U.S. employers' health benefit costs fell last year for the first time in more than 20 years, according to a national survey, while costs in the Baltimore-Washington area rose by a moderate 3.6 percent.
The survey from the New York benefit consulting firm of Foster Higgins said the average total health benefit cost last year was $3,741 per employee, down 1.1 percent from 1993. In Baltimore and Washington, average costs rose to $3,849. Maryland employers reported a 1.5 percent drop, to $3,779 per worker.
"This marks the end of two decades of health care benefit cost increases that consistently outpaced inflation," the firm said in an announcement accompanying the survey results.
The local surveys were based on reports from companies with 500 or more employees. The national survey drew responses from 2,097 employers of all sizes.
Foster Higgins said benefit costs fell nationwide because companies and workers continued to shift to health maintenance organizations and other managed-care providers at the expense of costlier traditional insurance plans. In 1994, companies surveyed said 63 percent of their workers were covered by managed-care plans, up from 52 percent in 1993.
A Foster Higgins principal said the national figures probably won't continue to move down this year because most of the shift to cheaper managed-care plans has already taken place. But experts agreed that the shift to managed care sets the stage for much smaller annual increases than the 10 percent or more that was common during the 1970s and 1980s as medicine grew to rely ever more heavily on high technology.
"There is clearly a one-time savings in moving people into managed care," said David Hyman, a professor who teaches health care law at the University of Maryland Law School. "But you also expect the rate of increase in subsequent years to be more moderate. You lower your baseline and you lower your rate of increase."
That was the case last year in the Baltimore-Washington area, says a Lutherville benefits consultant. Health care costs did not fall locally because the area already had heavy enrollments in managed-care plans, said William F. Simmons, and the area is now getting the moderate cost increases Foster Higgins expects to see nationally in coming years.
Foster Higgins principal Bob Eicher said prices of health maintenance organizations have risen about 1 percent to 5 percent a year in recent years, and he expects little upward pressure because today's market conditions give managed-care providers "significant profit margins."
"Instead of passing [higher costs] along and risking losing customers, they're sucking it up," he said.
Mr. Simmons thinks there is room for national benefit costs to fall further because HMOs and other managed-care organizations such as preferred provider networks have made little headway in some areas of the country.
"They're growing rapidly in the South and Midwest, and they're going to grow a lot faster because there is no managed care out there," said Mr. Simmons, president of Group Benefit Services in Lutherville.