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Blood Pressure Alert: Health Care Costs Set to Climb

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Consumers can’t get a break. Food prices keep rising, the market remains volatile and now health care costs are on the way up.

The cost of employee health care benefits is expected to rise by more than 7% in 2012, according to a report released today by the National Business Group on Health, a non-profit industry association.

In response, employers are planning to shift more of those costs to workers. Next year, more than half of employers plan to increase how much employees contribute to premiums and 39% plan to raise in-network deductibles, according to the same survey.

For workers, this means it’s important to have a strategy when open enrollment rolls around, typically in October and November. For starters, pick the right insurance coverage, says Helen Darling, president and CEO of the National Business Group on Health. If you rarely visit the doctor, consider using a high-deductible plan, which typically has lower premiums but a significantly higher deductible than a traditional plan, she says. (In 2011, such plans had deductibles ranging from $1,200 to $5,950 for single person and $2,400 to $11,900 for a family.) On the other hand, “If you have two kids with asthma and allergies, you may be better off with the HMO,” Darling says.

Another way to save: take advantage of the discounts and freebies offered at the office. More companies are encouraging workers to get and stay healthy by providing free or low-cost smoking cessation classes, weight loss groups and other wellness programs. Among companies offering incentives for healthy lifestyles this year, the annual amount that could be earned ranges from $50 to $1,000 for participating in these programs, according to the survey. Employees collect an average $383, while dependents earn an average $303. And next year, companies say they plan to provide larger financial incentives and more opportunities for families to use them.

One of the biggest benefits for those in a high-deductible health plan is the tax-free earnings of a Health Savings Account (HSA). Employees can make pre-tax contributions to the accounts, and employers often make contributions, too. (The maximum HSA contribution in 2011 is $3,050 for a single person and $6,150 for a family.) There are no taxes on the savings if they are used on medical expenses. But unlike flexible spending accounts, which are more common, the money in HSAs does not have to be spent in the calendar year. Instead, it could be invested much like the money in a 401(k) or Individual Retirement Account and spent years later. One caveat—there’s a 20% tax penalty for those younger than 65 who use the assets on nonmedical expenses.

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  • Pay Dirt examines the millions of consumer decisions Americans make every day: What to buy, how much to pay, whether to rave or complain. Lead written by Quentin Fottrell, the blog examines these interactions, providing readers with news, insight and tips on shopping, spending, customer service, and companies that do right – and wrong – by their customers. Send items, questions and comments to quentin.fottrell@dowjones.com or tweet @SMPayDirt.