Employers, employees fret over healthcare.

It's hard for companies to find encouraging news on the healthcare front, but at least it appears that the pace of cost hikes for medical plans isn't increasing. In fact, it's projected to slow in 2004 for all coverage types except preferred provider organizations (PPOs), according to the 2004 Segal Health Plan Cost Trend Survey.

The improvement may not be worth shouting about, though. For example, the projected rate of increase for health maintenance organizations (HMOs), including prescription drugs, is 13.7 percent for 2004, just below the 14.4 percent projected for 2003. Prescription drug costs alone are expected to jump 18.1 percent this year, down slightly from 19.5 percent in 2003. The Segal Co. also reported that the difference in trend rates between all managed and non-managed medical plan types continues to decrease.

The New York-based company drew its projections for medical, prescription and dental claims cost trends from a survey of major insurance carriers, managed care organizations, pharmacy benefit managers and third-party administrators, plus data from 2002-2003.

A survey by Mercer Human Resource Consulting found that healthcare costs rose 10.1 percent last year, with the rise pared somewhat by companies shifting more of the costs to employees. In comparison, Mercer said, costs jumped nearly 15 percent in 2002.

Rising healthcare costs aren't only a concern for corporate bottom lines, either--they're taking a toll on employee morale and confidence about their future, according to a survey by American Express Financial Advisors Inc. A poll of more than 950 full-time workers whose companies provide healthcare found that 73 percent were either somewhat or very concerned about how rising healthcare costs might hurt their ability to fund their retirement and other financial goals. More than two-thirds reported an increase in the share of expenses they pay for their healthcare benefits.

The long-term consequences of higher healthcare costs are already being felt as employees make difficult benefits trade-offs: 37 percent of those surveyed said they plan to lower the amount allocated toward savings and investing overall.

Among other choices, the survey revealed that 55 percent are reducing discretionary spending, 24 percent are cutting back on workplace benefits they receive at additional costs (such as contributing less to a retirement/401(k) plan or trimming back on their employer-sponsored life insurance), 12 percent are switching to a less expensive health plan and 6 percent are dropping healthcare coverage completely.

Overall healthcare expense increases were shown to have a measurable effect on respondents' level of financial stress, with half of those surveyed indicating at least some or considerable increase in such stress, frequently due to "sticker shock" over rising costs and increased sharing provisions.

Most-Endangered Hiring Incentives
(from survey of 1,400 CFOs)

Executive perks       29%
Stock options         17%
Signing bonuses       13%
Perfomance bonuses    11%
Extra vacation days    7%
None/NA                5%
Don't know            18%

Source: Robert Half Management Resources