Health benefit cost growth ticked upward in 2018, with smaller employers feeling the most pressure. The Mercer National Survey of Employer-Sponsored Health Plans 2018, the nation’s largest of its kind, reports that average total health benefit cost per employee rose by 3.6%.That follows an increase of 2.6% in 2017 (Figure 1). While overall cost growth remains moderate, averaging 3.3% annually over the past five years compared to 5.7% over the prior ten-year period, it continues to outpace inflation. In addition, employer experience was mixed. Among smaller employers (those with 10-499 employees), cost rose by 5.4% on average, while midsize and large employers with 500 or more employees held cost growth to 3.2% (Figure 2). Prescription drugs remained the top cost driver. Among employers with 500 or more employees, overall drug benefit cost rose by about 7%, as cost for specialty drugs rose by about 12%.
In 2018, employees paid, on average, 25% of the total cost of coverage through paycheck deductions. That works out to nearly $3,200 per employee on average – and doesn’t include their out-of-pocket spending for healthcare services. Among smaller employers, the average PPO in-network deductible rose sharply in 2018, topping $2,000 for an individual. Most large employers did not raise PPO deductibles, the plan type with the highest enrollment (Figure 4).
“Employers are very aware of the burden that high healthcare costs places on employees,” said Sharon Cunninghis, who leads Mercer’s Health business in the US. “We’re helping them implement cost-saving strategies that don’t shift expense to employees and can actually improve affordability, access and outcomes – like better clinical management of specialty drugs, preventing and properly treating opioid addiction, and steering individuals to high-quality, cost-effective providers.”
Employers have made at least some progress with runaway specialty drug costs, as annual cost growth for these therapies slowed in 2018 to just under 12% from over 15% last year. About half of mid-sized and large employers (51%) now steer members to specialty pharmacies for better pricing. While only about a fourth of mid-sized and large employers (28%) have already taken steps to address opioid addiction in the workforce, another 28% plan to by 2020. While 44% say it’s not a priority, that drops to just 13% of very large employers (20,000 or more employees).
Smaller Employers Add Consumer-Directed Health Plans as Midsize and Large Employers Refine Consumerism Strategies
Sophisticated cost management strategies can be harder for smaller employers to implement, as they have fewer resources to devote to plan management and are more likely to be fully insured, with less flexibility than self-funded employers. Their go-to cost management approach tends to be giving employees more financial responsibility for healthcare spending. This may explain why, when faced with 2018’s big cost increases, many smaller employers moved to high-deductible consumer-directed health plans (CDHPs), which cost them 13% less, on average, than a traditional PPO. CDHP prevalence jumped to 38% in 2018, up from 29% among employers of this size.
The prevalence of CDHPs among midsize and large employers, already high, grew more slowly, from 64% to 68%. While most employers of this size continue to provide these plans as an option, there was an increase in those offering it as the only plan available to employees at the largest worksite -- 13%, up from 10% in 2017 (Figure 7). At the same time, employers moved to make these plans more affordable and attractive. Typically, CDHPs are offered with a tax-advantaged health savings account (HSA). More sponsors made contributions to employees’ accounts (82%, up from 77%) and the average individual contribution rose to $694 from $653, a 6.3% increase.
“The ACA’s “Cadillac tax” on high-cost plans really jump-started the use of CDHPs as a cost management strategy,” says Tracy Watts, Mercer’s leader for health reform. “The fact that we’re seeing more employers adding these plans, encouraging enrollment by making bigger account contributions, and even dropping their other medical plans, demonstrates that even though the tax has been delayed until 2022, they still feel the threat.”
Nationally, enrollment in CDHPs rose from 30% to 33% of all covered employees (Figure 3).
Future-Focused Strategies Address How and Where to Access Care
Survey results suggest that, following five years of relatively modest cost growth, more midsize and large employers are foregoing the short-term savings offered by cost-shifting and turning to strategies addressing care delivery and health management.
Employers continued to add telemedicine services (80%, up from 71%) and the average utilization rate for 2017 inched up to 8% of eligible employees from 7% the prior year (Figure 5). About half (51%) provide employees with an expert medical opinion service, which makes it easy for them to get a second opinion from a highly qualified specialist. Targeted programs that provide support for people with chronic conditions and other health issues (such as diabetes, infertility, and cancer) are offered by 56%. Enhanced care management programs, featuring medical professionals who provide support throughout the entire care episode and help resolve claims issues, are offered by 36% of employers.
Employers are also providing employees with access to Centers of Excellence (COE) for surgeries and growing range of other complex treatments. Some steer employees to the COE with financial incentives or even by requiring they use it. This is most common with transplants (25%), bariatric care (14%), and oncology (10%) (Figure 6). Among employers that steer employees to a COE and have evaluated performance, most have seen cost savings, better outcomes, and greater patient satisfaction.
“These and other “future-focused” strategies are making a difference for many employers,” said Ms. Watts. “They may take more time to reduce medical costs than greater employee cost-sharing, but in the process they change how plans manage care, how providers are reimbursed, and even how people behave.”
In addition, employers are starting to ramp up efforts to detect and eliminate fraud, waste and abuse by healthcare providers. While most health plans provide some level of service to address fraud, waste and abuse, a small number of employers are purchasing enhanced services or going outside the health plan to a specialty vendor. So far, just 6% of all midsized and large employers (18% of those with 20,000 or more employees) have taken this step, but many more say they are considering it.
Growing Momentum for Creating a Culture of Health
For a second year in a row, the survey asked midsize and large employers to identify their most important health benefit strategies over the next five years. “Managing high cost claims” was at the top of the list, with 79% of employers rating it as very important or important (Figure 8). Many of the strategies discussed above are ways to address this critical issue.
“Creating a culture of health” was a close second – selected by 76% of employers, up from 70% last year, the biggest jump for any strategy. Actions employers are taking now to build a culture of health include providing healthy food choices in cafeterias and meetings (63%), prohibiting smoking on the work campus (57%), providing onsite fitness facilities (33%), offering resources to support financial health (54%), and a range of technology-based resources to engage employees in caring for their health and fitness (54%) – all of these are ways to visibly reinforce good health habits. But a separate analysis conducted by Mercer suggests that one of the most important steps an employer can take is to include support for a healthy workplace culture in the company vision or mission statement, since this has a ripple effect throughout the organization. In 2018, 27% of all midsize and large employers have prioritized employee well-being in this way, up from 23% last year. And among the very largest employers (20,000 or more employees), 50% have, up from 43% last year.
“In a time of tough competition for talent, a strong culture of health can be a key differentiator,” said Mercer’s Jean Moore, Senior Director of US Health Specialty Practices. “Over half of the large employers who measured the value of their well-being programs reported improved employee engagement and/or improved attraction and retention.”
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; 2,409 employers completed the survey in 2018. The survey was conducted during the summer, when most employers have a good fix on their costs for the current year. Results represent about 600,000 employers and about 100 million full- and part-time employees, with a margin of error of +/–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 March 2019. For more information, visit here.
Mercer delivers advice and technology-driven solutions that help organizations meet the health, wealth and career needs of a changing workforce. Mercer’s more than 23,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), the leading global professional services firm in the areas of risk, strategy and people. With more than 65,000 colleagues and annual revenue over $14 billion, through its market-leading companies including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.