- Average total health benefit cost per
employee rose just 2.1% in 2013, but employers predict a 5.2%
increase in 2014
- ACA’s impact on enrollment is wild card
that could boost spending still higher next year
- Rising enrollment in high-deductible,
consumer-directed health plans is helping to slow cost growth
Slower cost growth continued in 2013 as employers took action in
anticipation of new cost pressures that will arise over the next
few years from health care reform provisions. 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 4.1% in 2012 to just 2.1% in 2013. Cost averaged $10,779 per
employee in 2013; this includes employer and employee contributions
for medical, dental and other health coverage.
But employers expect that the rate of growth in the per-employee
cost of coverage will rebound next year, to 5.2%. This increase
reflects changes they will make to reduce cost; if they made no
changes to the current plans, they estimate that cost would rise by
an average of 8.0%.
Mercer’s nationally projectable annual survey includes public
and private organizations with 10 or more employees; 2,842
employers responded in 2013.
While cost growth has slowed among employers of all sizes, it
was lowest for small employers in 2013. Among those with 10-499
employees, average cost rose by only about 1%, while among very
large employers – those with 5,000 or more employees – it rose
3.7%. Small employers shifted cost to employees in 2013 with higher
deductibles, which helped to hold down cost: the average PPO
in-network individual deductible jumped 15% in 2013, to reach
$1,663. Large employers focused on building enrollment in low-cost
consumer-directed health plans and improving employee health
management programs.
“The good news is that employers have already taken decisive
action to slow cost growth so they will be in a better position to
handle the challenges ahead,” said Julio A. Portalatin, President
and CEO of Mercer. “But the impact of the ACA on enrollment levels
remains a huge question mark.”
Higher enrollment could boost benefit spending substantially
for some employers
Many employers anticipate spending more to cover more employees
in 2014. The ACA mandate requiring all individuals to obtain
coverage or face a tax penalty goes into effect in 2014. Currently,
22% of an employer’s eligible employees, on average, waive coverage
for themselves, either because they are covered under another plan
or because they choose to go without. Among employees who do
enroll, on average 53% elect dependent coverage. But next year,
because of the individual mandate, it is likely that fewer
employees will waive coverage for themselves and more will elect
dependent coverage – although the extent of the change is difficult
to predict.
Some large employers say they will take steps to control growth
in enrollment, most commonly by increasing the employee
contribution for dependent coverage (18%) or employee-only coverage
(10%). Some already impose a surcharge on premium contributions for
spouses who have other coverage available (9% of large employers)
or even make them ineligible for coverage (7% of large employers);
it seems likely that these provisions will become more common next
year.
“There are a lot of unknowns when it comes to enrollment,” said
Tracy Watts, Mercer’s national leader for health reform. “A big
question is how many employees will enroll for the first time,
given that the tax penalty for not obtaining coverage is relatively
small. But an employer might wind up covering more dependents if
others in the area have made changes to discourage their employees
from enrolling dependents.”
The majority of large employers believe that higher enrollments
and new fees will boost their benefit spending in 2014. The median
amount of the increase predicted is 3.5%, although some employers
(13%) expect their spending on health benefits to increase by more
than 10%.
“Cost increases from higher enrollment would be on top of the
normal increase in the per-employee cost of coverage,” said Ms.
Watts.
Enrollment in consumer-directed health plans now on par with
that of HMOs
Nationally, enrollment in CDHPs rose from 16% of covered
employees in 2012 to 18% in 2013. This is the same portion that
enrolled in HMOs. In the Midwest, CDHP enrollment is now more than
double that of HMOs (27% compared to 10%).
CDHPs are an important option for employers looking for a
low-cost plan to make extending coverage to additional employees
more affordable. The average cost of coverage in a CDHP paired with
a tax-advantaged health savings account is 17% less than coverage
in a PPO and 20% less than in an HMO: $8,482 per employee, compared
to $10,196 for PPOs and $10,612 for HMOs.
CDHPs will also be a key strategy for employers that need to
find a way to lower cost in 2018, when they will be required to pay
a 40% excise tax on health coverage that costs more than $10,200
for an individual or $27,500 for a family. Mercer estimates that
about a third of employers are currently at risk for triggering the
excise tax in 2018 if they make no changes to their most costly
plan. Nearly two-thirds of all large employers and about one-third
of small employers say they expect to offer a CDHP within three
years.
Employers believe health management is helping to slow
medical trend
Workforce health management, or “wellness”, is one of employers’
top strategies for controlling health spending. While most
employers believe that health management programs are making a
difference, proving ROI remains a challenge for many. The largest
employers are the most likely to have formally measured the return
on investment (ROI) of their health management programs (46% of
employers with 20,000 or more employees). Nearly nine out of ten of
these employers 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.
Over half of large employers with health management programs now
use financial incentives to encourage higher participation: 52%, up
from 48% in 2012 and 33% in 2011. These incentives are often
substantial. Among employers that offer lower premium contributions
to employees completing a health assessment, the median reduction
in the annual contribution required for employee-only coverage is
$250. 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. In 2013, 20%
of large employers use outcomes-based incentives, up from 18% in
2012.
Staying in the game
Consistent with results from Mercer’s past four annual surveys,
in 2013 few large employers – just 6% of those with 500 or more
employees -- believe it is likely that they will terminate their
employee health plans within the next five years and send employees
to the public health insurance exchanges. But the portion of small
employers that say it is likely they will terminate their plans
within five years jumped from 22% in 2012 to 31% in 2013.
Other findings
- Expanded eligibility under ACA
In 2015 employers with 50 or more workers will be required to
extend coverage to all employees working 30 or more hours per week.
About a third of all large employers (500 or more employees) will
be affected by this rule (32%), and among wholesale/retail
organizations, which have large part-time populations, nearly half
will be affected (48%).
- Domestic partner coverage Over
half of all employers (55%) now include same-sex domestic partners
as eligible dependents. This varies significantly based on
geographic region, from 71% of employers in the Northeast to 38% in
the Midwest.
- Spousal surcharges 16% of large
employers have special provisions concerning coverage for spouses
with other coverage available, up from 12% in 2012. Most common is
to impose a surcharge (9%), but 7% do not provide coverage at
all.
- Tobacco-use surcharges 23% of
large employers (up from 19% in 2012) vary the employee
contribution amount based on tobacco-use status or provide other
incentives to encourage employees not to use tobacco. Among
employers with 20,000 or more employees, 46% now use an
incentive.
- Slight decline in offerings of
retiree medical plans 22% of large employers offer an ongoing
plan to retirees under age 65, down from 24%, and just 17% offer a
plan to Medicare-eligible employees (unchanged from 2012).
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; 2,842 employers completed the
survey in 2013. 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 105
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 2014. 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 more than 20,000 employees are based
in 42 countries, and the firm operates in over 140 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 over 53,000 employees
worldwide and annual revenue exceeding $11 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.
MercerStephanie L. Poe, +1
202-331-5210stephanie.poe@mercer.com
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