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6.3% Health Premium Increases Projected for 2013
 

By Stephen Miller, CEBS  10/4/2012
 

In 2012, U.S. companies and their employees saw the lowest health care premium rate increases in six years, according to an analysis by consultancy Aon Hewitt. The average health care premium rate increase for large employers in 2012 was 4.9 percent, down from 8.5 percent in 2011 and 6.2 percent in 2010. In 2013, however, average health care premium increases are projected to jump up to 6.3 percent.

Aon Hewitt's analysis showed that in 2012:

  • The average health care cost per employee was $10,522, up from $10,034 in 2011.
  • The employees' portion of the total health care premium was $2,204, up from $2,090 in 2011.
  • Average employee out-of-pocket costs, such as co-payments, co-insurance and deductibles, were $2,200, up from $2,072 in 2011.

2013 Costs Forecast

For 2013, average health plan premium costs per employee are projected to jump to $11,188, of which average employee contributions to the health plan premium would be $2,385. In addition, average employee out-of-pocket costs (co-pays, co-insurance and deductibles) would be $2,429.

Over the last five years, employees’ share of health care costs—including employee premium contributions and out-of-pocket costs—have increased more than 50 percent from $3,199 in 2008 to $4,814 in 2013, according to the analysis.

“Employers have seen some stabilization in employment levels, less severe impact of high cost claims, a general movement towards consumer-driven plans and greater clarity around the average cost impact associated with health care reform. As a result, 2012 premiums were offset to reflect the better than expected historical experience. For 2013, we expect premium increases to gravitate back to the 6 percent range,” said Tim Nimmer, chief health care actuary at Aon Hewitt, in a media statement.

Total Plan Premium Costs Percentage Increase Average Cost per Employee Average Employee Premium Contribution Average Employee Out-of-Pocket Cost
2013 (projected) 6.3% $11,188 $2,385 $2,429
2012 4.9% $10,522 $2,204 $2,200
2011 8.5% $10,034 $2,090 $2,072
2010 6.2% $9,246 $1,927 $1,761
2009 5.0% $8,703 $1,797 $1,580
2008 5.3% $8,290 $1,691 $1,508
2007 5.3% $7,874 $1,567 $1,364
Source: Aon Hewitt Health Value Initiative database of large U.S. employers' health care costs.

Costs by Plan Type

On average, Aon Hewitt forecasts that companies will see 2013 cost increases of 7.0 percent for health maintenance organization (HMO) plans, 6.1 percent for preferred provider organization (PPO) plans and 6.1 percent for point-of-service (POS) plans. From 2012 to 2013, the average cost per person for major companies is estimated to increase from $10,659 to $11,405 for HMOs, $10,433 to $11,069 for PPOs and $11,062 to $11,737 for POS plans.

Premium Costs by Plan Type

Year HMO POS PPO National
2013
(projected)
$11,405 $11,737 $11,069 $11,188
2012 $10,659 $11,062 $10,433 $10,522
2011 $10,103 $10,657 $9,965 $10,034
2010 $9,353 $9,557 $9,212 $9,246
2009 $8,693 $8,864 $8,764 $8,703
2008 $8,193 $8,403 $8,388 $8,290
2007 $7,680 $8,062 $8,050 $7,874
Source: Aon Hewitt.

Cost Increases by Metro Area

In 2012, major U.S. markets that experienced rate increases higher than the national average included San Antonio (7.4 percent), San Francisco/Oakland/San Jose (7.4 percent), Los Angeles (7.2 percent) and Austin (6.5 percent). Conversely, Dallas (3.4 percent), Cincinnati (3.6 percent), Denver (4.5 percent), New York City (4.5 percent), Washington, D.C. (4.7 percent) and Philadelphia (4.9 percent) experienced lower-than-average rate increases in 2012.

