Press Releases

WASHINGTON, DC, November 27, 2001 — Health care cost increases will be greater than originally expected for many corporate benefit plans in 2002 due to the recessionary environment and the impact of the September 11, 2001 events, according to Watson Wyatt.

"We now see corporate health care benefit costs increasing by more than 15 percent next year," notes Randall Abbott, a senior health care consultant at Watson Wyatt. "The dual effect of layoffs and the aftermath of September 11 will increase costs an additional one to two percent for companies nationwide, and three to five percent for metro New York area companies." Watson Wyatt’s most recent health care cost survey showed employers were bracing for a 13.6 percent increase (to read the survey report, click here).

"The additional projected increase in costs for 2002 can be attributed to the post-September 11 upswing in behavioral health and employee assistance plan services as well as a rise in anti-anxiety and anti-depressant prescription drug expenses," says Abbott. These drug costs are likely to continue as employees and their families cope with future uncertainties, he notes.

Layoffs are also contributing to unexpected costs by increasing the claim expense that companies face when their unemployed workers enroll for COBRA continuation coverage. "Employees moving to COBRA typically incur costs at least 50 percent greater than active employees," says Mark White, a senior health care consultant at Watson Wyatt. "For example, the added COBRA costs associated with a 10 percent reduction in staff can produce an additional 10 to 15 percent increase in overall health benefit costs per active employee for as long as 18 months."

Employers can moderate the cost impact by being proactive in their management of health care benefits. Abbott and White suggest companies consider the following:

• Optimize your employee assistance program (EAP). EAP services are the most cost effective and can also help managers and supervisors to cope with employee behaviors.
• Closely monitor the link between your EAP and your medical plan. Encourage both to triage appropriately for maximum cost efficiency.
• Examine prescription drug costs through the first quarter to be sure they are being effectively managed. And optimize mail order for employees who will be on medications for an extended period of time to help manage costs.
• When projecting the cost impact of layoffs, keep in mind that it usually takes two to three months for claims to clear the system.
• Factor increased expenses for COBRA coverage into your budget to avoid fiscal year surprises.

Watson Wyatt is a global consulting firm specializing in human capital and financial management. The firm offers services in three areas: employee benefits, eHR™ and human capital strategies. Watson Wyatt has more than 6,200 associates in 87 offices in 29 countries. For more information visit www.watsonwyatt.com.

For more information contact Gretchen Broderson at (202) 715-7089 or Ed Emerman at (609) 452-5967.