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Early responses from a Mercer survey still in the field suggest that the average growth in health benefit cost will slow to 5.4% in 2012, the smallest increase since 1997. Still, cost growth remains well above both general inflation and growth in workers’ earnings (see Fig. 1).
While this increase reflects cost-cutting changes employers will make to their current health benefit programs, such as raising deductibles or moving employees into lower-cost health plans, the preliminary survey findings released today by Mercer suggest that the underlying trend has slowed as well. Asked how much cost would rise if they made no changes to their current plans, employers reported an average increase of 7.1%. Over the past five years, this underlying health benefit cost trend has been running at about 9%.
The slower trend is good news for workers, because an employer’s first line of defense against a high initial renewal rate typically is to change plan provisions so that employees pay more out of pocket for health care. If the underlying trend is lower to begin with, employers will be likely to shift less cost. For the past several years, employers have reduced their initial renewal rate by about 3 percentage points on average; in 2012, they are planning to reduce it by about 2 points (Fig. 2).
These results are based on the survey responses submitted by about 1,600 employers through September 8. Mercer expects about 2,800 employers to participate in this year’s survey.
Understanding the slower cost growth for 2012 means looking at the factors working to hold down the underlying trend along with the actions employers are taking to reduce cost next year. Use of health services, which slowed this year, is one such factor. Some analysts believe the tough economy, combined with generally higher deductibles and other forms of cost-sharing, is affecting utilization – that because employees have less disposable income and are working longer hours, they are less likely to seek non-urgent care.
On the other hand, Susan Connolly, a partner in Mercer’s Boston office, believes that slowing utilization may also be a sign that programs targeted at improving employee health – now the rule rather than the exception in employer benefit programs – are having a positive impact.
“Earlier risk identification and health education, along with improvements in drug therapies and medical technology, are keeping people with health risks and chronic conditions away from the emergency room,” said Ms. Connolly. “And consumers are more aware that overuse and misuse of health care services will directly impact their wallets as well as their employer's budget.”
Employer cost management tactics for 2012
While the underlying cost trend may slow in 2012, an increase of more than 7% – twice the rate of general inflation – is still higher than many employers are willing or able to absorb. Some plan to shift cost to employees by raising premium contributions in 2012 (Fig. 3). They are somewhat more likely to increase contributions for dependent coverage (36%) than for employee-only coverage (33%). The difference is greater among the largest employers (42% will raise dependent contributions and 36% will raise employee-only contributions); they may be attempting to compensate for enrolling more dependents under the health reform law’s rule stipulating that employees’ children up to age 26 be eligible for coverage.
About a third of the survey respondents (33%) say they are raising deductibles or copayments in 2012. The past five years have seen employers increasingly using this type of cost-shifting, driving the median in-network PPO deductible for an individual to $1,000 among small employers (those with 10–499 employees) and to $500 for large employers last year.
One way employers can give employees a stake in their health care spending without creating a disincentive to use health services when needed is with consumer-directed health plans (CDHPs). These are high-deductible plans with an employee-controlled spending account – a health saving account (HSA) or health reimbursement arrangement (HRA). Many of these plans give employees an incentive to take cost into consideration when seeking health care services by allowing them to save, on a tax-advantaged basis, account dollars they don’t spend in a given year for future needs. Preventive care is covered in full.
“We’re expecting to see a spike in 2012 in both the number of employers offering CDHPs and in the number of employees enrolling in them,” said Beth Umland, Mercer’s director of research for health and benefits. “Employers see them as a way to provide more value to employees while at the same time managing cost.”
CDHPs are significantly less expensive than traditional PPOs or HMOs – by about 15%, on average. The use of CDHPs has been growing steadily over the past five years, particularly among the largest organizations. In 2010, offerings of CDHPs ranged from 14% among employers with 10–49 employees to 51% among those with 20,000 or more employees. Survey results suggest we will see an increase in offerings of these plans in 2012: 18% and 58% of the smallest and largest survey respondents, respectively, say they plan to offer a CDHP in 2012.
“While 2012’s slower cost growth is welcome news, it’s still higher than the CPI – which means employers won't be letting up their efforts to control costs anytime soon,” said Ms. Connolly. “Advanced strategies like limited provider network plans and more intensive employee education and engagement will continue to evolve.”
About the survey
These are preliminary findings from Mercer’s National Survey of Employer-Sponsored Health Plans 2011. The survey is still in the field and complete results, including the actual cost increase for 2011, will be released by the end of the year. The preliminary results discussed above are based on employers who responded by September 8; these results are not weighted and represent only the 1,592 early responders. Ultimately, around 2,800 employers will participate in the survey and the final results will be weighted to be nationally projectable.
Mercer is a global leader in human resource consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues by designing, implementing and administering health, retirement and other benefit programs. Mercer’s investment services include investment consulting, implemented consulting and multi-manager investment management. Mercer’s 20,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York and Chicago stock exchanges. For more information, visit www.mercer.com.