Employees face 'shockingly higher' health costs

NEW YORK (CNNMoney.com) -- It's open enrollment time at work. Prepare yourself. Starting in 2010, your employer is making sure that when it comes to paying for your health care, you're going to be sharing much more of the burden.

"The headline is greater cost sharing," said Tom Billet, senior consultant with human resources consultancy Watson Wyatt. "That means higher [employee] contributions, higher deductibles, or both," he said.

In 2010, employers are "putting everything on the table," implementing benefit changes aimed at making workers more aware of the actual cost of services," said Paul Fronstin, director of the health research program at the Employee Benefit Research Institute (EBRI), a public policy research group.

Barry Schilmeister, health care consultant with Mercer, a global firm specializing in employee benefits, agrees.

"Most people are shielded from the true cost of care because all they pay when they go to the doctor is a $15 to $20 co-pay," he said. "To me the catch phrase in 2010 will be 'Taking responsibility.' "

Consumer advocates, however, aren't thrilled with these declarations.

"We recognize that this is a hard economy," said Cheryl Fish-Parcham, deputy director of health policy with Families USA, a health care consumer advocacy group.

"We know that medical debt is growing. We know that [employer-based] coverage is thinning," said Fish-Parcham. "This is a really difficult environment for everyone. That's why we're all looking forward to health reform."

Here's what to expect
So how are employers tweaking health care benefits options in 2010? Here's the rundown:

Higher out-of-pocket costs. "Employers and employees will face shockingly higher [health care] costs," warned Helen Darling, president of the National Business Group on Health, whose members include Fortune 500 companies such as American Express (AXP, Fortune 500), Coca-Cola (KO, Fortune 500) and IBM (IBM, Fortune 500).

Companies are raising deductibles, co-payments and employee out-of-pocket limits. "In better economic times, employers are better able to shoulder the [health care cost] burden. Not as much now," said Billet, who estimates that costs could increase between 10 to 20% for insured workers.

Besides the economy, Billet said other underlying factors driving up health care costs include aging of the population, greater use of technology in health care and government cost-shifting.

"Medicare and Medicaid typically pays providers less than the actual cost of care," he said, adding that providers make up the difference by raising their rates to their insured clients.

Co-pay to co-insurance. Darling said companies have been shifting over the past five years from a co-pay, a flat dollar fee ranging between $10 and $35 that employees pay at each doctor visit, to a to co-insurance model.

With co-insurance, employees pay a percentage of the total medical expense. Experts say co-insurance rates are typically split 80-20 or 70-30 between the health plan and the insured worker.

"By changing to co-insurance, people are more aware of costs and the hope is that they'll be more careful about how they spend their [health care] dollars," said Schilmeister.

Billet, whose corporate clients include Time Warner (TWX, Fortune 500), the parent company of CNNMoney.com, said co-insurance used to be the norm prior to the advent of health management organizations (HMO). "So it's almost like a back to the future," he said. Time Warner is shifting from a co-pay to a co-insurance model next year.

Fewer options. Big companies are reconfiguring their options, reducing the number of HMOs and offering them only in specific geographic areas, or cutting back on the number of health plans, said Billet. "If a company previously offered a high, medium and low-cost option, now many companies are eliminating the higher-price ones," he said.

"I don't think there's a groundswell of this happening, but employers are looking to save money wherever they can," said Schilmeister. "You can expect that if your company offered two similar HMOs, they will drop the more expensive one."

He added that many consumers may be forced to switch doctors as a result of the consolidation of health plans.

EBRI's Fronstin offered a different perspective. "Fewer options may be a good thing," he said. "Sometimes people get overwhelmed by too many choices and in the process they don't make the best choices for themselves."

Consumer-directed health plans. About 20% of large employers offer consumer-directed health plans (CDHP), up sharply from 14% last year, according to Mercer.

These plans, which couple catastrophic illness coverage with employee-funded health savings accounts (HSA) or health reimbursement accounts (HRA), are 20% less expensive than traditional preferred provider organizations (PPOs) and HMOs, said Schilmeister. CDHPs usually have much lower premiums, although the deductibles are higher than other options. Some employers do help workers with the high deductibles by contributing money into their HSAs.

Still, Schilmeister said CDHPs probably make more sense for a healthy worker who doesn't utilize medical care frequently. Otherwise they can be expensive for employees.

"Be careful with these," said Fish-Parcham. "If employers aren't funding your HSA, it can become a huge problem especially for lower-income workers."

Closer scrutiny of dependent coverage. Experts say you should expect companies to impose a "surcharge" on your premiums if you have a working spouse who has access to other health care coverage. "Virtually all big companies are doing eligibility audits now," said Darling.

Incentives to stay healthy. A healthy worker is a less expensive investment for an employer. So expect to see incentives such as lower premiums or even gift cards if you take a health assessment test or join a weight loss or smoking cessation program.

Families USA's Fish-Parcham said she likes incentives designed to keep workers healthy provided that those incentives are not tied to employees' health plans.

"We're very concerned that employers are imposing higher premiums on people based on their health condition that may be outside of their control," she said.