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Open Enrollment Brings Higher Premiums, Plan Design Changes
Employees urged to 'do their homework' when considering benefits choices

By Stephen Miller  10/4/2010

While U.S. workers might be expecting a major overhaul to their benefits plans because of the health care reform law enacted in March 2010, most should see modest differences in what’s offered during the fall 2010 open enrollment season, according to HR consultancy Aon Hewitt (formerly Hewitt Associates).

However, some changes employees will see—including cost increases, changes to dependent coverage requirements and stricter federal rules around flexible spending account (FSA) reimbursements—make it important for workers to take an active role in choosing their health benefits this enrollment season.

Hewitt’s data shows that:

Overall health care costs are expected to rise 8.8 percent in 2011, from an average of $9,028 per employee in 2010 to $9,821 per employee in 2011.

Employees will be expected to contribute 22.5 percent of the total health care premium, or $2,209 per employee. This is up 12.4 percent from 2010, when employees contributed $1,966, or 21.8 percent of the total health care premium.

In total, workers are projected to spend an average of $4,386 in out-of-pocket costs and premiums in 2011, up from $3,900 in 2010.

Annual Health Care Cost Increases for Large U.S. Companies —National Average

Plan years

Annual health care costs increases

Annual health care costs per employee

Employee- paid premiums

Employee out-of-pocket costs (deductibles, co-pays, co-insurance)

2007

5.3%

$7,516

$1,558

$1,484,

2008

6.0%

$7,970

$1,711

$1,633

2009

6.0%

$8,449

$1,827

$1,733

2010

6.9%

$9,028

$1,966

$1,934

2011 (proj.)

8.8%

$9,821

$2,209

$2,177

Source: Aon Hewitt.

Cost increases in 2011, however, will continue to vary significantly based on location, as they did in 2010 (see below).

2010 Health Care Cost Increases — Metro Areas

Orange County, Calif.

10.6%

San Francisco

10.4%

Los Angeles

10.2%

Philadelphia

10.1%

Chicago

  8.6%

New York City

  8.1%

Houston

  7.2%

Orlando

  7.2%

National Average

  6.9%

Boston

  6.2%

Atlanta

  5.7%

Minneapolis/St. Paul

  5.6%

Detroit

  5.2%

Washington, D.C.

  4.0%

Dallas/Fort Worth

  3.7%

Source: Aon Hewitt.

Changes Stemming from Health Care Reform

While most of the significant health care reform provisions won’t go into effect until 2014, several important changes will affect workers in the 2011 plan year:

Adult children of most U.S. workers will be able to receive coverage through a parent's employer-provided plan up to age 26.

Over-the-counter medications, such as aspirin, pain relievers and allergy medications, will no longer be reimbursable from an FSA unless employees have a prescription from a doctor.

Preventive care (e.g., immunizations and certain check-ups and recommended screenings) for health plans that are new or for existing plans that are not “grandfathered” will be 100 percent covered. While many employer-provided health plans already provide this level of coverage, this provision will improve the scope of benefits for some workers.

Cost-Curtailing Steps

In response, a growing number of companies are continuing to tweak the designs of their existing plans in a number of ways, such as by:

Requiring employees to pay higher surcharges to cover their spouse, or offering cash incentives to encourage spouses to enroll in their own employer’s plans. More plans are banning working spouses outright if they have access to their own employer's coverage.

Charging premiums on a per-participant basis, rather than through a “lump sum” premium traditionally found within the “individual” and “family” pricing models.

Conducting periodic dependent eligibility audits aimed at removing ineligible dependents from a health plan. Conducting these audits can reduce an employer’s overall health care costs by millions of dollars each year.

Shifting plan designs from fixed dollar co-payments to co-insurance models, where employees pay a percentage of the out-of-pocket costs for each health care service.

Increasing deductibles, out-of-pocket limits and cost-sharing for use of non-network providers.

Managing vendor relationships aggressively. Reconsider programs and vendors that do not deliver measurable results while consolidating vendor relationships to secure volume discounts.

