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October 29, 2002

Consulting firm: Employers face even higher increases in health costs in 2003

Employers nationwide face the fourth consecutive year of double-digit increases in health-care costs in 2003, with the increase likely to be the highest since the early 1990s, prominent human-resources consulting firm is projecting.

Hewitt Associates, a global outsourcing and consulting firm, is projecting a 15.4 percent average increases in health-care costs in 2003, compared to 2002 increases of 13 to 16 percent depending on the type of plan, the firm said in a release dated Oct. 29. In 2001, the average rate hike was 10.2 percent, the release said.

"Health care costs will continue to increase at a double-digit pace for the next few years unless there is a fundamental change in the way health care is delivered," said Jack Bruner, national health care practice leader for Hewitt Associates. "This is a major concern for senior management as it impacts the bottom line of companies across the country."

The firm also projects that many employers will pass along at least 25 to 30 percent of the increase to employees. The trend—increasing employees' share of health-insurance costs—has been documented in New York in The Business Council's annual survey on compensation practices among the state's employers.

Hewitt is forecasting 2002 cost increases of 13 percent for preferred provider organizations (PPOs) and point-of-service (POS) plans, 15 percent for traditional indemnity plans, and 18 percent for health maintenance organization plans (HMOs).

"Employers simply cannot afford to continue to absorb double-digit health care cost increases and are having to evaluate new alternatives to contain costs," Bruner said. "The bad news is that employees will again have to pay more out of their paycheck for health care, and some smaller to midsize companies may not be able to afford to provide health care coverage if rate increases continue at this pace."

In response to health-care cost increases, Hewitt said, employers are: