Employers in the U.S. are accelerating their efforts to bring health benefit cost under control. According to the National Survey of Employer-Sponsored Health Plans conducted annually by HR consultancy Mercer:
• Growth in the average total health benefit cost per employee, which had reached 6.9 percent in 2010, slowed to 6.1 percent in 2011, with an increase of 5.7 percent expected for 2012. (Click to view Figure 1.)
• Total health benefit costs per employee was, on average, $10,146 in 2011. (Click to view Figure 2.)
Mercer’s nationally projectable annual survey includes public and private organizations in the U.S. with 10 or more employees. In 2011, 2,844 employers responded to the survey. Preliminary results were released in November 2011.
“In a tough economy where high benefit cost increases often have to be balanced with lower pay increases, cost management is already important,” said Susan Connolly, a partner in Mercer’s Boston office. “But given the new cost pressure from health reform, for many employers it’s becoming an imperative.”
Just under half of all employers (47 percent) said they will shift costs to employees in 2012 by raising deductibles or the percentage of the premium paid by employees. This was down slightly from 50 percent saying they would shift cost in 2011.
“While cost-shifting to employees is still going on, this year we saw more employers adopting strategies they believe will provide better results over the long haul,” said Beth Umland, Mercer’s director of research for health and benefits. Findings regarding the most popular cost-curtailing strategies are discussed below.
Employers add consumer-directed plans. Mercer found that 2011 saw the biggest increase ever in the adoption of high-deductible, account-based consumer-directed health plans (CDHPs) by large organizations:
• A CDHP was offered in 2011 by 32 percent of all employers with 500 or more employees, up sharply from 23 percent in 2010.
• The largest employers were the most likely to offer a CDHP (47 percent of those with 10,000 or more employees did so).
• Among small employers, CDHP use grew as well, from 16 percent to 20 percent of those with 10-499 employees.
Overall, 13 percent of all covered employees were enrolled in a CDHP. Enrollment growth has been rapid—five years ago, CDHPs enrolled just 3 percent of covered employees.
The cost of coverage in a CDHP with a health savings account (HSA) was nearly 20 percent lower, on average, than the cost of preferred provider organization (PPO) coverage—$7,787 per employee compared to $9,385, Mercer found.
(For a look at related SHRM research, see Per-Employee Premiums: PPOs Ranked Highest, CDHPs Lowest.)
Some employers see CDHPs as integral to strategies to improve workforce health. “One feature of the CDHP that employers like is flexibility in funding employees’ spending accounts,” said Connolly. “A growing number of employers are making their account contributions contingent on the employees’ willingness to take steps to improve their own health.”
Employers put teeth into health management programs with incentives—and penalties.
Workforce health management, or “wellness,” has emerged as employers’ top long-term strategy for controlling health spending. When Mercer asked about a long-term response to the changes initiated by health care reform, an overwhelming 87 percent of large employers said they will add or strengthen programs or policies to encourage more health-conscious behavior.
In 2011 these efforts were well underway. For a second year in a row there was a sharp increase in the use of incentives or penalties to encourage higher participation rates: 33 percent of large employers with health management programs provided incentives or penalties, up from 27 percent in 2010 and 21 percent in 2009.
In addition, the incentives are becoming more substantial. In 2006, the most common incentive offered by large employers for completing a health assessment was a token gift or cash. In 2011, it was a lower premium contribution from the employee (the median reduction in the annual contribution required for employee-only coverage was $240).
Health assessments, which are intended to alert employees to possible health risks and to identify individuals who could benefit from disease or lifestyle management programs, were offered by most large employers (70 percent), Mercer found, but small employers are adopting them as well: 34 percent offered an assessment in 2011, up from 29 percent in 2010.
'Best Practices' Save Money
Large employers reported a significantly lower average health benefit cost increase than small employers in 2011: 3.6 percent for large employers vs. 9.9 percent for small employers.
“The health care reform law may have had a greater impact on small employers than large employers in 2011,” said Umland. “But the survey also shows that large employers are doing more to control health benefit cost.”
Small employers tend to offer less-generous coverage than large employers, and so were more likely to be affected by new health care reform rules restricting annual benefit limitations and mandating free preventive care. However, they were also less likely to invest in the types of programs that large employers are using to manage cost.
