Care management — Employers can realize a return on investment by focusing on those chronic conditions that result in inordinate expense for a relatively small number of cases and implementing targeted programs to effectively manage these conditions.  On average, 15 percent of employees account for 75 percent of health care costs in a given year. 
  • Consumerism — Employers are encouraging and enabling employees to be more effective purchasers of health care.  This support could include web-based decision support tools and health information. Towers Perrin claims analytical tools employees can use to do financial modeling of their total cost under alternative health plans helps them make better choices at the time of enrollment.  Employers are also increasingly educating employees about the cost, value and proper use of health care services.
  • Optimal delivery — Employers are aligning plan design and contributions to encourage enrollment in appropriate health plans and the cost-effective use of medical care.
  • Vendor management — Many employers are updating the selection of vendors, since there is frequently wide variation in vendor performance in a particular market as well as differences in negotiated fees or performance standards among employers.  In addition, Towers Perrin claims there is a continued trend toward self-insuring HMOs.
  • Data management — Employers are monitoring utilization and cost data to identify short- and long-term design or plan management interventions.

HMO costs

 “Employers are facing the highest increase in HMO renewals since the early 1990s,” said Foreman.   According to the survey, the average HMO rate increase for active employees is 15 percent.  The HMO rate increase for retirees exceeds 20 percent.

“Among the factors driving higher HMO rates are the continued use of conservative underwriting assumptions and high core medical and pharmacy trends that continue unabated,” states Foreman.  “If pharmacy costs continue to outpace inflation by three- or fourfold, we predict that employers will not continue to deliver this benefit as they have done in the past.”

Foreman says many employers are taking action to curb rising health coverage costs.  “Employers are considering new approaches in managing their prescription drug programs, particularly in the area of heavily advertised brand name medications, to limit the impact of increasing costs.  For example, many employers are implementing tiered co-pay structures, and moving to more restrictive formulary drug coverage.” Foreman says.

Foreman says sharp increases in the price of hospital services, greater demand for more expensive diagnostic tests such as MRIs and cat scans, and higher utilization of certain physician specialists are also to blame for rising health plan costs.

Medical costs

Foreman says for active employees, the average reported 2003 cost of medical coverage is $266 per month for employee-only coverage; $540 per month for employee-plus-dependent plans and $768 per month for family coverage. The cost increase of employer-sponsored medical plans is higher for retirees under age 65 and Medicare-eligible retirees.

Drug costs make up a larger share of the cost for Medicare-eligible retirees, and drug cost increases have been greater than increases for other medical services in recent years.  In addition, there has been a rapid escalation in Medicare+ Choice premiums over the past few years to offset reductions in Medicare reimbursements.

“This should be of particular concern to companies that have a large retiree population, since this cost trend can impact the expense and liability of their retiree medical programs,” Fontanetta says.

Average costs for coverage

Employee/ Retiree only

Employee/ Retiree plus spouse


Average percent increase from 2002

Active employees





Retirees under age 65





Medicare-eligible retirees





Dental costs

According to the Towers Perrin survey, dental costs for 2003 will increase by 6.7 percent.  “Although increases in dental premiums are not as dramatic as health care premium increases, they continue to outpace the rate of inflation,” notes Fontanetta.  Dental costs commonly represent 8 to 10 percent of a company’s active health care costs.

author image
Michelle Megna


Michelle, the former editorial director, insurance, at QuinStreet, is a writer, editor and expert on car insurance and personal finance. Prior to joining QuinStreet, she reported and edited articles on technology, lifestyle, education and government for magazines, websites and major newspapers, including the New York Daily News.