The cost of providing health benefits surged for New Jersey employers again last year, rising by an average of 8.2%, the second highest rate of inflation in the history of the New Jersey Business & Industry Association's annual Health Benefits Survey, the Association reported yesterday in a Trenton news conference.

More than half of the companies responding to the survey said their health plan costs rose by double digit rates of inflation in 2001, with increases of 20%, 30% and higher not uncommon among the 1,600 New Jersey employers participating in the survey.

The survey also showed costs rising as a proportion of employers' payroll expenses. Survey participants paid an average of $6,136 per covered employee to provide health benefits last year, up $465 or 8.2% from the year before. The average cost equaled 14% of reported average wages of $42,981, up from 11% of average wages just a few years ago.

Last year's cost hike follows an average increase of 8.8% in 2000, making for an average increase over two years, given the effect of compounding, of close to 18%, more than triple the rate of general inflation.

But the average increase doesn't tell the whole story. Fifty-six percent of employers participating in the 2002 survey said they expect their health plan costs to rise at a double-digit pace again this year, up from 24% of respondents anticipating double-digit increases just three years ago.

"'We are not facing a potential crisis. We are in one now!'" said NJBIA Executive Vice President Philip Kirschner, quoting a Middlesex County manufacturer with ten employees that is facing a 44% increase in its premiums for 2002.

"Our members are frantic to find a solution," Kirschner said. "They are switching into cheaper plans, shifting costs onto employees, reducing medical coverage and doing anything they can short of dropping health benefits altogether."

For a second consecutive year, most managed care plans failed to deliver cost savings for inflation-weary employers. In contrast to the mid-1990s, when managed care plans saved employers money, today they are pacing the rate of health plan inflation.

The average cost of a point of service plan rose to $6,060 from $5,501, a gain of $559 or 10%. The average cost of a preferred provider plan rose to $6,493 from $5,932, a gain of $561 or 9%. HMO plans as a group saw a smaller jump, rising by $202 or 4% to $5,669. However, this average was skewed by a handful of companies, comprising a small fraction of the HMO sample, which cut their plan costs by 40% or more. If these unusual cases are taken out, the average cost of an HMO plan rose by more than 12% last year.

With more than 17,500 member companies throughout New Jersey, NJBIA is the nation's largest statewide employer association. The 2002 Health Benefits Survey was conducted between January 7 and 31 of this year. It was mailed to the Association's 14,958 member companies employing two or more people. The results are based on the first 1,600 responses. More than eight in ten respondents were small companies with 2-50 employees.

The continued escalation of health plan inflation follows a brief period of moderate inflation and even falling costs spurred earlier in the decade by the rapid growth of managed care in New Jersey. Employers responding to the NJBIA survey between 1995 and 1998 reported inflation rates averaging in the low single digits. At the low point in 1995, the average reported cost increase was less than one percent.

The Association's annual Health Benefits Survey, first conducted in 1993, remains the largest statewide survey of the experiences and opinions of New Jersey employers in providing health benefits coverage to their employees. Among the survey's other findings:

The smallest companies, those with 2-19 employees, paid the most for healthcare coverage. Their average cost of $6,411 per employee for health coverage was $823 or 15% more than the average of $5,588 paid by companies with 100 or more employees.
Despite rapidly escalating costs, the proportion of respondents offering health benefits to their employees did not decline over the last year, with 93% providing coverage to full-time employees and 74% to full-time employees and their dependents.
A majority of the cost-control actions taken by employers in 2000 involved asking their employees to pay more through higher premiums, copayments and/or deductibles. In fact, 61% of the actions taken by employers involved this kind of cost shifting. Only 39% of cost-control actions involved changing plans or joining a managed care network.
Asked what specific types of medical coverage are included in their plans, 94% said they provided coverage for prescription drugs, 76% for chiropractic services, 44% for dental work, 38% for eye care, 30% for acupuncture, and 19% for massage therapy.

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