Mercer asked employers about more than 20 "best practices" in managing health plans—strategies intended to control cost, such as providing incentives to improve health habits or contracting with smaller, high-quality, cost-efficient provider networks.
Employers are controlling costs through use of best practices
Among large U.S. employers, those using six or fewer best practices had average per-employee medical plan costs that were 7 percent higher than among employers using 10 or more best practices:
Total health plan cost per employee
Cost of health benefit programs as a percent of payroll
Use of 6 or fewer best practices
Use of 10 or more best practices
Cost management best practices reflected in the above analysis included:
• Employee's contribution for family coverage in the primary plan was at least 20 percent of the premium.
• Four or more employee contribution tiers (for example: individual, individual +1, individual +2, family).
• PPO in-network deductible was $300 or more.
• PPO plan had higher cost-sharing for specialists.
• Employer offered a CDHP.
• Employer made contributions to an HSA.
• Prescription drug mail-order co-pay was at least 2.5 times the retail co-pay.
• Spousal surcharge.
• Smoker surcharge.
• Optional health management ("wellness") services offered through the plan or a third-party vendor.
• Used incentives for health management programs.
• Offered an employee assistance program (EAP).
• Voluntary benefits integrated with core benefits.
• High-performance required for service-provider networks.
• Data warehousing.
• Collective purchasing.
• Value-based design.
• Onsite clinic.
• One or more prescription drug strategies (i.e., mandatory generics).
• One or more specialty drug provisions (i.e., "step" therapy).
• One or more health plan innovations, including:
— Surgical centers of excellence.
— Retail clinics.
— Telemediated care.
— "Medical homes" to coordinate care.
“What’s exciting about this analysis is that it shows that effective tools exist to hold health care cost in check—and that it’s not all about shifting cost to employees,” said Connolly.
Among additional highlights, the Mercer survey revealed:
• A significant drop in offerings of medical plans for Medicare-eligible retirees. The prevalence of retiree medical plans slid to its lowest point ever in 2011, with just 24 percent of large U.S. employers offering a plan to retirees under age 65 and just 16 percent offering a plan to Medicare-eligible employees—down from 25 percent and 19 percent, respectively.
However, some employers that stopped offering a plan for which new hires are eligible continued to offer coverage to employees retiring or hired after a specific date; an additional 15 percent of all large employers offered coverage to such a closed group.
• Domestic partner coverage. Close to half of large employers include same-sex domestic partners as eligible dependents—46 percent, up sharply from 39 percent in 2010. This varied significantly based on region, from 79 percent of employers in the West to 28 percent of employers in the South.
• Spousal surcharges. 15 percent of large employers have special provisions concerning spouses of employees with other coverage available—7 percent imposed a surcharge and 7 percent did not provide spousal coverage at all to this group.
• Drug costs. The annual increase in prescription drug costs slowed to just 5 percent in 2011, down from 10 percent in 2006 and 17 percent in 2001, as employers have implemented strategies to encourage the use of generic and over-the-counter drugs.
• Move to self-funding? Concerns that new health care reform regulations will drive up the cost of fully insured plans has sparked greater interest in self-funding. Of the 28 percent of employers with 500 or more employees that have a fully insured PPO, one-third said they were likely to switch to self-funding within the next three years. Just 8 percent of smaller employers said it’s likely they will switch.
• Grandfathered status. Only about half of employers (and 37 percent of large employers) believe they will maintain the grandfathered status of all their health plans until 2014. One-third had no grandfathered plans in 2011, and 18 percent expected to lose grandfathered status over the next two years.
Health Care Reform's Impact
One provision of the Patient Protection and Affordable Care Act (PPACA) that went into effect in 2011 was a requirement that employers extend dependent coverage eligibility to employees’ children up to age 26. Health plan enrollment grew by an average of 2 percent in 2011 as a result, Mercer reports.
Provisions going into effect in 2014 include requiring employers to extend coverage eligibility to all employees working at least 30 hours per week on average and auto-enrolling newly eligible employees. Employers expect that these provisions—along with the new mandate that all individuals obtain health insurance coverage, should it survive judicial challenge—will result in another increase in enrollment. Retailers and other employers with large part-time populations are likely to be the most affected.
