E-mail this page				Print this page

Contact: Mercer Feedback

United States
New York City, 19 November 2008

• Employers held health benefit cost increases to about 6 percent in 2008 for a fourth straight year – but that has meant shifting more cost to employees
  
  
• Consumer-directed health plans are offered by 20 percent of large employers, up sharply from 14 percent last year
  
  
• More large employers add incentives to encourage health-conscious behavior
   
• Employers shed retiree medical plans in 2008, but with health reform looming there was no further erosion of active employee plans

The median deductible required by employers for individual coverage in PPO health plans jumped to $1,000 in 2008, up from $500 last year, according to the National Survey of Employer-Sponsored Health Plans , conducted annually by Mercer and released today. In 2000, only about half of employers imposed a deductible for PPO coverage (compared to about four-fifths today), and when they did the median amount was just $250 (Fig. 1).   PPOs are the most popular type of health plan, enrolling 69 percent of all covered employees.

Mercer’s survey includes private and public employer health plan sponsors with 10 or more employees. Nearly 2,900 employers participated in 2008.

What makes this finding more startling is that it refers to traditional PPOs – not the high-deductible health plans where a deductible of at least $1,100 is required in order to deposit tax-free money in a Health Savings Account, or HSA. These plans are spreading rapidly as well.

“The introduction of the HSA may have changed employers’ thinking on just how high a deductible can go without causing employees to revolt,” said Blaine Bos, a worldwide partner at Mercer. “Raising the deductible has become the fallback for employers faced with cost increases they can’t handle. It’s the easiest way to reduce cost without taking more out of every employee’s paycheck.”

PPO deductibles are lower among larger employers. In organizations with 500 or more employees, the median deductibles for individual and family coverage are $300 and $800, respectively. But large employers have been moving quickly to add HSA options for their employees.

Health care spending in an economic downturn

The Mercer survey found that total health plan cost per employee rose by 6.3 percent in 2008. Annual cost increases leveled off at about 6 percent in 2005 and have remained there ever since. Employers expect a similar increase for 2009 – 6.4 percent (Fig. 2). That projection reflects changes that employers plan to make in the level of benefits, the type of plan offered or the plan vendor. (If employers made no changes, the cost of their largest medical plan would rise by about 8 percent, they predict.)

A big question for employers is whether their cost projections, provided in August and September, will hold in the face of the current global economic downturn. Utilization tends to increase during a recession. When job security is in jeopardy and insurance is tied to employment, consumers rush to get care they might otherwise delay. In addition, laid-off employees paying for coverage under COBRA provisions typically have far higher utilization than active employees. More employees are at risk for stress-related behavioral-health and medical conditions as they deal with investment losses, job insecurity and declining housing values. Prices may also rise, as health plans and providers search for ways to recoup their investment losses; high unemployment leads to more uncompensated care; and public safety nets such as Medicaid respond to higher enrollments by freezing increases in provider compensation.
 
“But these are different times, and history might not repeat itself,” said Mr. Bos. “Higher employee cost-sharing – like a $1,000 deductible – could prevent that spike in utilization that we’ve seen in other recessions.”

Consumer-directed health plans may prove a refuge for employers and employees

Rumors of the demise of the consumer-directed health plan are not borne out by Mercer’s 2008 survey results. There was a sharp increase in the number of large employers offering CDHPs (a health plan coupled with either a Health Savings Account or a Health Reimbursement Arrangement) in 2008, from 14 percent to 20 percent of employers with 500 or more employees. The plans are most common among the very largest employers (20,000 or more employees), where they are offered by 45 percent, up from 41 percent in 2007. However, growth has been slower among small employers: Mercer found that just 9 percent of employers with 10–499 employees offer a CDHP, up from 7 percent in 2007 (Fig. 3).   These employers are more likely simply to offer a high-deductible PPO without an account feature.

Enrollment in CDHPs reached 7 percent of all covered employees in 2008, up from 5 percent last year (Fig. 4). As employees shift from more expensive plans into less expensive ones, employers’ overall cost per employee drops. This migration into lower-cost CDHPs is one factor helping to hold down benefit cost increases.

“Difficult economic times may speed both the adoption of CDHPs by employers and higher enrollment rates where employees have a choice of plans,” said Mr. Bos. “With so many employers already requiring relatively high deductibles, it’s not a big step for them to put in an HSA with a $1,150 deductible – the minimum amount for 2009 – and use the savings to fund the account, improving overall value to employees.”

The new plan model’s appeal to employers seems clear: CDHPs delivered substantially lower cost per employee than either PPOs or HMOs in 2008. CDHP cost averaged $6,207 per employee, compared to $7,815 for PPOs and $7,768 for HMOs (Fig. 5). Of the two types of CDHPs, HSA-based plans were less expensive than HRA-based plans ($6,027 compared to $6,420).

The most obvious explanation for the difference in cost between CDHPs and the other medical plan types is the higher deductible. But even compared to the average cost of PPOs with deductibles of $1,000 or higher ($6,661 per employee), CDHPs still cost less by over $400, even though CDHP enrollees are not significantly younger than enrollees in PPOs with high deductibles and are more likely to elect dependent coverage (which drives up cost per employee). The 2008 cost increase for CDHPs was 4.0 percent, compared to 6.3 percent for PPOs and 9.1 percent for HMOs.