Employer Actions Mitigate Costs

As the health care landscape shifts, employers are taking the opportunity to reassess their role as a health care benefits provider and subsidizer, while redefining their role in the health, safety and performance of their workforce. According to a 2012 Aon Hewitt survey of nearly 2,000 U.S. employers representing over 20 million U.S. employees and their dependents, most employers plan to continue sponsoring a medical plan for their employees. However, they are migrating from a traditional “managed trend” approach to a “house money/house rules” approach that integrates a pay-for-performance philosophy into their benefit programs. This strategy includes elements of:

  • Wellness and health programs that aim to improve the health of employees, reducing the amount and cost of care required, while minimizing work days missed due to illness. A growing number of employers are offering incentives and are beginning to link incentives to a result, as opposed to simply participating in a wellness program. In other cases, employers may require a health risk questionnaire, biometric screening and ongoing health coaching in order to be eligible for the richest plan or the highest employer subsidy.
  • Consumer-driven designs that expose employees to the direct cost of care up to a limit, encouraging more personal economic decisions about how to access care, how much care to use and what types of care to use. Aon Hewitt’s survey found that consumer-driven health plans (CDHPs) have become the second most common plan design offered by U.S. employers, with 58 percent of employers offering a CDHP in 2012.
  • Plan design strategies that encourage employees to consume less health care. Examples are plans that replace flat-dollar co-pays with percentage-of-cost co-insurance, migrate employees to generic prescription drugs and mail order refills for maintenance drugs, and levy surcharges for working spouses or additional dependents with coverage available elsewhere.

While still an emerging trend, a growing number of employers are interested in a corporate health care exchange model, which enables employers to manage the growth of their subsidy and allows employees to select from a greater set of health plan alternatives. While state-operated exchanges under health care reform will not be available to employers with more than 100 employees until at least 2017, organizations are exploring alternate health care models, such as corporate exchangesthat allow employees to select from a greater set of health plan alternatives. Aon Hewitt found that more than 40 percent of employers are considering moving to a health care exchange model in the next three-to-five years.

Lower Claims Cost Increases Expected

Health plan per capita claims cost rates for 2013 are expected to decline, with projected claims cost increases dipping into single digits for most medical plans and all types of prescription drug plans, according to the 2013 Segal Health Plan Cost Trend Survey

“While medical and prescription drug [claim cost rate increase] trends are projected to decelerate in 2013, we don’t know if deceleration is a long-term trend or a temporary result of current economic forces. We question whether medical care that is being delayed or avoided could lead to higher rates of undetected or untreated conditions in the future,” Edward A. Kaplan, senior vice president and national health practice leader at Segal, an HR consultancy, noted in a media statement.

Among the survey findings:

  • Almost all medical plan types are expected to experience claims cost rate increases under 10 percent (with the exception of fee-for-service/indemnity plans).
  • Pharmacy benefit claims cost trendsare projected to be 6.4 percent, substantially below the double digit trends of a decade earlier.

Changes in the costs to plan sponsors can be significantly different from projected claims cost trends, reflecting such diverse factors as group demographics, changes in plan design, administrative fees, reinsurance premiums and changes in participant contributions, according to Segal.

To better control cost increases, Kaplan recommended that plan sponsors focus on:

  • Contracting with stable and cost-effective provider networks.
  • Implementing incentive-driven plan designs such as consumer-directed health plans.
  • Exploring ways to move providers to outcome-based compensation.
  • Using on-site and walk-in clinics for basic medical services.
  • Improving efforts aimed at early detection of disease, better control of chronic ailments and more effective wellness efforts.

Other Health Care Cost Projections

Health care costs are projected to increase by 5.3 percent in 2013 (down from the 5.9 percent projected for 2012), according to  Health Care Changes Ahead, an October 2012 research report by HR consultancy Towers Watson.

Without changes to medical and pharmacy plan designs, vendors, provider networks and other programs, the increase would have been 6.5 percent for 2013, Towers Watson found. Total per-employee costs are expected to be $11,507, representing an employer cost of $8,911 and an employee cost of $2,596.

Similarly, a June 2012 survey by the National Business Group on Health showed that the largest U.S. corporations expect health care premiums to rise 7 percent in 2013. In response, employers are eyeing a variety of cost-control measures including asking workers to pay a greater portion of premiums and sharply boosting financial rewards to engage workers in healthy lifestyles (see the SHRM Online article "Large Employers Expect Health Benefits to Increase 7 Percent in 2013.")

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related SHRM Articles:

How to Choose Health Insurance Exchanges, HR Magazine, October 2012

Consumer-Driven Plans Are Now Second Most Common Design,SHRM Online>Benefits, September 2012

Family Health Plan Premiums Near $16,000 in 2012, SHRM Online Benefits page, September 2012

Study: Wellness Programs Saved $1 to $3 for Every Dollar Spent,SHRM Online Benefits, September 2012

Large Employers Expect Health Benefits to Increase 7% in 2013, HRM Online Benefits, August 2012

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SHRM OnlineHealth Care Reform Resource Page

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