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Employers Hold the Line on Health Benefits Cost Increases
Wellness programs and consumer-driven plans help rein in per-employee costs

By Stephen Miller  11/23/2009
 

Many U.S. employers feared that health benefits cost growth would spike in 2009 as employees, worried about keeping their jobs and health coverage, consumed more health services than usual. In fact, 2009 saw the lowest annual increase in a decade, as the average per-employee cost of health benefits rose 5.5 percent to reach $8,945 after four years of increases of just over 6 percent. However, benefits cost growth still outpaced inflation in 2009 by a widening margin, according to an analysis by Mercer, an HR consultancy.

Mercer's research reveals that:

U.S. employers held cost growth to 5.5 percent in 2009, the lowest increase in a decade.

Growth in the use of wellness or health management programs accelerated as large employers looked to hold down cost without cost-shifting.

Small employers added consumer-directed health plans in 2009, helping to push up enrollment in these high-deductible plans to 9 percent of all covered employees.

Similar cost growth is expected in 2010, according to Mercer's National Survey of Employer-Sponsored Health Plans. Employers predicted that medical plan cost would rise by about 9 percent in 2010 if they simply renewed their current plans without making any changes. However, they hope to achieve about a 6 percent increase after making changes to plan design or changing plan vendors.

Mercer’s annual survey included public and private organizations with 10 or more employees; 2,914 employers responded in 2009.

“Small and large employers used different strategies to keep cost growth down in 2009,” says Beth Umland, Mercer’s director of health and benefits research. “Small employers moved employees into low-cost consumer-directed health plans and raised PPO deductibles. We saw relatively little cost-shifting among large employers—what jumped out was a real increase in their use of programs and policies designed to improve workforce health.”

Total Health Benefit Cost per Employee in 2009,
by employer size

All U.S. employers

$8,945

Small employers (10-499 employees)

$8,452

Large employers (500 or more employees)

$9,286

Source: Mercer's National Survey of Employer-Sponsored Health Plans.

Increase in Health/Wellness Management

The workforce health/wellness management movement gained considerable momentum in 2009, as offerings of virtually every type of health/wellness management program—including health risk assessments, disease management and behavior modification—rose significantly. Research suggests these programs are having an impact: Medical plan cost increases in 2009 were about 2 percentage points lower, on average, among employers with extensive health management programs than among those employers offering limited or no health management programs.

Nearly three-fourths of employers that have measured the return on their investment in health management programs say they are satisfied with the year-over-year savings, lower utilization rates or improved health risks. However, only about a third of all large employers have formally measured return on investment (ROI).

“A lot more employers were willing to place their bet on health management in 2009,” says Linda Havlin, a worldwide partner and Mercer’s global health and benefits intellectual capital leader. “But they will want to see continual gains. Measuring health management ROI is inherently challenging and continues to evolve. There’s growing anecdotal evidence that well-designed and communicated health management programs can improve outcomes, but we need to work harder at understanding and eliminating missed opportunities—and that includes changing noncompliant patient behavior.”

A fifth of all large U.S. employers—but almost half of the biggest, with 20,000 or more employees—use health and wellness management incentives.

“Now that most large employers have at least some health management programs in place, we’re seeing a new focus on improving both provider and employee engagement by using incentives to drive improved participation, outcomes and compliance,” Havlin says.

Sharp Growth in Health/Wellness Programs
percent of large employers offering programs

 

2008

2009

Health risk assessment

65%

73%

Disease management program

66%

71%

Behavior modification

39%

51%

Health advocate services

47%

53%

Nurse advice line

76%

78%

Case management

79%

82%

Source: Mercer's National Survey of Employer-Sponsored Health Plans.

Very large employers are also increasingly willing to reward employees who demonstrate responsibility for their health. Nearly a fourth of those with 20,000 or more employees vary employees’ premium contribution amounts based on their smoker status—23 percent, up from 17 percent in 2008.

Lower Premium Contributions for Nonsmokers
percent of large employers offering programs

 

2008

2009

Employers with 500+ employees

6%

9%

Employers with 20,000+ employees

17%

23%

Source: Mercer's National Survey of Employer-Sponsored Health Plans.

CDHPs Catch on Big with Small Employers

Small employers held down cost increases by sharply raising deductibles for in-network preferred-provider organization (PPO) services. Their actions drove the average PPO deductible among all employers up by about $100 for an individual and $300 for families, to $1,096 and $2,515, respectively. Consistent with past years, employers kept premium contributions relatively stable, choosing to keep the cost of coverage affordable while shifting the burden to those who use health services.

Compared to large employers, small employers have been slow to adopt high-deductible, account-based consumer-directed health plans (CDHPs). But in 2009 CDHP offerings among U.S. employers with 10-499 employees jumped from 9 percent to 15 percent. This helped drive the percentage of all covered employees enrolled in CDHPs from 7 percent to 9 percent.

