2016 Health Costs Forecast to Rise 4.3% After Plan Changes

Average health benefit costs rose 3.8% in 2015

By Stephen Miller, CEBS Nov 25, 2015
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U.S. employers predict that in 2016 their health benefits cost per employee will rise by 4.3 percent on average—larger than then 3.8 percent increase they reported for 2015.

The anticipated price hike reflects benefit design changes employers plan to make to reduce costs. If they were to make no changes to their current plans, these employers estimate their costs would rise by an average of 6.3 percent, according to the National Survey of Employer-Sponsored Health Plans, conducted annually by HR consultancy Mercer.

About half of all respondents indicated that they would make plan design changes in 2016 to hold down the rise in their plan expenses, according to the survey, conducted in late summer of 2015 with 2,486 participating employers that were statistically representative of all U.S. health plan sponsors with 10 or more employees.

Another View on 2016 Rates

A November 2015 health care cost analysis by consultancy Aon Hewitt predicts 2016 total premium cost per employee will increase by 4.1 percent for large employers after plan design changes and vendor negotiations, up from 3.2 percent in 2015. That study foresees total premiums (employer plus employee) in 2016 to average $11,484 per employee, up from $11,032 in 2015.

By plan type, 2016 total premiums per employee are forecast to be $11,696 (for health maintenance organizations), $12,395 (for point of service plans) and $11,344 (for preferred-provider organization plans). Aon Hewitt's data reflects health care cost for more than 600 large U.S. employers representing 11.7 million participants.


According to Mercer’s survey, employers’ total health benefits costs averaged $11,635 per employee in 2015, which includes both employer and employee contributions for medical, dental and other health coverage, for all covered employees and dependents.



*Projected

Source: Mercer


Smaller employers were hit with higher increases than large employers in 2015. Costs rose by 5.9 percent on average among employers with 10 to 499 employees, but by just 2.9 percent among those with 500 or more employees.



Source: Mercer

Consumerism on the Rise

Helping to hold down cost growth for large employers was a jump in the number of employers offering high-deductible consumer-driven health plans (CDHPs). CDHPs typically combine a high-deductible plan with either a health savings account (HSA), most commonly, or a health reimbursement arrangement.



Source: Mercer


Most of the growth in CDHPs is the result of employers adding plan options, as most employers offer a CDHP alongside other medical plan choices such as a preferred-provider organization (PPO) plan or a health maintenance organization (HMO) plan.

An HSA-eligible CDHP costs about 18 percent less, on average, than a traditional PPO plan, the survey found.



Source: Mercer

CDHP Challenges

While enrollments in CDHPs have nearly doubled among large employers over the past three years—from 15 percent to 28 percent of covered employees—among small employers, this option has grown more slowly, rising from 17 percent to just 19 percent. Overall, CDHP enrollment reached 25 percent in 2015.

“Employers have learned that the higher deductible can be a real deterrent for employees without enough savings to comfortably handle a major medical expense,” said Tracy Watts, Mercer’s national leader for health reform. “When CDHPs were first introduced, the concept made intuitive sense but we didn’t have the tools we have now to help employees actually become better health care consumers. I think we’re finally turning the corner.”

The survey showed that more large employers contracted with a specialty vendor to provide their employees with a “transparency tool”—an online resource to help them compare provider price and quality. Among employers with 20,000 or more employees, 24 percent provided transparency tools in 2015, up from just 15 percent the previous year.

Deductible Fears
Here’s an indication of employee resistance to consumer-driven health plans with high deductibles—even when the plan has lower premiums and the employer generously funds employees’ health savings accounts. A forum thread on the investment discussion site Bogleheads.org, based on the investment philosophy of Vanguard Investments founder and former CEO John Bogle, included this comment: “My employer also offers an HSA plan that seems like a no brainer, $3,000 deductible but $1,500 to HSA and $1,600 in premium savings, but I bet 90 percent will keep the PPO.”

Telemedicine Taking Off

Another key development is that more consumers have real, and financially substantive, “shopping” choices. “You can pay $40 for a telemedicine visit, $70 to stop in at a retail clinic or $125 for an office visit,” said Watts.

In particular, employers are moving quickly to implement telemedicine services—telephonic or video access to providers—as a low-cost, convenient alternative to an office visit for some types of nonacute care. Offerings of telemedicine services jumped from 18 percent to 30 percent of all large employers.



Source: Mercer


Other Findings

Additional results from the survey revealed that:

The 2018 excise tax (the “Cadillac tax” on high-value plans) looms, and Mercer estimates that 23 percent of large employers have at least one plan with costs that will exceed the threshold and trigger the tax in 2018 if these employers make no changes between now and then.

Private exchanges are gaining momentum: 6 percent of large employers use a private exchange for active employees or will by next year’s open enrollment, up from just 3 percent last year.

Egg freezing is among the leading-edge reproductive benefits covered by 5 percent of all large employers (11 percent of those in the Northeast). More commonly, in vitro fertilization is covered by 24 percent, but this number has remained essentially the same over the past 15 years.

Gender reassignment surgery is covered by 11 percent of all large employers (up from 8 percent in 2014), and by 29 percent of jumbo employers with 20,000 or more employees (up from 25 percent).

A proposed rule issued in September by the Department of Health and Human Services’ Office for Civil Rights could significantly expand the coverage provided to transgender individuals. Although the rule applies specifically to health insurers and third-party administrators (TPAs) that receive federal funds related to health programs, most insurers and TPAs to some extent fall under these specifications, “which makes the regulations indirectly applicable to employers who sponsor group health plans,” Lisa Campbell and Tammy Killion, both partners in the Washington, D.C., office of Groom Law Group, told SHRM Online.

Tobacco-use surcharges are used by 29 percent of large employers (up from 26 percent in 2014) to vary the employee contribution amount based on tobacco-use status or provide other incentives to encourage employees not to use tobacco. Among those that offer a reduction in the premium for employees who don’t use tobacco, the median reduction is $400. The majority of employers (59 percent) include e-cigarettes in their definition of tobacco.

Spousal surcharges and exclusions saw limited growth. Complete exclusion from the health plan for spouses with other coverage held steady at 8 percent of large employers, while the use of spousal surcharges rose from 9 percent to 12 percent of large employers. Among jumbo employers, 26 percent require a surcharge, essentially unchanged from last year. The median surcharge is $100 monthly. As SHRM Online recently reported, there are HR reasons to think twice before implementing this approach to cost-savings.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.

Related SHRM Articles:

Slower Rate Hikes but Deductibles Doubled Over 5 Years, SHRM Online Benefits, November 2015

‘Carving Out’ Spousal Benefits: Cost-Cutting, with Repercussions, SHRM Online Benefits, November 2015

Leading-Edge Reproductive Benefits Raise Cost Concerns, SHRM Online Benefits, November 2015

Proposed Rule Expands Transgender Health Coverage, SHRM Online Benefits, September 2015

At Hilton, a Private Exchange Dropped Costs, Upped Satisfaction SHRM Online Benefits, May 2015

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