Kiplinger Personal Finance

Employer health costs are soaring — up an estimated 10 percent in 2010, about five times the rate of inflation. While they wait — and hope — for the U.S. Congress to do something to alleviate the pain, companies are moving aggressively to rein in costs wherever they can. They don’t have much choice. Premiums for family coverage have climbed 131 percent since 1999.

Lots of different approaches will be tried. A handful of firms will end worker coverage because they just can’t afford to continue offering it. Others plan to move aggressively on costs, drawing on a range of options to limit spending.

Efforts to shift costs to workers will be carefully targeted. Instead of making employees pay more in premiums, most businesses will hike copays, deductibles and limits on out-of-pocket expenses, often by a third or more. That keeps paychecks intact while creating incentives for participants to hold down their medical expenses.

“The idea is that those who use the plan the most will pay the most,” says Randy Abbott of Watson Wyatt Worldwide, a benefits consulting firm.

Expect firms to be active in directing care, using carrots and sticks to point workers to providers with a track record of efficiency and effectiveness. Copays and deductibles may be waived, for example, if high-risk patients go to selected providers.

Employers will also seek more coordination among providers, too, especially for chronic disease cases.

Look for an even bigger push to wellness programs, with greater rewards for those who exercise more, lose weight, stop smoking, etc. Plus more tough love, with limited coverage plans for those who insist on indulging in unhealthy behavior. Wellness program providers will be held accountable, too, forced to guarantee results.

Leadership from the company’s top brass is imperative for wellness programs to succeed, says Linda Havlin with Mercer, a human resources consulting firm. “The message from the top needs to be one of shared responsibility and the need to bring health costs down.”

Employers will offer fewer plans, which will give them more negotiating power with the vendors they keep. Workers can expect to pay more for out of network doctors — say 40 percent of the physician’s fee instead of 20 percent. Brand-name drugs will be higher, as well. Some won’t be covered at all if insurers say a generic equivalent is available.

One exception: More consumer directed plans as options. After a slow start, businesses are bullish on high deductible coverage with tax-advantaged savings accounts. Why? They’re 23 percent cheaper and are a good fit for those pushing worker responsibility. About 25 percent of employers offer consumer directed plans now, up from 4 percent five years ago.

According to a recent study by Mercer, 21 percent of companies surveyed plan to add such a plan in the near future. “It’s a strong market shift,” says Havlin of Mercer.

Pressure on vendors will increase. Employers will demand guaranteed limits on future premium hikes and put their plans out for bid to get the best possible price. Companies will also conduct more audits to ensure that dependents are eligible. That has become a bigger issue recently as more spouses and partners lose jobs and their individual coverage.

Long term, though, employers want Congress to provide some relief. Firms that offer coverage want a more level playing field. Small businesses want some aid so they can offer insurance. And everyone hopes for measures to rein in medical costs.