Additional Health Plan Enrollees May Drive Up Costs

ACA’s individual mandate means more will take employer-provided coverage

By Stephen Miller, CEBS Sep 17, 2014

Employers in the U.S. are predicting that health benefit cost per employee will rise by 3.9 percent on average in 2015, preliminary results from a new survey by Mercer reveal. Cost growth slowed to 2.1 percent in 2013, a 15-year low, but appears to be edging back up. Moreover, a higher percentage of employees signing up for coverage through the worksite could be a wildcard driving costs higher.

The projected increase for 2015 reflects actions employers plan to take to manage cost. If they make no changes to their plans for 2015, they predict that costs will rise by 5.9 percent on average. However, only 32 percent of respondents are simply renewing their existing plans without making changes.

These results are based on responses from more than 1,700 employers to Mercer’s National Survey of Employer-Sponsored Health Plans through Sept. 1, 2014.


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

Health Reform Challenges

Under the Affordable Care Act (ACA), a significant number of employer health plan sponsors (22 percent) are likely to see enrollment grow in 2015 when they are required to open their plans to all employees working 30 or more hours per week, Mercer founds. Some 63 percent were in compliance before reform was enacted, and 15 percent made the necessary changes last year for 2014.

Among large retail and hospitality businesses, which typically employ many part-time workers, 39 percent will need to extend coverage in 2015.

“The math is simple—the more employees you cover, the more you spend,” said Mercer’s director of research for health and benefits, Beth Umland, in a statement accompanying the report.

While there has been much speculation that employers would reduce staff or cut hours to limit the number of employees becoming eligible in 2015, few of the surveyed employers said they will take either of those routes. However, many said they will manage schedules more carefully to avoid employees occasionally working 30 or more hours in a week (53 percent of those that must extend coverage to more employees in 2015) or to make clear to new hires that they will work fewer than 30 hours (31 percent).

“It’s hard to predict how many newly eligible employees—generally lower-paid, variable-hour workers—will choose to enroll in health plans when given the chance,” said Tracy Watts, Mercer’s national health reform leader. The tax penalty for individuals who do not obtain coverage will rise in 2015, to a minimum penalty of $325 per individual. When this penalty first went into effect in 2014, the minimum amount was only $95, and few employers experienced significant growth in enrollment.

“But 2015 could be a different story—not just because the penalty is higher, but because many employees will now have the option to enroll who didn’t before,” Watts said.

Higher Deductibles and CDHPs

One strategy employers are using to soften the increase in health spending in 2015 is adding a lower-premium, high-deductible health plan for the newly eligible employees—or for all employees. Consumer-directed health plans (CDHPs) that can be paired with a health savings account or health reimbursement arrangement cost on average 20 percent less than traditional health plans.

Health reform is clearly accelerating that trend, the survey found. While about half of large employers offer a CDHP today, nearly three-fourths (73 percent) said they will have a CDHP in place within three years. And 20 percent say it will be the only choice available to employees. Today, only 6 percent of large employers have moved to “full-replacement” CDHPs.

“The move toward high-deductible consumer-directed plans is spurring other changes as well, such as more voluntary options,” said Watts. “While some employees are comfortable with a lower level of coverage, offering supplemental insurance alongside a high-deductible plan gives employees access to more protection if they want it.”

A September 2014 report by the Kaiser Family Foundation and the Health Research & Educational Trust revealed that, on average, deductibles for individual-only coverage in group health plans topped $1,200 in 2014.

Other 2015 Rate Forecasts

Mercer’s benefit cost increase findings are roughly in line with other recent cost trend projections. Towers Watson forecasts that large U.S. employers can expect to see, on average, a 4 percent increase in 2015 health plan costs for employee coverage after making plan design changes, and a 5.2 percent rate increase if no plan adjustments are made. The National Business Group on Health projects that health benefit expenses at large U.S. employers will increase 5 percent on average after plan designs are revised and 6.5 percent without plan adjustments. An earlier forecast by PricewaterhouseCoopers projected that medical inflation in the U.S. would rise to 6.8 percent in 2015.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.​

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