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Health Care Costs Are Rising: What Can Your Small Business Do About It?

This probably won’t surprise you: Health-care costs are expected to increase by 8.5 percent in 2012—slightly up from this year’s increase of 8 percent, according to the annual Behind the Numbers [1] report on medical costs recently released by PwC’s Health Research Institute [2].  There’s both good news and bad news for employers in the report. First, the good news: By making changes in their health plans, employers could likely keep cost increases down to 7 percent. Now, the bad: U.S. workers are using more medical services as post-recession stress takes its toll on their health.

PwC says medical costs increased at lower than expected rates in 2011 and 2010 because so many Americans were unemployed, lacked medical coverage or couldn’t afford medical treatment even if they had coverage. Now, pent-up demand for services is causing more use of medical care, and PwC says employers and insurers are reporting more claims for stress-induced illnesses.

healthcare costs [3]

However, several factors will decrease medical costs in 2012, including:

How will health insurance reform affect costs in 2012? Minimally, says PwC. The parts of the Patient Protection and Affordable Care Act that took place before 2012 were small changes for which employers have already accounted. The next group of changes (including Medicaid expansion, health insurance exchanges, subsidies to buy private insurance, mandates for employers to offer insurance and mandates for individuals to buy insurance) don’t begin to take place until 2014.

How can you decrease your health insurance costs? PwC asked employers what changes they are making to their plans, and found:

The best way to decrease costs is to shop around. Work with your insurance agent to get quotes from a variety of providers. Being wedded to one provider can cost you big-time. You may also want to poll your employees to see what benefits they care about most, and which they are willing to do without.

Employees have a strong interest in keeping their coverage (and keeping it affordable). But many have no idea how much insurance costs—especially if your business pays the bulk of their premiums. Being honest with them about how much insurance costs and enlisting their help in coming up with solutions can go a long way toward finding an answer that fits everyone’s needs.