Open Enrollment Tips for Employees

“While health care benefits aren’t going to change drastically next year, it doesn’t mean workers have a ‘free pass’ to not participate in this open enrollment season,” explained Sara Taylor, health and welfare solutions leader at Hewitt. “Health care cost increases continue to outpace inflation and salary increases. Employees who take time to do their homework, weigh their choices and make smart trade-off decisions will be in the best position to make their benefits dollars stretch further," she noted.

To help workers maximize their dollars during open enrollment, Taylor recommended sharing the following tips with employees, encouraging them to:

Assess your needs. As you go through the benefits selection process, start by reviewing what worked in the past year and what didn’t. Consider how much you spent on co-pays and out-of-pocket costs, whether your doctors are still covered under your plan, and if you put aside enough money in your FSA to cover all out-of-pocket costs. Based on this analysis, you might find that there are different plan options that will suit your needs better.

Take advantage of cost-saving opportunities. Make use of FSAs, which enable you to set aside pretax money for health care expenses. Be sure to do an assessment of how much you think you’ll be spending in the coming year and evaluate whether the medications you need will now require a prescription for reimbursement. By planning effectively, you might be able to select less costly medical plan options while using the FSA to offset increased out-of-pocket costs.

Participate in health and wellness programs. There might be incentives for completing health risk questionnaires or biometric screenings, often in the form of reduced premiums, or cash incentives for participating in weight management and smoking cessation programs. (See box below for more on wellness incentives.)

Get help. Use online health care cost estimators to compare and make tradeoff decisions among benefits options.

Improving Employee Health

According to Hewitt's research, disease management and health improvement programs remain a top priority for employers:

More than half (53 percent) of large U.S. companies have a disease management/health improvement strategy in place.

Of those that don’t, 11 percent planned to implement one in 2010 and 75 percent planned to implement one in the next three to five years.

Also growing in popularity is employers’ willingness to use penalties and financial incentives as a way to increase employee participation in these programs. Hewitt’s survey of large U.S. employers found that:

Nearly one-half (47 percent) say they use or plan to use financial penalties over the next five years for employees who don’t participate in certain health improvement programs.

Of those companies, most say they will do so through additional employee cost-shifting, such as higher benefit premiums (81 percent), an increase in deductibles (17 percent) and an increase in out-of-pocket expenses (17 percent).

“While employers have taken steps to mitigate costs in 2011, many organizations across all industries are already focused on developing multiyear strategies and a 2012 action plan aimed at resetting their health care programs to reflect today's cost realities and tomorrow's changing health insurance landscape," says Jim Winkler, managing principal and senior health care strategist at Hewitt.

"In the wake of reform, rising costs and an increasingly unhealthy workforce, employers know they must reassess the role they play in engaging their workforce to be healthy, present and productive at work," she adds. 

Stephen Miller is an online editor/manager for SHRM.

Related Articles--Health Benefits Communications: 

A Pollster's Insights for Effective Health Care Communications, SHRM Online Benefits Discipline, October 2010

Start Spreading the News, HR Magazine, August 2010

In Wake of Health Care Reform, Open Enrollment Presents Opportunities for Employers, SHRM Online Benefits Discipline, July 2010

Related Articles--Health Plan Design and Costs:   

Projection: 2011 Health Plan Cost Trend to Far Outpace Inflation, Again, SHRM Online Benefits Discipline, October 2010

Future Bright for Health Savings Accounts, Says Policy Analyst, SHRM Online Benefits Discipline, September 2010

Steps to Hold Down Health Reform's Cost Increases, SHRM Online Benefits Discipline, September 2010

Family Premiums Up 3% in 2010, But Workers' Share Rose 14%, SHRM Online Benefits Discipline, September 2010

CDH Plan Growth Continued in 2010, SHRM Online Benefits Discipline, September 2010

Large Employers Project 2011 Health Plan Costs to Rise 8.9%, SHRM Online Benefits Discipline, August 2010

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