Decisive action by employers in 2012 – in particular, moving
more employees into low-cost consumer-directed health plans and
beefing up health management programs – was rewarded with the
lowest average annual cost increase since 1997. According to the
National Survey of Employer-Sponsored Health Plans
(www.mercer.com/ushealthplansurvey), conducted annually by Mercer,
growth in the average total health benefit cost per employee slowed
from 6.1% last year to just 4.1% in 2012. Cost averaged $10,558 per
employee in 2012. Large employers – those with 500 or more
employees – experienced both a higher increase (5.4%) and higher
average cost.
Employers expect another relatively low increase of 5.0% for
2013. However, this increase reflects changes they plan to make to
reduce cost; if they made no changes, cost would rise by an average
of 7.4%.
Mercer’s nationally projectable annual survey includes public
and private organizations with 10 or more employees; 2,809
employers responded in 2012.
“Employers are very aware that in 2014, when the health reform
law’s provisions kick in, they will be asked to cover more
employees and face added cost pressure,” said Julio A. Portalatin,
President and CEO of Mercer. “They’ve taken steps to soften the
impact and it’s paying off already.” Employers that may have been
waiting for the election results will need to act quickly, he says,
“because critical decisions need to be made by the summer so they
can be implemented for 2014 open enrollment.”
Success in controlling cost growth in recent years may be
contributing to employers’ commitment to providing health coverage.
Few believe it is likely that they will terminate their employee
health plans within the next five years, even though state-based
health insurance exchanges will provide another source of health
coverage for individuals beginning in 2014. Just 7% of large
employers and 22% of small employers (those with 10-499 employees)
believe it is likely or very likely that they will terminate their
health plans for employees.
Shift to low-cost consumer-directed health plans helped hold
down overall cost increase
With a growing number of employers now positioning a
high-deductible, account-based consumer-directed health plan as
their primary plan – or even their only plan – employee enrollment
jumped from 13% to 16% of all covered employees in 2012. Many
employers see these plans as central to their response to health
care reform provisions that will raise enrollment. Over the past
two years, offerings of CDHPs have risen from 17% to 22% of all
employers, and from 23% to 36% of employers with 500 or more
employees. Well over half (59%) of very large organizations (20,000
or more employees), which typically offer employees a choice of
medical plans, now offer a CDHP.
“If we’re not already at the tipping point for CDHPs, at this
rate of growth it’s coming soon,” says Sharon Cunninghis, US
business leader for health and benefits.
With the cost of coverage in a CDHP with a health savings
account is about 20% lower, on average, than the cost of PPO
coverage – $7,833 per employee compared to $10,007 -- employers are
increasing willing to make the CDHP their primary or even their
only plan. Among large employers that offer an HSA-based CDHP,
average enrollment rose from 25% to 32% in 2012. And, when asked if
they expect to offer a CDHP five years from now, 18% of large
employers say they expect to offer it as the only plan, up from 11%
in 2011.
Employers believe health management is helping to slow
medical trend
Workforce health management, or “wellness”, has emerged as
employers’ top long-term strategy for controlling health spending.
Over three-fourths of large employers (78%) say that senior
leadership is supportive or very supportive of health management
programs as a means of encouraging more health-conscious
behavior.
“While most employers believe that health management programs
are making a difference,” says Tracy Watts, a partner in Mercer’s
Washington, D.C. office, “proving ROI remains a challenge for many.
That said, there are many examples of programs saving lives by
identifying a ticking time bomb and getting that person immediate
care.”
The largest employers are the most likely to have formally
measured the return on investment (ROI) of their health management
programs (53% of employers with 20,000 or more employees). Of
those, more than three-quarters say that their programs have had a
positive impact on medical plan trend.
Perhaps because they are seeing results, employers are
increasingly willing to invest in the success of these programs.
For the third year in a row there was a sharp increase in the use
of incentives or penalties to encourage higher participation: 48%
of large employers with health management programs provided
financial incentives or penalties, up from 33% last year. When
non-financial incentives (such as recognition, gifts or lotteries)
are included, this figure reaches 54%.
At the same time, incentives have become more substantial. The
most common incentive offered by large employers for completing a
health assessment in 2012 is a reduction in the employee’s premium
contribution; the median reduction in the annual contribution
required for employee-only coverage is $260. In addition, a growing
number of employers are providing incentives for achieving desired
outcomes, instead of (or in addition to) incentives for
participating in programs. Where incentives for achieving,
maintaining or showing progress toward specific health status
targets were rare in 2011, in 2012 nearly a fifth (18%) of
large-employer health management programs include them.
Looking ahead
With the future of health reform secured by the re-election of
President Obama, employers will be focusing on the next generation
of cost management strategies.
“We’re seeing a move toward greater cost control through defined
contribution strategies,” says Ms. Cunninghis.
An example of a defined contribution strategy is determining in
advance what the employer will contribute to the cost of coverage
and requiring employees to pay anything above that amount. If the
employer offers a range of plans and contributes the same amount
toward each, employees can save money by choosing a lower-cost
plan. Nearly half of employers – 45% – say they currently use or
are considering using a defined contribution strategy.
Another approach that is increasingly in the spotlight is the
use of private exchanges, a private-sector alternative to the state
health insurance exchanges. Private exchanges give employers a way
to offer employees a broader choice of benefits while allowing
carriers to compete for their business and manage their risk. More
than half of all employers (56%) say they would consider a private
exchange for either their active or retired employees.
Survey methodology
The Mercer National Survey of Employer-Sponsored Health Plans is
conducted using a national probability sample of public and private
employers with at least 10 employees; 2,809 employers completed the
survey in 2012. The survey was conducted during the late summer,
when most employers have a good fix on their costs for the current
year. Results represent about 800,000 employers and more than 104
million full- and part-time employees. The error range is
+/–3%.
The full report on the Mercer survey, including a separate
appendix of tables of responses broken out by employer size, region
and industry, will be published in April 2013. For more
information, visit www.mercer.com/ushealthplansurvey.
About Mercer
Mercer is a global consulting leader in talent, health,
retirement and investments. Mercer helps clients around the world
advance the health, wealth and performance of their most vital
asset – their people. Mercer’s 20,000 employees are based in more
than 40 countries. Mercer is a wholly owned subsidiary of Marsh
& McLennan Companies (NYSE: MMC), a global team of professional
services companies offering clients advice and solutions in the
areas of risk, strategy and human capital. With 52,000 employees
worldwide and annual revenue exceeding $10 billion, Marsh &
McLennan Companies is also the parent company of Marsh, a global
leader in insurance broking and risk management; Guy Carpenter, a
global leader in providing risk and reinsurance intermediary
services; and Oliver Wyman, a global leader in management
consulting. For more information, visit www.mercer.com. Follow
Mercer on Twitter @MercerInsights.
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