Mercer survey finds average total health benefit cost per employee rose 3.9% in 2014
Enrollment in high-deductible, consumer-directed health plans (CDHPs) jumps from 18% to 23% of all covered employees following a surge of new implementations
Nearly half of large employers (48%) now offer a CDHP, up from 39%
Private exchanges used by 3% of large employers, with 28% likely to make the shift within five years
Employers took action on several fronts to hold down growth in the average per-employee cost of health benefits to 3.9% in 2014. While this was a bigger increase than last year’s historically low increase, it is still well below the 7% average rate of growth over the past 15 years (Fig. 1). According to the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer, total health benefit cost averaged $11,204 per employee in 2014; this includes employer and employee contributions for medical, dental and other health coverage.
Employers predict that in 2015 their health benefit cost per employee will rise by 4.6% on average. This increase reflects changes they will make to reduce cost; if they made no changes to their current plans, they estimate that cost would rise by an average of 7.1%.
Mercer’s nationally projectable annual survey includes public and private organizations with 10 or more employees; 2,569 employers responded in 2014.
“Employers have done a remarkable job of holding down health cost growth for the past few years,” said Julio A. Portalatin, President and CEO of Mercer. “But with enrollment almost certain to rise in 2015 as major ACA provisions go into effect, they’ll need to intensify their efforts. The strong interest they’re showing in private exchanges suggests that this new benefit delivery system is the innovation they have been waiting for.”
Helping to hold down cost growth in 2014 was the largest one-year increase in enrollment in high-deductible consumer-driven health plans (CDHP), from 18% to 23% of all covered employees. In addition, 3% of large employers (those with 500 or more employees) moved to a private exchange in 2014 (or for 2015) to provide benefits to their active employees – and another 28% say they are likely to do so within the next five years.
Employers brace for 2015 cost ‘wildcard’ -- higher enrollment
Many employers anticipate spending more to cover more employees in 2015 as the ACA provision goes into effect requiring employers to extend coverage to substantially all employees working 30 or more hours per week. Well over a third of large employers (38%) were affected by this rule, and while some have already taken steps to comply, the majority will do so in 2015 (Fig. 2). What may drive up enrollment still further is that employees who have chosen not to elect coverage in the past now have a stronger incentive to do so -- as the minimum tax penalty for not obtaining coverage rises to $325 for 2015 from just $95 this year.
“Growth in enrollment is truly the wildcard for employer costs next year,” said Tracy Watts, Mercer’s national leader for health reform. “If employers wind up covering many more people, their spending will go up faster than the underlying growth in cost per employee might imply. That will increase the pressure to find new ways to manage cost.”
The survey found employers have taken steps to limit the number of employees gaining eligibility, most often by more carefully managing the schedules of those who occasionally worked 30 or more hours a week and by keeping new hires to fewer than 30 hours. About 10% of all large employers say they have reduced the hours of employees who consistently worked 30 or more hours per week. However, few have reduced headcount (3%) – in fact, more say they have increased headcount (9%) in response to the new rule.
Dependent coverage has also come under scrutiny as employers look for other ways to manage enrollment growth. Some employers now impose a surcharge on the premiums for spouses who have other coverage available (9% of large employers) or even make them ineligible for coverage (also 9%). The median surcharge is an additional $100 per month. The largest organizations, which tend to offer more generous coverage and can become “dependent magnets,” have moved the fastest to impose surcharges: 27% of employers with 20,000 or more employees did so in 2014, up from 20% last year. However, only 5% of these jumbo employers exclude spouses with other coverage (Fig. 3).
Consumerism taking hold as enrollment in CDHPs jumps to 23%
Employers of all sizes, but especially large employers, added consumer-directed health plans in 2014. Offerings of CDHPs jumped from 39% to 48% among employers with 500 or more employees, and from 63% to 72% among jumbo employers (Fig. 4). CDHP enrollment spiked from 18% to 23% of all covered employees, while enrollment in HMOs fell to just 16%, the lowest level of enrollment seen since the survey began in 1993. Enrollment in traditional PPOs fell as well, from 64% to 61% (Fig. 5).
