Mercer Reports Health Benefit Cost Increase for 2015

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Mercer Reports Health Benefit Cost Increase for 2015
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Calendar15 September 2014

Early responses from a Mercer survey still in the field show US employers predicting that health benefit cost per employee will rise by 3.9% on average in 2015. Cost growth slowed to 2.1% in 2013, a 15-year low, but appears to be edging back up. The projected increase for 2015 reflects actions employers will take to manage cost. If they made no changes to their plans for 2015, they predict cost would rise by 5.9% on average. However, only 32% of respondents are simply renewing their existing plans without making changes.

The average projected increase for 2015 may still be relatively low, but it does not come easily. Employers have to work hard each year to keep cost increases manageable. And health reform is creating new challenges. A significant number of employer health plan sponsors (22%) are likely to see enrollment grow next year when they are required to open their plans to all employees working 30 or more hours per week (63% were in compliance before reform was enacted, and 15% made the necessary changes last year for 2014). Among large retail and hospitality businesses, which typically employ many part-time workers, 39% will need to extend coverage in 2015. While each additional employee covered adds cost, this additional spending isn’t accounted for in the growth in the per-employee cost of coverage.

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 say they will take either of those routes. However, many say they will manage schedules more carefully to avoid workers’ occasionally working 30 or more hours in a week (53% of those that must extend coverage to more employees in 2015) or to make it clear to new hires that they will work fewer than 30 hours (31%).

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. 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.

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