Workers Pay More of Rising Health Costs

Employers’ contributions to plan premiums nearly the same year to year

Stephen Miller, CEBS By Stephen Miller, CEBS November 3, 2017
Workers Pay More of Rising Health Costs

At the end of the year, health plan data-crunchers forecast health premium increases for the coming year and look back to verify how much premiums actually rose in the year that's coming to a close.

Premium renewal rates for employer-sponsored health plans rose an average of 6.6 percent this year—a significant increase from the five-year average increase of 5.6 percent—findings from the 2017 United Benefit Advisors (UBA) Health Plan Survey showed.

Last year, some forecasts for 2017 premium rates had predicted an increase closer to 6 percent.

The annual survey by UBA, a network of health benefit brokers and consultants, this year looked at health plans sponsored by 11,221 employers of all sizes throughout the U.S. UBA's findings tend to show larger cost increases than surveys that focus on large employers.

This year UBA found that:

  • Employee contributions to plan premiums are up, while employer contributions toward total costs remained nearly the same.
  • Co-pays—flat-dollar amounts often around $20-$50 that plan enrollees pay for health services after satisfying any deductible—are holding steady, but out-of-network deductibles and out-of-pocket maximums are rising.
  • Pharmacy benefits have even more tiers and co-insurance (the percentage of costs that employees pay after satisfying the deductible), shifting more prescription drug costs to employees.
  • Self-funding, particularly among small groups, is on the rise.

Details on these trends are presented below.

Premium Cost-Shifting

The survey showed that:

  • Average employee premiums for all employer-sponsored plans rose to $532 in 2017 from $509 in 2016 for single coverage and to $1,272 from $1,236 for family coverage (a 4.5 percent and 3 percent increase, respectively).
  • Average annual total costs per employee increased to $9,935 from $9,727. However, the employee share of total costs rose 5 percent to $3,550 from $3,378, while the employer's share rose less than 1 percent, to $6,401 from $6,350.

(Click on chart below to view in a separate window.)

17-1453 Health Plan Costs 1-2.jpg

“Premiums have been holding relatively steady the last few years. And while this year’s increases are not astronomical, their departure from the trend does warrant attention," said UBA President Peter Weber.

(Click on chart below to view in a separate window.)

17-1453 Health Plan Costs 2-3.jpg

Prescription Drug Plans

Employers have reduced prescription drug coverage to defray increasing costs, the survey found.

For a second year, there are more prescription drug plans with four or more tiers (with higher tiers that charge employees a larger share of the cost for expensive "specialty" pharmaceuticals) than there are plans with one to three tiers (traditionally for low-cost generic drugs, formulary brand drugs and nonformulary brand drugs).

Almost three-quarters (72.6 percent) of prescription drug plans have four or more tiers, while 27.4 percent have three or fewer tiers, the survey found. Six-tier drug plans now account for 32 percent of all plans, charging employees the most for drugs such as biologics, which are produced using recombinant DNA technology.

Out-of-Pocket Costs

Out-of-network median deductibles for singles saw a 13 percent increase in 2016 and a 17.6 percent increase in 2017, to $4,000 from $3,400, the survey found.

Both singles and families are facing continued increases in median in-network out-of-pocket maximums (up by $560 and $1,000, respectively, to $5,000 and $10,000).

(Click on chart below to view in a separate window.)

17-1453 Health Plan Costs 3-5.jpg


The number of employers using self-funding grew 48 percent for employers with 25 to 49 employees in 2017 (5.8 percent of plans), and 13.4 percent for employers with 50 to 99 employees (9.3 percent of plans).

Almost two-thirds (60.9 percent) of all large-employer (1,000+ employees) plans are self-funded.

"Self-funding has always been an attractive option for large groups, but we see self-funding becoming increasingly desirable to all employers as a way to avoid various cost and compliance aspects of health care reform," Weber said.

"For small employers with healthy populations, self-funding may be particularly attractive since fully insured community-rated plans under the Affordable Care Act don't give them any credit for a healthy group," he observed.

[SHRM members-only toolkit: Managing Health Care Costs]

Strategizing to Meet Business Needs

"U.S. employers have had to wrestle with how best to plan strategically and innovatively around managing health care costs," said Hope Kragh, vice president of client services at Collective Health, a San Francisco-based health benefits administration firm.

"Rising health care costs not only impact the health and productivity of your employees, but they also weigh heavily on the health of your business," she noted. That, in turn has led CEOs and the C-suite to become more involved in health-cost management decisions.

Employers face health cost increases that "are three times the rate of increase for the consumer price index, and two times the rate of wage increases," Kragh pointed out. Many businesses are investing in health care more than they may be in research or other business-boosting expenses.

HR should form alliances throughout the organization when creating a strategy to deal with health care costs, said Brian Marcotte, president and CEO of the Washington, D.C.-based National Business Group on Health, representing large employers.

"For most organizations today, HR has to be joined at the hip with finance," he noted. When meeting with the CEO and leadership team, including the CFO and general counsel (and, in corporations, with the head of procurement), "you want to go in and be aligned with all of the stakeholders. Having already brought them up to speed on what you're presenting to the CEO is critically important to getting out of that room with a green light on your strategy."

He advised showing business leaders how to achieve the cost trend number that the CEO says is the bottom line given the level of business growth (or lack of growth in a down cycle, when the corporate budget has to be flat or down).

"If the [health care cost increase] trend is 6 percent and your CEO doesn't want [the company to absorb] any more than 3 percent, you've got to meet that expectation," Marcotte said. "Show them all the things you're going to do to achieve that number, presented as a business plan" aligned with the organization's priorities.

Size Affects Cost, Big Time

According to findings recently reported by HR consultancy Mercer, from 2016 to 2017:

Health benefit costs rose more than 10% for:

  • 34% of small employers (10-499 employees).
  • 19% of midsize and large employers (500 or more employees).
  • 11% of jumbo employees (20,000 or more employees).

Health benefit costs rose 6% to 10% for:

  • 18% of small employers
  • 22% of midsize and large employers.
  • 14% of jumbo employers. 

Health benefit costs rose 5% or less (including no change) for:

  • 48% of small employers
  • 59% of midsize and large employers.
  • 76% of jumbo employers. 

Steeper increases for smaller employers isn't surprising, "given that the majority of small employers are fully insured and typically have fewer resources to devote to managing their health benefits," noted Beth Umland, director of research for Mercer's health and benefits practice. Also, "in smaller groups, a few large claims can have an outsized impact on per-employee cost in a given year."

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