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Employers Increase Efforts to get Health Costs under Control

November 18, 2011

Against the backdrop of uncertainty created by health reform, employers are accelerating their efforts to bring health benefit cost under control. According to the National Survey of Employer-Sponsored Health Plans, conducted by Mercer, growth in the average total health benefit cost per employee, which had reached 6.9 percent last year, slowed in 2011 to 6.1 percent, with an increase of 5.7 percent expected for 2012. Cost averaged $10,146 per employee in 2011.

Mercer’s nationally projectable annual survey includes public and private organizations with 10 or more employees; 2,844 employers responded in 2011.

“In a tough economy where high benefit cost increases often have to be balanced with lower pay increases, cost management is already important,” said Susan Connolly, a partner at Mercer. “But given the new cost pressure from health reform, for many employers it’s becoming an imperative.”

One provision of the Patient Protection and Affordable Care Act (PPACA) that went into effect in 2011 was a requirement that employers extend dependent coverage eligibility to employees’ children up to age 26. Health plan enrollment grew by an average of 2 percent in 2011 as a result. Provisions going into effect in 2014 include requiring employers to extend coverage eligibility to all employees working at least 30 hours per week on average and auto-enrolling newly eligible employees. Employers expect that these provisions – along with the new mandate that all individuals obtain health insurance coverage – will result in another increase in enrollment. Retailers and other employers with large part-time populations are likely to be the most affected.

Still, the provision that concerns the most employers is the excise tax on high-cost plans – nearly half say it’s a “significant” or “very significant” concern. While some employers offer high-cost plans because generous benefits are part of their attraction and retention strategy, others have high-cost plans simply because they have an older or less healthy workforce or are located in a high-cost area. Only 39% of employers with 50 or more employees believe their current plans won’t hit the excise tax cost threshold, which will be tied to CPI and increase each year.

The rest are determined to avoid the tax if they can: 21 percent say they “will do whatever is necessary to bring cost below the threshold amounts,” and 36 percent say they will attempt to bring the cost below the threshold amounts, acknowledging that “it may not be possible.” Only 4 percent will take no action to avoid the tax.

“Employers that are concerned about a jump in enrollment in 2014 or the excise tax in 2018 see a need to slow cost growth now,” said Beth Umland, Mercer’s director of research for health and benefits. “While cost-shifting to employees is still going on, this year we saw more employers adopting strategies they believe will provide better results over the long haul.”

Just under one half of all employers (47 percent) say they will shift cost in 2012 by raising deductibles or the percentage of the premium paid by employees. This is down slightly from 50% saying they would shift cost in 2011.

This year saw the biggest increase in adoption of high-deductible, account-based consumer-directed health plans (CDHPs) by large organizations. Now, 32 percent of all employers with 500 or more employees offer a CDHP, up sharply from 23 percent in 2010. The largest employers are the most likely to offer a CDHP (47 percent of those with 10,000 or more employees do so), but CDHP use grew among small employers as well, from 16 percent to 20 percent of those with 10-499 employees.

Overall, 13 percent of all covered employees are enrolled in a CDHP. Enrollment growth has been rapid – five years ago, CDHPs enrolled just 3 percent of covered employees.

The appeal of these plans to employers is clear. The cost of coverage in a CDHP with a health savings account is nearly 20 percent lower, on average, than the cost of PPO coverage – $7,787 per employee compared to $9,385.

In addition, some employers see these plans as integral to strategies to improve workforce health. “One feature of the CDHP that employers like is flexibility in funding employees’ spending accounts,” Connolly said. “A growing number of employers are making their account contributions contingent on the employees’ willingness to take steps to improve their own health.”

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