- Average per-employee health benefit cost is predicted to rise by 4.3% in 2018, the highest since 2011
- Employers are struggling to control cost for pharmaceuticals, which will rise more than 7% next year as spending on new specialty medications skyrockets
- Following the failure of repeal and replace, the excise tax on high-cost plans will go into effect in 2020 – and with the tax threshold rising at only about half the current rate of health benefit cost, many employers will be affected
Early responses from Mercer’s National Survey of Employer-Sponsored Health Plans, 2017 show participating employers predicting that health benefit cost per employee will rise by 4.3% on average in 2018 (see Figure 1) after they make planned changes such as raising deductibles or switching carriers. Over the past five years, Mercer’s surveys have found that the average annual increase has been about 3%; an increase of 4.3% would be the highest since 2011, when cost rose 6.1%.
The projected underlying cost growth from 2017 to 2018 is 6.0%. That is the increase employers would expect if they made no changes to their medical plans; however, the survey found that 46% of employers will take steps to reduce cost growth in 2018. Offering lower-cost, high-deductible health plans has been an important strategy for holding down cost over the past decade, and the need to minimize exposure to the ACA’s excise tax on high-cost plans has accelerated this trend.
“Employers find the challenge of juggling cost-management objectives and affordability issues for employees gets harder every year,” said Tracy Watts, senior partner and Mercer’s leader for health reform. “Consumerism has a role in addressing rising costs, but there are many factors that drive costs, separate and distinct from relative generosity of the plan design.”
Employers must contend with cost increases that occur with medical advances – like the introduction of new medications used to treat complex conditions like cancer, multiple sclerosis, and hepatitis C. Respondents to Mercer’s survey reported that spending on these specialty drugs rose by about 15% at their last renewal, pushing up growth in the overall cost of prescription drugs to more than 7%.
“With so many new specialty drugs in the pipeline and few well-known brand-name drugs going off-patent in the near future, the spiraling drug cost problem will certainly get worse before it gets better,” said Ms. Watts.
But with the ACA’s excise tax still on the books and slated to go into effect in 2020, employers may have to pick up the pace of change to try to stay ahead of cost increases. Mercer estimates that 31% of large employers (500 or more employees) would be liable to pay the excise tax in 2020 – and with the tax threshold indexed to inflation and rising at about half the rate of health benefit cost, more employers would pass the threshold each year.
“The excise tax creates pressure to generate immediate cost savings though cost-shifting or other short-term fixes. But employers are also making good progress with longer-term strategies that address the root causes of high cost and cost growth,” said Beth Umland, Mercer’s director of research for health and benefits.
Strategies that employers are adopting to manage medical costs without raising employee out-of-pocket spending include providing care coordination and support for high-cost claimants. Employers are also addressing quality by using incentives to direct employees to Centers of Excellence and other high-performance provider networks. And they are shifting away from traditional fee-for-service provider reimbursement toward new payment models that reflect the value of the services provided rather than just the quantity.
“There are ‘real world’ examples of how these strategies can work,” said Ms. Watts. “For example, Mercer Health Advantage, an enhanced care coordination and support service for employees with very serious health issues, greatly improves the patient experience while saving an average of $3.30 for every dollar spent1.”
1Analysis of 2015 Mercer Health Advantage program results “Mercer Health Advantage(sm) continues to improve care of those most at-risk while achieving savings for employers”, July 20, 2017.
About the survey
The results discussed here are preliminary findings from Mercer’s National Survey of Employer-Sponsored Health Plans 2017. The complete results, including the actual cost increase for 2017, will be released later this year. The preliminary results discussed above are based on approximately 1,500 employers who responded by August 15; these results are not weighted and represent only the early responders. Ultimately, approximately 2,400 employers will participate in the survey and the final results will be weighted to be nationally projectable.
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 22,000 employees are based in 43 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 60,000 colleagues and annual revenue over $13 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.
Figure 1: Health benefit cost growth will hold at approximately 4% in 2018, but still tracking well above inflation