Many employers that did not already cover all employees working 30 or more hours said they would add a lower-cost plan for newly eligible workers, and this may have helped fuel CDHP growth in 2014. The average cost of coverage in a CDHP paired with a tax-advantaged health savings account is 18% less than coverage in a PPO and 20% less than in an HMO: $8,789 per employee, compared to $10,664 for PPOs and $11,052 for HMOs (Fig. 6).
These plans are also a top strategy for employers looking for ways to avoid paying the “Cadillac tax” in 2018 – a 40% excise tax on health coverage that costs more than $10,200 for an individual or $27,500 for a family. Mercer estimates that about a third of employers are currently at risk for triggering the tax in 2018 if they make no changes to their most costly plan (Fig. 7).
“While new plan implementations are driving up CDHP enrollment, we are also seeing growth in enrollment in existing plans as employees become more comfortable with consumerism and employers provide them with tools to help manage the higher deductible,” said Beth Umland, Mercer’s research director.
Transparency tools empower consumerism, telehealth stretches health care dollar
Employees are being given an increasing amount of financial responsibility in all types of plans, not just CDHPs. While the median individual deductible in an HSA-based plan is $2,500, it’s still a substantial $1,500 in a PPO – and growing (large employers raised PPO deductibles by 15% on average in 2014). In a consumerism strategy, high deductibles are meant to give employees a financial incentive to shop more carefully for health services. The growing availability of transparency tools is allowing more employees to compare health provider price and quality information and factor cost into their decision making. More than three-fourths of large employers (77%) say their employees now have access to this type of information, either telephonically, on the web or through a mobile app.
In addition, this year saw a surge in offerings of ‘telehealth’ services, from 11% to 18% of all large employers – and from 18% to 34% of jumbo employers. These services allow employees to access primary care services over the phone at a low cost to help keep out-of-pocket spending low. Voluntary benefits like critical care coverage or a hospital indemnity plan allow employees to supplement a less-expensive medical plan at a low cost. The majority of employers say that they offer voluntary benefits specifically to help employees fill gaps in employer-sponsored benefits (Fig. 8).
“It’s a major shift from the old “first-dollar coverage” mentality,” said Ms. Watts. “These tools put the consumers in the drivers’ seat, giving them the ability to make smart financial decisions about their health care spending.”
Most employers still offer a CDHP as a choice alongside a traditional PPO or HMO. Just 7% of all large employers, and 11% of jumbo employers, offered a CDHP as the only plan available to employees at their largest worksite in 2014. While this practice may become more common – 18% of large employers say it’s likely they will offer a CDHP as a full replacement within the next three years – for now it remains the exception (Fig. 9).
Fewer employers than ever are considering terminating their plans
While Mercer’s past five annual surveys have consistently shown that employers remain committed to offering health coverage, in 2014 the number saying they expect to drop their plans and send employees to the public exchange fell even further. Just 4% of all large employers believe it is likely that they will terminate their employee health plans within the next five years, down from 6% in last year’s survey. And while small employers are still more likely to be considering an exit strategy, the number of those with 50-199 employees that say they are likely to drop their plans fell from 23% in 2013 to just 16% in 2014 (Fig. 10).
Wellness incentives 56% of large employers with health management (or wellness) programs offer employees financial incentives, up from 52% last year. While incentives for participating in programs are the most common, in 2014, 23% of large employers use outcomes-based incentives (for achieving or showing progress towards specific health status targets). This is up from 20% in 2013.
Tobacco-use surcharges 26% of large employers (up from 23% in 2013) vary the employee contribution amount based on tobacco-use status or provide other incentives to encourage employees not to use tobacco. Among employers with 20,000 or more employees, 54% now use an incentive.
Worksite clinics As more Americans gain coverage and the shortage of primary care providers intensifies, more employers are investing in worksite clinics. Among employers with 5,000 or more employees, 29% have a clinic that provides primary care services, up from 24% in 2013.
Domestic partner coverage Over half of all employers (55%), and 76% of jumbo employers, now include same-sex domestic partners as eligible dependents. This varies significantly based on geographic region, from 73% of all employers in the West to 40% in the Midwest.
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; 2,569 employers completed the survey in 2014. 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 nearly 100 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 2015. For more information, visit www.mercer.com/ushealthplansurvey.
Mercer is a global 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 43 countries and the firm operates in over 130 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 55,000 employees worldwide and annual revenue exceeding $12 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.