16% of salary increase goes to pay for the increase in health care costs next year

This year, U.S. companies saw the lowest health care cost increase in 8 years, but the overall rate of the increase continues to be a major concern for employers and employees as it outpaces inflation and salary increases, according to Hewitt Associates. In 2006, average health care rate increases were 7.9%.  For 2007, Hewitt is projecting a 7.7% average increase for employers.
Healthcare Costs 2006 2007 Change '06-'07
Healthcare Rate Increase 7.9% 7.7%  
Average health cost per person $7,744 $8,340 7.70%
Average employees  contributions $1,576 $1,678 6.47%
Average employee out-of-pocket costs $1,489 $1,627 9.27%
Source:  Hewitt Associates
According to Hewitt, the average health cost per person for major companies will increase from $7,744 in 2006 to $8,340 in 2007. The amount employees are being asked to contribute in 2007 will be $1,678, representing 20% of the overall health care premium and up from $1,576 in 2006.  Average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, are also expected to increase from $1,489 in 2006 to $1,627 in 2007. Overall, employees' total health care costs — including employee contribution and out-of-pocket costs — are projected to be $3,305 in 2007, up 7.8% from $3,065 in 2006.

Hewitt predicts that increases in employee contributions will continue to offset salary gains for many workers next year.  In 2007, Hewitt projects, salaried employees can expect a base salary increase of 3.7%. Therefore, an employee making $40,000 today who receives the average salary increase ($1,480) will use 16% of that salary increase to pay for the increase in health care costs next year.

2007 Cost Increases by Plan Type
On average, Hewitt forecasts that companies will experience 2007 cost increases of:

  • 7.0% for preferred provider organization (PPO) plans, 
  • 8.0% for health maintenance organization (HMO) plans 
  • 9.0% for point-of-service (POS) and indemnity plans. 

That means from 2006 to 2007, the average cost per person for major companies will increase from $7,744 to $8,340 overall; $7,547 to $8,151 for HMOs; $8,287 to $9,033 for POS plans; $7,735 to $8,227 for PPOs; and $7,816 to $8,520 for indemnity plans.

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