Still, the provision that concerns the most employers is the excise tax on high-cost plans—nearly half say it’s a “significant” or “very significant” concern. While some employers offer high-cost plans because generous benefits are part of their attraction and retention strategy, others have high-cost plans simply because they have an older or less healthy workforce or are located in a high-cost area. Only 39 percent of employers with 50 or more employees believe their current plans won’t hit the excise tax cost threshold, which will be tied to the consumer price index (CPI) and increases each year.
Nearly all the rest are determined to avoid the tax if they can: 21 percent say they “will do whatever is necessary to bring cost below the threshold amounts,” and 36 percent say they will attempt to bring the cost below the threshold amounts, acknowledging that “it may not be possible.” Only 4 percent will take no action to avoid the tax.
“Employers that are concerned about a jump in enrollment in 2014 or the excise tax in 2018 see a need to slow cost growth now,” said Beth Umland, Mercer’s director of research for health and benefits.
Another Perspective: Health Care Changes for 2012 and Beyond
To better understand how employers are handling current cost concerns and development of a health care strategy for the future, consultancy Towers Watson conducted a survey of 368 midsize to large U.S. companies in July 2011.
The results, announced in the firm's October 2011 survey report, Health Care Changes Ahead, reflect respondents’ thinking regarding their 2012--2014 health benefit plan decisions and confirm employers’ commitment to offering health care benefits. But respondents also have concerns and questions about the impact of health care reform over the next few years, particularly on the viability of exchanges. Another primary consideration is how their industry peers plan to respond: Nearly four in five employers (78 percent) plan to monitor other companies’ responses to health care reform and will be influenced by the actions other large employers take regarding ongoing plan sponsorship.
Most employers (88 percent) are planning small or moderate changes to their health care plans for 2012, and roughly half (45 percent) will rethink their long-term health care strategy during the year. Among other findings:
• Health care costs are expected to rise at a noticeably slower rate in 2012 compared to 2011 (5.9 percent vs. 7.6 percent), Towers Watson found. Roughly two-thirds of respondents will increase employees’ share of premium contributions.
• 8 percent will significantly reduce their subsidization of coverage for spouses and dependents in 2012, and a further 23 percent are considering reductions in 2013 and 2014.
• A majority (54 percent) are confident that health care reform will be implemented within the anticipated timeline. However, 70 percent are skeptical that health insurance exchanges will provide a viable alternative to employer-sponsored coverage for active employees in 2014 or 2015.
• More than two-thirds (71 percent) expect to continue offering health coverage to their active employees through 2014. An even higher percentage (84 percent) believe health care benefits will continue to be a key component of their overall employee value proposition beyond 2014.
• More than half of employers (54 percent) that offer retiree health care benefits plan to discontinue them for both pre-65 and post-65 retirees. Many will implement strategies to transition retirees to alternate forms of coverage.
• The vast majority of respondents (88 percent) plan to take steps to control their costs and avoid the impact of health care reform’s excise tax, due to take effect in 2018. More than half (56 percent) believe their current plans will trigger the excise tax.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
2012 Segal Health Plan Cost Trend Survey, The Segal Company, September 2011
Related Articles—SHRM (Cost Forecasts):
Per Employee Health Coverage to Cross $10,000 Threshold, SHRM Online Benefits Discipline, October 2011
Slower Health Benefit Cost Growth Seen for 2012, SHRM Online Benefits Discipline, September 2011
Related Articles—SHRM (Controlling Costs):
Health Care Cost Shifting Benchmarks, SHRM Online Benefits Discipline, November 2011
Promoting Health Care Consumerism: A Multifaceted Approach, SHRM Online Benefits Discipline, November 2011
Per-Employee Premiums: PPOs Ranked Highest, CDHPs Lowest, SHRM Online Benefits Discipline, November 2011
HSAs Viewed as Cost-Saving Option by Employers and Account Holders, SHRM Online Benefits Discipline, November 2011
Large U.S. Employers Revamping Health Benefits for 2012, SHRM Online Benefits Discipline, August 2011
Consumer-Driven Decision: Weighing HSAs vs. HRAs, SHRM Online Benefits Discipline, May 2011
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page