SHRM Benchmarking Study Looks at Health Care Costs 

 

Based on data from more than 6,000 U.S. organizations, the SHRM 2009 Cost of Health Care Benchmarking Study Executive Summary (published in December 2009 and available to Society for Human Resource Management members online) discusses findings related to health care plans and costs during these tough economic times.

The study reports that the average annual health care cost per covered employee in 2008 for all U.S. industries was $7,033—a 5.4 percent increase from the average health care cost of $6,670 in 2007. However, actual health care costs for any organization depend on many factors, including the level of health care coverage being offered, demographic make-up of those being insured, the percentage the organization contributes to health care premiums and the history of insurance claims the organization filed in previous years.

Organizations offered an average of two health care plans for employees to choose from, with preferred provider organizations (PPOs) remaining the more prevalent, the study found. Organizations that had two or more plans were noted to have lower median health care costs than those that offered only one plan type to their employees. By offering two or more plans, organizations might be able to save costs because employees who use health care infrequently are more likely to choose a less expensive plan with lower premiums.

Size Matters

The number of full-time equivalent employees (FTEs) matters when it comes to health care costs, SHRM's analysis found. In small organizations (1-99 FTEs), the average employer health care contribution for monthly health care premiums for employee-only coverage was $324, vs. $280 for medium-sized organizations (1-499 FTEs) and $317 for large organizations (500 or more FTEs).

With fewer employees, small organizations have less bargaining power than larger employers. And from an insurer's perspective they might be unable to spread the financial risks the provider might incur if there are several employees who need expensive treatments. Large organizations, on the other hand, typically have more money to invest in their total rewards strategy.

Response to Costs:
Growth in Consumer-Driven Plans

Often as organizations combat higher health care costs they design health care benefits to incentivize employees to make financially sound health care choices. Traditionally, this took the form of strategies such as providing lower employee co-pays for in-network office visits.

Over the past several years, consumer-driven health care plans (CDHPs), providing financial incentives via high-deductible policies linked to health savings accounts (HSAs) or through health reimbursement arrangements (HRAs), have emerged as an innovative form of health care coverage that does a better job of reducing costs. While HRAs are owned and funded by employers, HSAs may be funded by employers or employees and, like 401(k) accounts, are fully portable with employees when they terminate employment.

Evidence exists that, in addition to employer contribution to monthly premiums, employee participation in CDHP-linked HSAs increases when employees help fund these tax-advantaged accounts. The average HSA contribution for all organizations was $1,324 in 2008.

A well-designed CDHP that covers initial health care costs will keep a similar level of coverage an employee receives while decreasing the organization's overall health care costs, the report concludes. Implementing and boosting employee participation in wellness and work/life balance programs also can improve the organization's return on investment, helping to prevent costly treatment for serious illnesses down the road through early detection and pre-empt lost productivity from unscheduled absenteeism.

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

CDHP Enrollees Are Cost-Conscious, Use Wellness Programs, SHRM Online Benefits Discipline, December 2009

Employers Hold the Line on Health Benefit Cost Increases, SHRM Online Benefits Discipline, November 2009

U.S. Family Health Premiums Reach $13,375 Annually in 2009; Deductibles Up, Too, SHRM Online Benefits Discipline, September 2009

U.S. Health Care Inflation to Far Outpace Salary Increases in 2010, SHRM Online Benefits Discipline, September 2009

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