In 2012, the average growth in U.S. health benefit cost is expected to slow to 7.1 percent for group health plans that make no cost-cutting benefit changes and to 5.4 percent for plans that make benefit changes—the smallest increase since 1997, according to early responses from a Mercer survey. Still, cost growth remains well above general inflation and growth in workers’ earnings.
In 2011 group health plan costs rose by 9.8 percent for plans that made no benefit changes and by 6.4 percent for plans that cut back or otherwise redesigned their benefits, Mercer found.
The preliminary findings from Mercer’s National Survey of Employer-Sponsored Health Plans 2011 are based on responses submitted through Sept 8, 2011, by about 1,600 U.S. employers.
By Way of Comparison
In a June 2011 survey by the National Business Group on Health, large U.S. employers estimated that their health care benefit costs will increase an average of 7.2 percent in 2012—slightly lower than the 7.4 percent average increase in 2011 (see the SHRM Online article "Large U.S. Employers Revamping Health Benefits for 2012").
Mercer's findings suggest that in addition to cost-cutting benefit changes, the underlying cost increase trend has slowed as well. Over the previous five years, the cost increase for programs that made no changes to their current benefits had been running about 9 percent, with an uptick to 9.8 percent in 2011 following passage of the 2010 health care reform law, which required group health plans to allow employees' adult children to maintain their coverage under age 26, along with other coverage mandates.
The slower cost increase trend is good news for workers, because an employer’s first line of defense against a high initial renewal rate typically is to change plan provisions so that employees pay more out of pocket for health care, according to Mercer's analysis. If the underlying cost increase trend is lower to begin with, employers will be likely to shift less cost.
Downward Pressure on Costs
Understanding the slower cost growth for 2012 means looking at the factors working to hold down the underlying cost increase trend along with the actions employers are taking to reduce costs. Utilization of health services, which slowed in 2011, is one such factor. Some analysts say that the tough economy, combined with generally higher deductibles and other forms of cost sharing, is decreasing the use of health care services. Because employees have less disposable income and are working longer hours, they are less likely to seek nonurgent care.
On the other hand, Susan Connolly, a partner in Mercer’s Boston office, said that less use of health services might be a sign that programs targeted at improving employee health—now the rule rather than the exception in employer benefit programs—are having a positive impact.
“Earlier risk identification and health education, along with improvements in drug therapies and medical technology, are keeping people with health risks and chronic conditions away from the emergency room,” said Connolly. “And consumers are more aware that overuse and misuse of health care services will directly impact their wallets as well as their employer's budget.”
Cost Management Tactics
While the underlying cost increase trend might slow in 2012, an increase of more than 7 percent—twice the rate of general inflation—is still higher than many employers are willing or able to absorb. Some group health plan sponsors intend to shift cost to employees by raising premium contributions in 2012. They are somewhat more likely to increase contributions for dependent coverage (36 percent) than for employee-only coverage (33 percent), the survey revealed. The difference is greater among the largest employers (42 percent will raise dependent contributions and 36 percent will raise employee-only contributions); they might be attempting to compensate for enrolling more dependents under the health reform law’s rule stipulating that employees’ children up to age 26 must be eligible for coverage.
About a third of the survey respondents (33 percent) say they are raising deductibles or co-payments in 2012. The past five years have seen employers increasingly using this type of cost shifting, driving the median in-network preferred provider organization (PPO) deductible for an individual to $1,000 among small employers (those with 10-499 employees) and to $500 for large employers in 2010.
One way that employers can give employees a stake in their health care spending without creating a disincentive to use health services when needed is with consumer-directed health plans (CDHPs). These are high-deductible plans with an employee-controlled spending account—a health saving account (HSA) or health reimbursement arrangement (HRA). Many of these plans give employees an incentive to take cost into consideration when seeking health care services by allowing them to save, on a tax-advantaged basis, account dollars they don’t spend in a given year for future needs. Preventive care is covered in full. (To learn more, see the SHRM Online article “Consumer-Driven Decision: Weighing HSAs vs. HRAs.”)
“We’re expecting to see a spike in 2012 in both the number of employers offering CDHPs and in the number of employees enrolling in them,” said Beth Umland, Mercer’s director of research for health and benefits. “Employers see them as a way to provide more value to employees while at the same time managing cost.”
CDHPs are significantly less expensive than traditional PPOs and health maintenance organizations (HMOs)—by about 15 percent on average, according to Mercer.
The use of CDHPs grew steadily over the previous five years, particularly among the largest organizations, Mercer found. In 2010, offerings of CDHPs ranged from 14 percent among employers with 10-49 employees to 51 percent among those with 20,000 or more employees. Survey results suggest an increase in offerings of these plans in 2012: Eighteen percent of the smallest survey respondents and 58 percent of the largest said they plan to offer a CDHP in 2012.
“Employers won't be letting up their efforts to control costs any time soon,” said Connolly. “Advanced strategies like limited provider network plans and more intensive employee education and engagement will continue to evolve.”
Stephen Miller, CEBS, is an online editor/manager for SHRM.
2012 Segal Health Plan Cost Trend Survey, The Segal Company, September 2011
Per Employee Health Coverage to Cross $10,000 Threshold, SHRM Online Benefits Discipline, October 2011
Average Family Health Premiums Top $15,000 in 2011, SHRM Online Benefits Discipline, September 2011
Higher Health Spending Wiped Out Income Gains, SHRM Online Benefits Discipline, September 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 DisciplineSHRM Online Health Care Reform Resource Page