Most of the CDHPs added in 2008 were based on HSAs, which don’t require an employer contribution. Employer account contributions are a standard feature of HRAs but not of HSAs:  over a fourth of large HSA sponsors (29 percent) do not contribute. Among those that do, the average contribution is $694.

“With deductibles in traditional PPOs rising, the CDHP is becoming a more attractive option for employees who have a choice,” said Mr. Bos. “If your employer puts money in the account and you don’t use many services, you can end up ahead.  But it all depends on how you use health care.”

The flip side of consumerism – employee health management

Employers are looking to put more teeth into employee health management programs, in hopes that encouraging better health habits will lead to lower health spending and a more productive workforce. While the majority of employers offer one or more health management programs, large employers, in particular, are now adding incentives to encourage employees to use the programs or improve health habits. Of large employers offering a health management program, 26 percent use incentives, up from 23 percent in 2007 (Fig. 6).

Nearly one-fifth of the very largest employers (those with 20,000 or more employees) have special plan provisions relating to an employee’s smoker status – most often, requiring a lower premium contribution from non-smokers than from smokers (17 percent).

Large employers are also increasingly using health risk assessments to learn about their employees’ health habits (65 percent, up from 56 percent in 2007).

Employers shedding retiree medical coverage

Sometimes overlooked in the question of access to health insurance is the plight of employees who want to retire before they are eligible for Medicare. Early-retiree medical coverage is becoming increasingly rare, with just 27 percent of large employers still offering it to new hires, down from 46 percent 15 years ago (Fig. 7). Even among the largest employers (20,000 or more employees), fewer than half (47 percent) provide this benefit. Coverage for Medicare-eligible retirees has slipped to 19 percent of all large employers, from 40 percent 15 years ago.

“The slowing economy makes the lack of retiree coverage a bigger issue,” said Mr. Bos. “Companies that hope to reduce their workforce through attrition rather than lay-offs may find older workers hanging on longer because they don’t want to lose their health benefits.”

Survey data suggest that offering a plan affects retirement decisions. In organizations that provide a retiree medical plan, the average retirement age is 61, compared to 64 among those that don’t provide a plan.

There was no decrease in the percentage of employers offering coverage to active employees: 65 percent of all employers sponsored a health plan in 2008. While this is down from 70 percent in 2001, it is up slightly from 2007’s 63 percent. “It may be that between national health reform proposals and actual state health reform initiatives, many employers have decided to stand pat with their plan offerings and see what evolves,” said Mr. Bos. (Fig. 8)

Health plan offerings vary significantly by employer size, with nearly universal coverage among employers with 500 or more employees.  However, as part-time workers grow as a percentage of the total work force (US Bureau of Labor Statistics), it’s worth noting that only 61 percent of large employers that use part-time employees provide these workers with health coverage.

Other findings

• Opinions on specific health care reform proposals vary considerably, but employers are most in favor of an individual mandate requiring everyone to have coverage if they can afford it, either through their employer or purchased on their own (53 percent approve or strongly approve, 30 percent disapprove or strongly disapprove).  However, there is little support for either a single-payer system like Canada’s (29 percent) or an employer “play or pay” mandate (31 percent).  See Fig. 9 for results for all proposals.

• Same-sex domestic partner coverage is offered by 24 percent of all employers and 34 percent of large employers. The larger the employer, the more likely they are to include domestic partners as eligible dependents: 74 percent of those with 20,000 or more employees cover same-sex domestic partners up from 68 percent in 2007 and 62 percent in 2006.
  
  
• Spousal coverage: Eight percent of large employers use special provisions to limit election of coverage for spouses who have other coverage available and 6 percent are considering it for 2009. Among employers with 20,000 or more employees, 15 percent use these special provisions.
  
  
• Provisions related to employees’ smoker status remain rare among all employers (less than one percent), but their use is growing among very large employers.  In 2008, 15 percent of employers with 10,000 or more employees required smokers to pay more toward the cost of coverage than non-smokers, up from 12 percent in 2007.  
  
  
• Mini-med or limited health programs – low-cost plans that are intended to cover routine or preventive care only (as opposed to catastrophic care) – are offered by 7 percent of large employers and 20 percent of those with 20,000 or more employees. Large employers in the wholesale/retail industry, which typically employs many part-time employees, are most likely to offer these plans (31 percent).
  
  
• Worksite clinics: About a third of large employers (32 percent) offer an on-site or near-site medical clinic for occupational health services; 13 percent of large employers offer a clinic for primary care services.

Survey methodology

The Mercer National Survey of Employer-Sponsored Health Pl ans is conducted using a national probability sample of public and private employers with at least 10 employees. Nearly 3,000 employers completed the survey in 2008. 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 600,000 employers and more than 90 million full- and part-time employees. The error range is +/–3 percent.

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 late March 2009. 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.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 18,000 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, Chicago and London stock exchanges.

For more information, visit www.mercer.com.

E-mail this page

Print this page

Contact: Mercer Feedback