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 report on medical costs recently released by PwC’s Health Research Institute.  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

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

  • Increased cost sharing: Employers are increasingly shifting the burden of rising medical costs to employees. High deductible plans were the fastest growing type of plan in 2011, according to PwC.
  • Key brand-name drugs go off patent: Some of the most popular drugs will go off patent in 2012, so patients can use more generics.
  • Tiering on out-of-network providers: Employers are also increasing deductibles, which helps discourage workers from using more costly out-of-network providers.

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:

  • 84 percent of employers expect to make changes in plan design to offset new costs associated with health reform.
  • 86 percent of employers expect to re-evaluate their overall benefits strategy.
  • 50 percent of employers are considering significantly changing or eliminating company subsidies for dependent medical coverage.
  • 89 percent of employers expect to increase their health and wellness efforts.

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.

Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.