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U.S. Health Care Inflation to Far Outpace Salary Increases in 2010
More employers take aggressive steps to control costs

By Stephen Miller  9/15/2009

U.S. health plan cost trends will continue to be more than four times greater than the annual increase in average hourly earnings—even as the U.S. consumer price index for urban consumers remained relatively flat or negative in 2009, according to The Segal Company's 2010 Health Plan Cost Trend Survey.

In May and June 2009, the HR consultancy surveyed 80 U.S. health insurers, managed care organizations, pharmacy benefit managers and third-party administrators for the cost trend factors they will be applying to predict expected claims for 2010.

"Health plan cost trends continue to put major pressure on plan sponsors, who are not waiting for health care reform," comments Edward Kaplan, senior vice president and national health practice leader at Segal. "They are accelerating their efforts to control health care costs through renewed wellness and disease management programs, changes to value-based plan designs, eligibility audits, seeking more competitive vendor terms through bids and other innovative strategies."

Among the key findings from the Segal survey:

In 2010, medical plan projections for most managed care plans are similar to those found in 2009, ranging from 10.2 percent to 10.8 percent.

High-deductible health plans are projected to increase by just over 1 percentage point to 11.9 percent next year.

Projected prescription drug trends, which in 2009 remained under 10 percent for the second consecutive year, continued to decline from a high of 19.7 percent in 2001.

A majority of survey respondents indicated the cost impact to comply with the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) would be an increase of 1 percent or less.

Cost-Saving Actions

Along similar lines, preliminary findings from HR consultancy Mercer's National Survey of Employer-Sponsored Health Plans 2009 found that if U.S. employers made no changes to their employee medical plans in 2010 they would see cost rise by nearly 9 percent. But Mercer's survey, based on replies from 1,562 U.S. employer health plan sponsors who responded by the end of August 2009, indicates that on average respondents plan to shave 3 percentage points off their annual renewal rates through a variety of cost-saving actions, holding overall cost growth to 5.9 percent in 2010.

Reducing the projected cost increase is something that employers tackle every year, but plan sponsors have had to reduce their budgets more than usual for 2010. Still, taken together, the cuts have not been draconian. In 2008 Mercer’s annual survey found that average health benefit cost per employee rose 6.3 percent. Cost increases have been remarkably stable since 2005, averaging just over 6 percent each year, according to the firm.

More Cost Shifting

Employers’ first line of defense against rate increases is shifting cost to employees, but this tactic can present a tough challenge for employers that feel their employee cost-sharing requirements are already high. For example, from 2004 through 2008, the median family deductible for in-network services in a preferred provider organization (PPO)—the type of plan offered by the most U.S. employers—rose from $1,000 to $1,850, according to Mercer.

In 2010, nearly two-thirds of all respondents (63 percent) will again ask employees to pay a greater share of health plan costs, most commonly by:

Requiring employees to pay a higher portion of the monthly premium (40 percent of respondents).

Raising deductibles, co-pays/coinsurance or out-of-pocket maximums (39 percent).

Consumer-Directed Approaches

Nearly a fifth of Mercer respondents (18 percent) are eliminating high-cost or more generous health plan options as a way to move employees into lower-cost options, such as consumer-directed health plans (CDHP). CDHPs 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.

Nearly Two-Thirds of U.S. Employers Will Shift More Health Benefit Costs to Employees in 2010

Increase employee premium contribution

40%

Increase deductibles, co-pays/co-insurance, or out-of-pocket maximums

39%

Will not shift cost to employees in 2010

37%

Increase employee cost sharing some other way

14%

Source: Preliminary results from Mercer's National Survey of Employer-Sponsored Health Plans 2009.

“We’re expecting to see a real spike in 2010 in both the number of employers offering CDHPs and in the number of employees enrolling in them, as more employers become comfortable with the concept of offering a high-deductible, account-based plan as one choice or their only choice,” says Linda Havlin, Mercer’s national practice leader for health and benefits consulting. “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 or health maintenance organizations (HMOs), by about 20 percent on average in 2008. In Mercer’s 2008 survey, 14 percent of small employers (those with 10 to 499 employees) and 25 percent of large employers (500 or more employees) said they would be very likely to offer a CDHP in 2009. From a smaller survey conducted in March 2009, Mercer estimates those numbers are likely to rise significantly.

Other cost-cutting actions for 2010 include:

  • Auditing plans to ensure that all covered dependents are actually eligible for coverage (39 percent).
  • Adding or renegotiating performance guarantees with health plan vendors.

Performance guarantees have historically focused on accuracy and timeliness of claims payment or customer service, but some employers have expanded their guarantees to address overall program performance in managing care, driving quality improvement and engaging participants in behavior change.

U.S. Employers Taking Action to Lower 2010 Health Benefit Cost Increases

Put the medical plan out to bid

43%

Audit plans

39%

Renegotiate vendor administrative services only (ASO) fees

34%

Put components of the medical plan out to bid

20%

Add or renegotiate performance guarantees

20%

Eliminate high-cost or more generous health plans

18%

None of the above

23%

Source: Preliminary results from Mercer's National Survey of Employer-Sponsored Health Plans 2009.

Engaging Employees

“The good news is that employers are finding ways to keep health benefit cost increases stable through innovations that improve quality, participant experience and cost efficiency,” says Havlin. “In the most successful programs, employees are becoming more engaged in understanding their health risks and participating in lifestyle improvement and/or care management programs. There is a lesson here for policymakers who are working on health reform: Managing the overall cost requires a change-management framework. You need to continually evaluate what’s driving cost and uneven results, and then set about the tough task of changing participant and provider behavior.”

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

Rebalancing Health Costs, HR Magazine, September 2009

CDHPs Increasingly Favored Over HMOs, HR News, August 2009

More Employers Weigh Self-Funded Health Plans, SHRM Online Benefits Discipline, August 2009

Employee Cost-Sharing Up in Prescription Drug Plans, SHRM Online Benefits Discipline, August 2009

More Turn to Aggressive Health Cost Strategies, SHRM Online Benefits Discipline, July 22, 2009

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