United States
New York, 10 September 2009

 

• Early responses to Mercer’s annual survey indicate cost will rise 5.9 percent next year

If employers made no changes to their employee medical plans in 2010, they would see cost rise by nearly 9 percent. But, with more than half of all employers experiencing layoffs over the past 12 months – and nearly a third anticipating lay-offs still to come this year – doing nothing is not an option for most employers. Preliminary survey findings released today by Mercer indicate that respondents plan to shave three percentage points off their annual renewal rates through a variety of cost-saving actions, holding overall cost growth to 5.9 percent next year (Fig. 1).

 

 

Reducing the projected cost increase is something that employers tackle every year, but survey results indicate that employers have had to reduce their budgets more than usual for 2010. Still, taken together, the cuts have not been draconian. Last year, Mercer’s annual survey found that average health benefit cost per employee rose 6.3 percent in 2008. Cost increases have been remarkably stable since 2005, averaging just over 6 percent each year.

 

Mercer’s complete survey results won’t be released until later in the year, but of the 1,562 employer health plan sponsors that have responded so far, nearly a third (31 percent) say that the economic recession has had a “strong negative effect” on their business, with another 49 percent experiencing a “somewhat negative effect” (Fig. 2). Those most strongly affected by the recession report both a higher underlying cost trend – 9.0 percent for 2010 – and a lower targeted cost increase – 5.4 percent – on average than those employers reporting that their organizations have not been affected by the recession (8.5 percent and 6.3 percent, respectively) (Fig. 3).

 

 

 

“The economy clearly had an impact on rising health care costs. Among the reasons for rising cost are stress-related illness and lay-offs. Actual or feared loss of employer-subsidized coverage makes people think about filling their medications, getting their preventive care and taking care of any elective procedures that they have postponed. It makes perfect sense, but the downside for employers is that it often results in higher underlying plan costs,” said Linda Havlin, worldwide partner at Mercer. “So, employers have had to work harder than usual to keep the health benefit cost increase for 2010 down. Those organizations hardest hit by the recession are making the biggest cuts.”

 

Employers’ first line of defense against rate increases is shifting cost to employees, but this tactic can present a tough challenge for employers that feel their employee cost sharing requirements are already high. For example, between 2004 and 2008, the median family deductible for in-network services in a PPO – the type of plan offered by the most employers – rose from $1,000 to $1,850. In 2010, nearly two-thirds of all respondents (63 percent) will again ask employees to pay a greater share of health plan costs, most commonly by requiring them to pay a higher portion of the monthly premium (40 percent of respondents) and/or by raising deductibles, copays/coinsurance or out-of-pocket maximums (39 percent) (Fig. 4).

 

 

Nearly a fifth of the respondents (18 percent) are eliminating high-cost or more generous health plan options as a way to move employees into lower-cost options, such as consumer-directed health plans (CDHP) (Fig. 5). CDHPs are high-deductible plans with an employee-controlled spending account – a health saving account (HSA) or health reimbursement arrangement (HRA). Many of these plans give employees an incentive to take cost into consideration when seeking health care services by allowing them to save, on a tax-advantaged basis, account dollars they don’t spend in a given year for future needs.

 

 

“We’re expecting to see a real spike in 2010 in both the number of employers offering CDHPs and in the number of employees enrolling in them, as more employers become comfortable with the concept of offering a high-deductible, account-based plan as one choice or their only choice,” said Ms. Havlin. “Employers see them as a way to provide more value to employees while at the same time managing cost.”

 

CDHPs are significantly less expensive than traditional PPOs or HMOs by about 20 percent on average in 2008. In Mercer’s 2008 survey, 14 percent of small employers (those with 10-499 employees) and 25 percent of large employers (500 or more employees) said they would be very likely to offer a CDHP in 2009; from a smaller survey conducted in March 2009, Mercer estimates those numbers are likely to rise significantly.

 

Other cost-cutting actions for 2010 include auditing plans, for example, to ensure that all covered dependents are actually eligible for coverage (39 percent), and adding or renegotiating performance guarantees with health plan vendors. Performance guarantees have historically focused on accuracy and timeliness of claims payment or customer service, but some employers have expanded their guarantees to address overall program performance in managing care, driving quality improvement and engaging participants in behavior change.

 

“The good news is that employers are finding ways to keep health benefit cost increases stable through innovations that improve quality, participant experience and cost efficiency,” said Ms. Havlin. “In the most successful programs, employees are becoming more engaged in understanding their health risks and participating in lifestyle improvement and/or care management programs. There is a lesson here for policymakers who are working on health reform: Managing the overall cost requires a change-management framework. You need to continually evaluate what’s driving cost and uneven results, and then set about the tough task of changing participant and provider behavior.”

 

These are preliminary findings from Mercer’s National Survey of Employer-Sponsored Health Plans 2009. The survey is still in the field and complete results, including the actual cost increase for 2009, will be released by the end of the year. The preliminary results discussed above are based on employers who responded by August 28; these results are not weighted and represent only the 1,562 early responders. Ultimately, around 3,000 employers will participate in the survey and the final results will be weighted to be nationally projectable.

 

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.

 

 

 

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