Employers Held Health Benefit Cost Growth to 4.1% in 2012, the Smallest Increase in 15 Years

  Employers Held Health Benefit Cost Growth to 4.1% in 2012, the Smallest
  Increase in 15 Years

Business Wire

NEW YORK -- November 15, 2012

Decisive action by employers in 2012 – in particular, moving more employees
into low-cost consumer-directed health plans and beefing up health management
programs – was rewarded with the lowest average annual cost increase since
1997. According to the National Survey of Employer-Sponsored Health Plans
(www.mercer.com/ushealthplansurvey), conducted annually by Mercer, growth in
the average total health benefit cost per employee slowed from 6.1% last year
to just 4.1% in 2012. Cost averaged $10,558 per employee in 2012. Large
employers – those with 500 or more employees – experienced both a higher
increase (5.4%) and higher average cost.

Employers expect another relatively low increase of 5.0% for 2013. However,
this increase reflects changes they plan to make to reduce cost; if they made
no changes, cost would rise by an average of 7.4%.

Mercer’s nationally projectable annual survey includes public and private
organizations with 10 or more employees; 2,809 employers responded in 2012.

“Employers are very aware that in 2014, when the health reform law’s
provisions kick in, they will be asked to cover more employees and face added
cost pressure,” said Julio A. Portalatin, President and CEO of Mercer.
“They’ve taken steps to soften the impact and it’s paying off already.”
Employers that may have been waiting for the election results will need to act
quickly, he says, “because critical decisions need to be made by the summer so
they can be implemented for 2014 open enrollment.”

Success in controlling cost growth in recent years may be contributing to
employers’ commitment to providing health coverage. Few believe it is likely
that they will terminate their employee health plans within the next five
years, even though state-based health insurance exchanges will provide another
source of health coverage for individuals beginning in 2014. Just 7% of large
employers and 22% of small employers (those with 10-499 employees) believe it
is likely or very likely that they will terminate their health plans for
employees.

Shift to low-cost consumer-directed health plans helped hold down overall cost
increase

With a growing number of employers now positioning a high-deductible,
account-based consumer-directed health plan as their primary plan – or even
their only plan – employee enrollment jumped from 13% to 16% of all covered
employees in 2012. Many employers see these plans as central to their response
to health care reform provisions that will raise enrollment. Over the past two
years, offerings of CDHPs have risen from 17% to 22% of all employers, and
from 23% to 36% of employers with 500 or more employees. Well over half (59%)
of very large organizations (20,000 or more employees), which typically offer
employees a choice of medical plans, now offer a CDHP.

“If we’re not already at the tipping point for CDHPs, at this rate of growth
it’s coming soon,” says Sharon Cunninghis, US business leader for health and
benefits.

With the cost of coverage in a CDHP with a health savings account is about 20%
lower, on average, than the cost of PPO coverage – $7,833 per employee
compared to $10,007 -- employers are increasing willing to make the CDHP their
primary or even their only plan. Among large employers that offer an HSA-based
CDHP, average enrollment rose from 25% to 32% in 2012. And, when asked if they
expect to offer a CDHP five years from now, 18% of large employers say they
expect to offer it as the only plan, up from 11% in 2011.

Employers believe health management is helping to slow medical trend

Workforce health management, or “wellness”, has emerged as employers’ top
long-term strategy for controlling health spending. Over three-fourths of
large employers (78%) say that senior leadership is supportive or very
supportive of health management programs as a means of encouraging more
health-conscious behavior.

“While most employers believe that health management programs are making a
difference,” says Tracy Watts, a partner in Mercer’s Washington, D.C. office,
“proving ROI remains a challenge for many. That said, there are many examples
of programs saving lives by identifying a ticking time bomb and getting that
person immediate care.”

The largest employers are the most likely to have formally measured the return
on investment (ROI) of their health management programs (53% of employers with
20,000 or more employees). Of those, more than three-quarters say that their
programs have had a positive impact on medical plan trend.

Perhaps because they are seeing results, employers are increasingly willing to
invest in the success of these programs. For the third year in a row there was
a sharp increase in the use of incentives or penalties to encourage higher
participation: 48% of large employers with health management programs provided
financial incentives or penalties, up from 33% last year. When non-financial
incentives (such as recognition, gifts or lotteries) are included, this figure
reaches 54%.

At the same time, incentives have become more substantial. The most common
incentive offered by large employers for completing a health assessment in
2012 is a reduction in the employee’s premium contribution; the median
reduction in the annual contribution required for employee-only coverage is
$260. In addition, a growing number of employers are providing incentives for
achieving desired outcomes, instead of (or in addition to) incentives for
participating in programs. Where incentives for achieving, maintaining or
showing progress toward specific health status targets were rare in 2011, in
2012 nearly a fifth (18%) of large-employer health management programs include
them.

Looking ahead

With the future of health reform secured by the re-election of President
Obama, employers will be focusing on the next generation of cost management
strategies.

“We’re seeing a move toward greater cost control through defined contribution
strategies,” says Ms. Cunninghis.

An example of a defined contribution strategy is determining in advance what
the employer will contribute to the cost of coverage and requiring employees
to pay anything above that amount. If the employer offers a range of plans and
contributes the same amount toward each, employees can save money by choosing
a lower-cost plan. Nearly half of employers – 45% – say they currently use or
are considering using a defined contribution strategy.

Another approach that is increasingly in the spotlight is the use of private
exchanges, a private-sector alternative to the state health insurance
exchanges. Private exchanges give employers a way to offer employees a broader
choice of benefits while allowing carriers to compete for their business and
manage their risk. More than half of all employers (56%) say they would
consider a private exchange for either their active or retired employees.

Survey methodology

The Mercer National Survey of Employer-Sponsored Health Plans is conducted
using a national probability sample of public and private employers with at
least 10 employees; 2,809 employers completed the survey in 2012. The survey
was conducted during the late summer, when most employers have a good fix on
their costs for the current year. Results represent about 800,000 employers
and more than 104 million full- and part-time employees. The error range is
+/–3%.

The full report on the Mercer survey, including a separate appendix of tables
of responses broken out by employer size, region and industry, will be
published in April 2013. For more information, visit
www.mercer.com/ushealthplansurvey.

About Mercer

Mercer is a global consulting leader in talent, health, retirement and
investments. Mercer helps clients around the world advance the health, wealth
and performance of their most vital asset – their people. Mercer’s 20,000
employees are based in more than 40 countries. Mercer is a wholly owned
subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of
professional services companies offering clients advice and solutions in the
areas of risk, strategy and human capital. With 52,000 employees worldwide and
annual revenue exceeding $10 billion, Marsh & McLennan Companies is also the
parent company of Marsh, a global leader in insurance broking and risk
management; Guy Carpenter, a global leader in providing risk and reinsurance
intermediary services; and Oliver Wyman, a global leader in management
consulting. For more information, visit www.mercer.com. Follow Mercer on
Twitter @MercerInsights.

Contact:

Mercer
Stephanie L. Poe, +1-202-331-5210
stephanie.poe@mercer.com
 
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