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DESPITE COST SHIFTING, EMPLOYEES' SHARE OF MEDICAL BENEFIT COSTS DECLINES

 DESPITE COST SHIFTING, EMPLOYEES' SHARE OF MEDICAL
 BENEFIT COSTS DECLINES
 PHILADELPHIA, May 20 /PRNewswire/ -- Despite widespread health care cost shifting efforts by employers in the form of both benefits and contribution requirements, many employees may be paying a smaller share of their total medical benefits expenses today than they were five years ago. The reason for this, according to an analysis by Milliman & Robertson, a national actuarial and benefit consulting firm, is that many employers, at a time when health care costs were rising faster than the general rate of inflation, have not sufficiently indexed either the deductibles or limits on the maximum out-of-pocket expenses typically required in medical benefits programs.
 Milliman & Robertson's Health Cost Guidelines study shows that a $250 deductible paid by an employee in 1987 represented 16.5 percent of his/her total expected medical costs. Today that same $250 deductible represents only 9.8 percent of total medical costs, a reduction of about 40 percent. The difference is being picked up by employers, (See Figure 1) or by increased contribution requirements for employees.
 Similarly, the employee's total out-of-pocket limit (the maximum amount an employee will pay including the deductible) has not kept pace with rising medical costs in many cases, and consequently employers are here, too, paying a greater proportionate share of costs than in the past. For example, a total out-of-pocket limit of $2,250 per calendar year in 1987 represented 29.3 percent of total medical costs. Today that figure represents only 22 percent (See Figure 2). The 25 percent reduction in value is shifted back to the employer, unless contribution requirements have been increased accordingly.
 Increases in employee contribution requirements have also not kept pace with the increases in medical benefit costs. Data reported by the U.S. Chamber of Commerce in its 1991 Employee Benefits Report indicated that payroll deductions had increased by only 16.7 percent between 1987 and 1990, or about 5.3 percent per year. This compares to an average increase in medical costs of 10.4 percent per year over this period based on the Health Insurance Trend Model(TM) developed by Milliman & Robertson.
 According to Robert J. Dymowski, National Director of Milliman & Robertson's Health practice, "The operating theory is that employees have to be made more sensitive to health care costs at the point of purchase if these costs are to be curtailed. Most companies target to have employees bear 20-25 percent of expected medical costs, exclusive of contribution requirements. However, as we can see by the data cited here, the employees' share, because it is partially tied to fixed dollar amounts, is not keeping pace with the sharp rise in health care costs we have experienced over the last five years. Employers tend to set fixed deductible and out-of-pocket limits and revise them periodically on an ad hoc basis. This results in the necessity for major increases when the adjustments do occur.
 "The obvious remedy for this leveraging," added Dymowski "would be the indexing of deductible and similar fixed dollar limits on an annual basis. A word of caution, however - indexing is a double-edged sword. In the period 1987 to 1992, for example, increases in employee salary levels did not come close to keeping pace with the increase in health care costs. So, had indexing been in place, employees would now find themselves putting an even greater proportion of their total compensation toward paying for health care benefits than they did in 1987. Employers have used managed care options to offset some portion of these increasing costs, however."
 The Health Cost Guidelines are a primary health care data base, established by Milliman & Robertson in 1954, which can be used by insurers or benefit plan sponsors for the determination of claim costs for a wide variety of health benefit plans. The Guidelines represent a combination of experience, research, and judgment applied to an extensive volume of published and unpublished data.
 Milliman & Robertson, Inc. is a national firm of actuaries and consultants serving the full range of business, financial and government organizations. Founded in Seattle in 1947, Milliman & Robertson has 25 offices in the United States and is the U.S. member of Woodrow Milliman, an international affiliation of actuarial firms.
 FIGURE 1
 Value of Deductible as a Percentage
 of Total Medical Costs
 (1) (2) (3)
 Deductible 1987 1992 1992/1987
 $100 8.7 pct. 4.4 pct. .50
 250 16.5 9.8 .59
 Source: Milliman & Robertson, Inc. Health Cost Guidelines
 FIGURE 2
 Value of Out-of-Pocket Costs as a Percentage
 of Total Eligible Medical Costs
 Deductible and Coinsurance
 Limit (including $250 deductible) 1987 1992 1992/1987
 $1,250 27.1 pct. 19.3 pct. .71
 2,250 29.3 22.0 .75
 5,250 31.6 24.7 .78
 Source: Milliman & Robertson, Inc. Health Cost Guidelines
 -0- 5/20/92
 /CONTACT: Robert J. Dymowski or John P. Cookson of Milliman & Robertson, Inc., 215-687-5644; or Lorraine Spenser of Donley Communications, 212-751-6126, for Milliman & Robertson/ CO: Milliman & Robertson ST: Pennsylvania IN: INS SU:


TQ -- NY040 -- 2281 05/20/92 11:04 EDT
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Date:May 20, 1992
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