For 2018, Expect Steeper Health Plan Premium Increases

Jump in group plan premiums is projected to be the largest since 2011

By Stephen Miller, CEBS Sep 26, 2017
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Large employers will see a 4.3 percent increase in health benefit costs next year after they make planned changes such as raising deductibles or switching carriers, according to early responses from HR consultancy Mercer's 2017 National Survey of Employer-Sponsored Health Plans.

Over the past five years, Mercer's surveys have found that the average annual increase for large employer-sponsored health plans has been about 3 percent; an increase of 4.3 percent would be the highest since 2011, when costs rose 6.1 percent.

The increase employers would expect if they made no changes to their medical plans is 6 percent. However, the survey found that 46 percent of employers will take steps to reduce cost growth in 2018, such as offering lower-cost, high-deductible health plans.

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Mercer's preliminary results are based on approximately 1,500 mostly large U.S. employers that responded to the survey by Aug. 15.

"Employers must contend with cost increases that occur with medical advances, like the introduction of new medications used to treat complex conditions like cancer, multiple sclerosis and hepatitis C," said Tracy Watts, senior partner and Mercer's leader for health reform.

Strategies that employers are adopting to manage medical costs without raising employee out-of-pocket spending, Watts said, include:

  • Providing care coordination and support for high-cost claimants.
  • Addressing quality by using incentives to direct employees to Centers of Excellence and other high-performance provider networks.
  • Shifting away from traditional fee-for-service provider reimbursement toward new payment models that reflect the value of the services provided rather than just the quantity.

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

Keeping an Eye on the Cadillac Tax

With the Affordable Care Act's 40 percent excise tax on high value group health plans (the "Cadillac tax") slated to take effect in 2020, employers may have to pick up the pace of change to try to stay ahead of cost increases. Mercer estimates that 31 percent of large employers (500 or more employees) would be liable to pay the excise tax in 2020—and with the tax threshold indexed to inflation and rising at about half the rate of health benefit cost, more employers would pass the threshold each year.

"The excise tax creates pressure to generate immediate cost savings though cost-shifting or other short-term fixes," said Beth Umland, Mercer's director of research for health and benefits. But employers are also making good progress with longer-term strategies that address the root causes of high cost and cost growth," she noted.

The Society for Human Resource Management is working with Congress to repeal the tax.

Another View

A small respite in the rate of escalation for medical costs may be coming to an end, another recent health benefit study agreed. Willis Towers Watson's survey of 678 U.S. employers polled in June and July showed that respondents expect their health care costs to increase on average by 5.5 percent in 2018, up from the 4.6 percent increase they saw for 2017.

Jump in Drug Prices Is Less Steep

Segal Consulting, an HR advisory firm, highlighted some good news for health benefit sponsors. Prescription drug cost growth will be lower for 2018, the firm predicts, reversing a multiyear trend of ever-bigger annual price jumps.

Segal's Fall 2017 report on prescription cost trends is based on a survey of more than 100 health insurance providers, conducted during the summer of 2017. 

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In recent years, increased use of generic drugs "has helped mitigate prescription cost increases," and it's become more common for pharmacy benefit management (PBM) firms to exclude high-cost specialty drugs from their formulary and offer therapeutically equivalent generic alternatives, said Edward Kaplan, national health practice leader at Segal.

"Plan sponsors should continue to aggressively negotiate and renegotiate their PBM contracts to help manage the prescription costs," advised Eileen Pincay, Segal vice president and senior pharmacy consultant.

Health Premiums Higher at Small Employers

Employees who receive health coverage through smaller employers generally must pay more to cover their families, according to findings from the nonprofit Kaiser Family Foundation's (KFF's) 2017 Employer Health Benefits Survey, released in September.

"Small firms are much less likely to offer health benefits to their workers, and when they do, workers may find it quite costly to enroll their families," said study lead author Gary Claxton, a KFF vice president.

The survey was conducted with the nonprofit Health Research and Educational Trust (HRET) between January and June 2017 and included 3,938 private firms with three or more employees. Among the findings:

  • Workers covered by small firms on average contribute $1,550 more annually for family health coverage than those at large firms ($6,814 compared to $5,264).
  • More than one-third (36 percent) of workers at small firms pay most of the total premiums for family coverage; far fewer (8 percent) do so at large firms.
  • Workers covered in preferred provider organization (PPO) plans, the most common plan type, face an average aggregate family deductible of $3,660 at small firms, nearly twice the $1,899 average at large ones.

The data are more mixed for workers enrolled in single coverage:

  • Workers on average contribute $1,213 annually toward their single premium, though workers at small firms on average contribute less ($1,030) than those at large firms ($1,289).
  • The average annual deductible for single coverage across all workers in plans with deductibles is $1,505 in 2017, but it is 66 percent higher for workers at small firms ($2,120) than large firms ($1,276).

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In August, United Benefit Advisors (UBA), a network of independent employee benefits advisory organizations, reported that small businesses are passing on to employees nearly 6.6 percent more of the costs for single coverage and nearly 10 percent more of the costs of family coverage compared to large firms. 

Those numbers increase to 17.8 percent more of the costs for single employees and over 50 percent more for family coverage when you compare small employers to their largest counterparts—those with more than 500 employees—noted Bill Olson, chief marketing officer at UBA.

Average Single Monthly Premium (All Plan Types):

  • 1 to 24 employees: $149
  • 24 to 49 employees: $130
  • 50 to 99 employees: $124
  • 500 to 1,000 employees: $114
    -------------------------------------
  • All employers: $126

Average Family Monthly Premium (All Plan Types):

  • 1 to 24 employees: $591
  • 24 to 49 employees: $525
  • 50 to 99 employees: $472
  • 500 to 1,000 employees: $352
    -------------------------------------
  • All employers: $482

Source: United Benefit Advisors.

Premiums Differences by Plan Types

The KFF/HRET survey also reported average 2017 premiums for single- and family-coverage by plan type and the average amount paid by employer and worker. Among the findings:
 

2017 Average Annual Employer and Worker Premium Contributions 

Plan Type

Total Average Annual Premiums

Single coverage premium contributions (employer / worker)

Family coverage premium contributions (employer / worker)

PPO

Single: $6,965

Family: $19,481

$5,653 / $1,312

$13,430 / $6,050

HDHP

Single: $6,024

Family: $17,581

$5,004 / $1,020

$12,982 / $4,599

All Plans

Single: $6,690

Family: $18,764

$5,477 / $1,213

$13,049 / $5,714

Source: Kaiser Family Foundation and Health Research and Education Trust.


Upper Limit for Deductibles

HDHPs have "brushed up on an upper limit of what employers are comfortable exposing employees to in terms of out-of-pocket costs,” Kristof Stremikis, associate director with the Pacific Business Group on Health, which represents self-insured companies, recently told the Healthcare Financial Management Association. 

Employers are mitigating the health care cost burden of employees through steps such as increasing contributions to HSAs, Stremikis said. "Employers are certainly not just interested in lowering health care costs and sparing no expense to do that,” he remarked. "They really do care about a healthy and productive workforce."

Stremikis cited an August survey report from the National Business Group on Health in which estimated employee out-of-pocket costs were largely static after accounting for employer health account contributions.


Related SHRM Articles:

Health Premiums Expected to Rise 5.5% in 2018, Driving Cost Management Steps, SHRM Online Benefits, August 2017

Rising Health Benefit Costs Still Outpace Overall Inflation, SHRM Online Benefits, May 2017

Rising Deductibles Blur Line Between Traditional and High-Deductible Plans, SHRM Online Benefits, February 2017

 

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