The cost of prescription drug benefits offered by larger employers is expected to rise an average of 22.5 percent for active employees and 23.4 percent for Medicare retirees during the next year, according to a survey by Watson Wyatt Worldwide and the Washington Business Group on Health.
Smaller employers can expect to see increases as well, either directly or indirectly through their general health coverage.
The survey revealed that overall medical costs are expected to increase an average 12.2 percent for active employees and 13.3 percent for Medicare retirees. Among the four major types of health plans, employers are expecting point of service plans for active employees and preferred provider organizations for Medicare retirees to experience the biggest increases.
"While managed care was initially successful in bringing down health care costs and rates of increase, it appears that they have become less effective in containing the rate of increase," says Rich Ostuw, global practice director of group and health care consulting at Watson Wyatt. "Prescription drug costs are continuing to escalate due to introduction of expensive new medicines, the aging of the population and the aggressive direct-to-consumer marketing that stimulates patient demand."
This means that employers will either have to eat a bigger share of health care costs or pass on the increases to employees.
"With the steady increase in health care costs and the dramatic jump in pharmaceutical expenses, employers are considering a wide variety of tactical changes," says Dr. Mary Jane England, president of WBGH. "Employers are working hard to understand the total impact of these and the extent to which they may be offset by reductions in direct medical costs, time away from work and improved productivity."
According to the survey, only 12 percent of employers plan to increase employee contributions so active employees pay a higher percentage of health care costs than they do now. Fifty-seven percent plan to maintain current cost-sharing arrangements between the employer and active employees -- meaning if the employer currently pays 80 percent of costs and the employee pays 20 percent, cost increases in the next year will be distributed to maintain the 80/20 ratio.
The remaining 32 percent of employers will absorb a disproportionate share of the cost increase. How to reach: Watson Wyatt Worldwide www.watsonwyatt.com
Todd Shryock (firstname.lastname@example.org) is SBN's special reports editor.