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Medical Costs Are Expected to Jump

Studies say workers and retirees will pay more this year as employers plan to cut spending.

July 06, 2006|From Bloomberg News

Medical costs for U.S. workers and retirees will rise this year even as the companies that buy their health coverage seek to curb spending, according to two surveys released Wednesday.

The total average cost for a family of four will be $13,382 in 2006, up 9.6% from a year earlier, said a report by Milliman Inc., which consults for insurers. At the same time, about 14% of companies surveyed by another consultant, Watson Wyatt Worldwide, said they expected to eliminate retiree health benefits for current workers.

Rising healthcare expense has been a burden for U.S. companies that buy coverage for 160 million workers, retirees and their families. Every year since 2000, premiums rose at least twice as fast overall as inflation and worker earnings.

"The sad thing for workers and retirees and their families is that we've seen rising health costs for the last five years, and costs are expected to keep on increasing," said Paul Fronstin, director of health research for the Employee Benefits Research Institute.

Employers will spend about $8,362 a year on premiums for a family of four, or 62.5% of the tab, the Milliman report said. Families will pay about $2,810 for their share of the cost of premiums and an average of $2,210 in out-of-pocket expenses for treatments, the report said.

Milliman, a consulting and actuarial firm based in Seattle, analyzed medical claims from employer health plans across the country to track cost trends.

A separate study by Watson Wyatt, based in Arlington, Va., found that "a vast majority of employers are planning to curtail their retiree medical plans for current and future retirees in the next five years." That study, based on a survey of 163 companies nationwide, found that 6% of companies plan to eliminate benefits for current retirees.

"One bit of good news for employees is that the vast majority of employers currently providing retiree medical benefits will continue to do so," said Cara Jareb, director of retiree medical consulting for Watson Wyatt. "The bad news is that retirees -- especially future retirees -- will have to pay more for their coverage."

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