Enrollment in PPOs was flat at 69 percent, while enrollment in health maintenance organizations (HMOs) fell from 23 percent to 21 percent. HMO enrollment peaked in 2001 at 33 percent and has been eroding ever since. In 2009, the average HMO cost per employee was higher than PPO cost.

Jump in CDHP Offerings Among Small Employers
percent of employers

 

CDHPs* offered in:

 

2005

2006

2007

2008

2009

"very likely" to offer in 2010

Small employers (10-499 employees)

2%

5%

7%

9%

15%

18%

Large employers (500 or more employees)

5%

11%

14%

20%

20%

24%

* Based on a health savings account (HSA) or health reimbursement arrangement (HRA).

Source: Mercer's National Survey of Employer-Sponsored Health Plans.

“Over the past decade employers have been moving away from HMOs to PPOs, in part because PPOs give them greater flexibility to control cost sharing with members,” says Umland. “Now we’re seeing growth in consumer-directed health plans, in which cost-sharing is sweetened by an account that allows employees to accumulate any health care dollars they save by spending less or spending more wisely.”

While growth in CDHP offerings in 2009 was evident only among small employers, the plans are still most common among large employers: CDHPs are offered by 20 percent of employers with 500 or more employees and 43 percent of those with 20,000 or more employees. However, small employers that offer a CDHP are much more likely to offer it as the only medical plan: 55 percent compared to just 9 percent of large employers with CDHPs. With the cost of coverage in an HSA-based CDHP more than 20 percent lower, on average, than the cost of coverage in a PPO, small employers that moved all employees into a CDHP in 2009 were able to realize significant cost savings.

“Small employers, like large employers, want control over how their money is spent,” adds Havlin. “Using consumerism and health management strategies, employers have been able to keep cost increases stable for the past five years, and even to bend the trend in the right direction in 2009.”

Medical Plan Cost Per Employee
by plan type

 

2008

2009

Preferred-provider organization (PPO)

$7,815

$8,223

Health maintenance organization (HMO)

$7,768

$8,570

Health savings account-eligible consumer-driven health plan (CDHP)

$6,027

$6,393

Source: Mercer's National Survey of Employer-Sponsored Health Plans.

Additional Highlights

Among other key findings from the survey:

Health care flexible spending accounts. FSAs are offered by 27 percent of all employers but 85 percent of those with 500 or more employees. The average employee contribution is $1,424, well below the $2,500 cap that has been suggested in health reform proposals.

COBRA. Take-up rates rose after September 2008 for half (51 percent) of all large employers.

Mental health parity. About half of large employers (49 percent) were already in compliance with the requirements of the Mental Health Parity Act that is effective for plan years beginning after Oct. 3, 2009; 47 percent have made (or will make) changes to their behavioral health coverage to comply, in most cases by removing special coverage limits.

Spousal coverage. Surcharges or other special provisions to limit election of coverage for spouses who have other coverage available are used by 12 percent of large employers, up from 8 percent in 2008. An additional 5 percent are considering adding such a provision.

Retiree medical. There was no further erosion in the prevalence of retiree medical coverage in 2009. Among large employers, 28 percent offer an ongoing plan for pre-Medicare-eligible retirees, and 21 percent offer one for Medicare-eligible retirees. Ten years ago, in 1999, these figures were 35 percent and 28 percent, respectively.

'Mini-med' or limited health programs. Low-cost plans that are intended to cover routine or preventive care only (as opposed to catastrophic care) were offered by 7 percent of large employers and 20 percent of those with 20,000 or more employees. Large employers in the wholesale/retail industry, which typically employ a lot of part-time employees, were the most likely to offer these plans (17 percent).

There was no growth in offerings of these plans in 2009, and they are not expected to survive health reform proposals that would create a minimum "essential benefits" mandate for employer-provided coverage.

Worksite clinics. More than a fourth of large employers (27 percent) offer an on-site or near-site medical clinic for occupational health services; 11 percent of large employers offer a clinic for primary care services.

Survey Methodology

The Mercer National Survey of Employer-Sponsored Health Plans is conducted using a national probability sample of public and private employers with at least 10 employees. More than 2,900 employers completed the survey in 2009. The survey was conducted during the late summer, when most employers have a good fix on their costs for the year. Results represent about 600,000 employers and more than 90 million full- and part-time employees.

Stephen Miller is an online editor/manager for SHRM.

Related Articles: 

Most U.S. Employers with Consumer-Driven Plans Prefer HSAs, SHRM Online Benefits Discipline, November 2009

Cutting Health Costs Is Top Reason for U.S. Wellness Programs, HR News, November 2009

Forecast: Health Care Costs Over $10,000 per Employee Plus One, SHRM Online Benefits Discipline, October 2009

Reform Not Expected to Curtail Shift to Consumer-Directed Health, SHRM Online Benefits Discipline, October 2009

Size and Scope of Wellness Incentives Grow Larger, SHRM Online Benefits Discipline, August 2009

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