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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, conducted annually by Mercer and released today, growth in the average total health benefit cost per employee slowed from 6.1% last year to just 4.1% in 2012 (Fig. 1). 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 (Fig. 2).
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 Portalatin, President and CEO of Mercer. “They’ve taken bold steps to soften the impact and it’s paying off already.”
Those 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 do so (Fig. 3).
In fact, there was a slight uptick in the percentage of employers offering coverage in 2012: it rose from 55% to 59%, after falling in each of the previous two years. Most of the increase was among the smallest employers – those with 10-49 employees – which are the least likely to offer coverage and the quickest to drop it when cost goes up (Fig. 4).
Enrollment shift to low-cost consumer-directed health plans helped to 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 (Fig. 5). 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 (Fig. 6).
“If we’re not already at the tipping point for CDHPs – and we may well be – at this rate of growth it’s coming soon,” says Sharon Cunninghis, US business leader for health and benefits.
Moving even a small number of employees out of a more expensive plan into a CDHP can result in significant savings for an employer. 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 (Fig. 7). While employers have been reluctant to offer the CDHP as the only medical plan, survey results suggest that attitudes are shifting. 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. Among large employers that offer an HSA-based CDHP, average enrollment rose from 25% to 32%.
“PPACA requires that health plans cover, at a minimum, 60% of eligible health plan expenses,” says Ms. Cunninghis. “Some employers are resetting their health plan value to move closer to that minimum, and saving money as a result.”
Offering a lower-cost CDHP is one way employers “reset” plan value in 2012. Others simply raised the deductible of an existing PPO plan. The average PPO in-network deductible reached $1,427 for an individual in 2012. Although large employers typically require much lower deductibles, the average deductible amount among employers with 500 or more employees rose by about $80 in 2012, to reach $666 (Fig. 8).
“Over the past decade, employers have figured out how to stabilize health benefit cost increases through cost-shifting and other cost management techniques. Now we’re seeing a move toward even greater control through defined contribution strategies,” says Ms. Cunninghis.
An example of a defined contribution strategy is determining in advance what the employer contribution to the cost of coverage will be, and requiring employees to pay anything above that amount. If the employer offers a range of plans, 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 (Fig. 9).
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 (Fig. 10). 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.
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. One 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.
The changing health care market is presenting employers not only with new ways to purchase health insurance, but with new ways to influence the quality of care that their employees receive. Among very large employers (5,000 or more employees), the use of high-performance (or “narrow”) provider networks rose from 14% to 23% in 2012, while the use of surgical centers of excellence rose from 18% to 35%. There was also strong growth in the use of medical homes (from 3% to 9%), which also promise to save money by improving care.
“While employers deserve a lot of credit for curbing cost growth in 2012, they know that no one silver bullet will end cost escalation forever,” says Ms. Watts. “Health reform has presented us with a new set of challenges and we have to keep thinking one step ahead.”
• Offerings of retiree medical plans remains stable in 2012 About a fourth (24%) of large employers offer an ongoing plan to retirees under age 65 and just 17% offer a plan to Medicare-eligible employees, essentially unchanged from 2011. An additional 15% have stopped offering a plan for which new hires will be eligible but continue to offer coverage to a closed group of employees retiring or hired before a specific date.
• Domestic partner coverage Close to half of large employers include same-sex domestic partners as eligible dependents – 47%, up from 39% in 2010. This varies significantly based on geographic regions, from 73% of employers in the West to 30% in the South.
• Spousal surcharges Very large employers are adopting special provisions concerning spouses of employees with other coverage available. In 2012, 18% of employers with 5,000 or more employees had such a provision in place, up from 15% in 2011. They either imposed a surcharge for spouses with other coverage available (14%) or denied them coverage entirely (4%).
• Tobacco use surcharges 19% of large employers (up from 17% in 2011) vary the employee contribution amount based on tobacco use status, or provide other incentives to encourage employees not to use tobacco. Growth was especially strong among very large employers: 46% of employers with 20,000 or more employees now use an incentive, up from just 35% in 2011.
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. The report costs $600 and the report and tables cost $1,200. For more information, visit www.mercer.com/ushealthplansurvey or call Tara Lewis at 212-345-2451.
Notes for editors
Health maintenance organizations (HMOs) use a network of health care providers and do not cover care provided outside of the network.
Preferred provider organizations (PPOs) utilize a network of providers. There may be incentives for members to use the network providers, but they are covered for care received outside the network. Point-of-service plans are included.
A consumer-directed health plan (CDHP) is a medical benefit design in which employees use spending accounts – Health Savings Accounts (HSAs) or Health Reimbursement Arrangements (HRAs) – to purchase routine health care services directly. Non-routine expenses are covered by traditional insurance after members meet a generally high deductible. Online health and financial tools are generally provided. With an HSA, employees may contribute pre-tax dollars into the account; an employer contribution is optional, but employees have full control over all money in the account. With an HRA, only employers may fund the account and they decide whether money left in the account at the end of the year may roll over.
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.