- Average total health benefit cost per employee rose just 2.4% in 2016, one of the lowest increases in decades
- Enrollment in account-based high-deductible consumer-directed health plans reached 29% of all covered employees, up from 25% in 2015
- More employees have access to less-expensive care: 59% of large employers offer telemedicine, up sharply from 30%; and 82% include retail clinics in their plan network
More employees moving into lower-cost medical plans contributed to one of the smallest increases in total health benefit cost per employee in decades: 2016’s average increase of 2.4% is the lowest since 2013 and, before that, since 1997 (see Figure 1). According to Mercer’s National Survey of Employer-Sponsored Health Plans, total health benefits cost averaged $11,920 per employee in 2016. This cost includes both employer and employee contributions for medical, dental and other health coverage, for all covered employees and dependents. Small employers (10-499 employees) again reported lower cost -- $11,271 -- compared to $12,288 for large employers with 500 employees or more (see Figure 2).
Mercer’s annual health benefits survey is the largest of its kind, with 2,544 participants in 2016.
Enrollment in high-deductible consumer-directed health plans (CDHPs) has been rising for a decade and in 2016 jumped to 29% of all covered workers, up from 25% in 2015 (see Figure 3). Employee paycheck deductions are typically lower for CDHPs than for other medical plan choices they might have. At the same time, employers have been taking steps to mitigate employees’ growing financial risk by making telemedicine and other less-expensive types of care available to help stretch their workers’ health care dollars.
Coverage in a CDHP that is eligible for a health savings account (HSA) cost 22% less, on average, than coverage in a traditional PPO plan among large employers, even when employer contributions to employee HSA accounts are included (see Figure 4). Adding CDHPs has been a key strategy for employers concerned about the ACA’s excise tax on high-cost plans. The largest employers have moved the fastest: Among organizations with 20,000 or more employees, 80% offer a CDHP (see Figure 5) and enrollment jumped from 29% to 40% of covered employees in 2016.
“Employers continue to be challenged to provide high quality, affordable healthcare coverage for all employees,” said Sharon Cunninghis, North American Leader of Mercer’s Health business. “That’s why we believe it’s time for employers to consider new programs that focus on paying for value, improving quality and providing more personalized benefit designs for their employees.” (Click here for details).
Consumer-directed health plans and the impact on employees
Despite the CDHP’s lower cost, most employers continue to offer it as a choice and not as a full replacement. While 61% of large employers now offer a CDHP (up from 59% last year), just 9% offer it as the only plan available to employees (see Figure 6).
This suggests that most of the latest growth in CDHP enrollment came from employees choosing to move from a traditional PPO or HMO. For employees, the difference in the cost of coverage can be substantial – on average, more than 30%. Among large employers, for employee-only coverage in an HSA-based CDHP, employees contribute $84 per month on average, compared to $132 for PPO coverage (see Figure 7). For family coverage, the difference is $321 vs. $467. In addition, 75% of large employers offering HSA-eligible CDHPs make a contribution to the employees’ HSA; typically $500 for an individual.
“For employees who can manage the high deductible, a CDHP can be a financially smart move,” said Tracy Watts, Mercer’s leader for health care reform. “Employers are trying to make it easier to choose a CDHP by offering resources to help employees manage their spending on healthcare. But the fact that most employers still offer a CDHP as an option alongside other choices shows they understand it may not be the right plan for everyone.”
Seeking value: Telemedicine, transparency
Offering telemedicine services* has quickly become the norm: 59% of all large employers offer these services, up from just 30% last year (see Figure 8). Savings for members can be significant, especially before the deductible is met, as a typical charge for a telemedicine visit is $40, compared to $125 for an office visit. Most large employers (82%) also now cover visits to a retail clinic through their plan, providing another lower-cost, convenient option. Before the deductible, a visit to a typical retail clinic might cost around $60.
Being able to compare prices on higher-priced services is another way to save money. More large employers contracted with a specialty vendor to provide their employees with a “transparency tool” – an online resource to help them compare provider price and quality. Among those with 20,000 or more employees, 28% provided transparency tools through a specialty vendor in 2016, up from just 15% two years ago. An additional 62% say their health plan provides some type of transparency tool.
*telemedicine is defined as telephonic or video access to providers as a covered benefit, intended to provide a low-cost, convenient alternative to an office visit for some types of non-acute care.
Continued rise in drug costs
Prescription drugs present an especially thorny problem for both employers and plan members trying to manage their spending. While the overall medical benefit cost trend is low, it is being disproportionally driven by sharp increases in prescription drug benefits costs. Large employers reported that drug benefit cost rose 7.4%, on average, at their last renewal and predict an increase of 7.9% at their next renewal (see Figure 9). Newer specialty medications to treat complex diseases account for much of the increase, but as some recent controversies have revealed, a lack of competition and inelastic demand can also result in sharp price increases even for a “standard” drug.
“Employers have had limited success in curbing drug benefit cost increases,” said Ms. Watts. “The issue of drug pricing has attracted the attention of lawmakers at the state and federal level and ultimately we may see some regulation in this area. In the meantime, employers can act like insurance companies and get more involved in the drug purchasing process to drive better value.”
Making it personal
Many employers see improving workforce health as key to long-term cost management, Mercer surveys have found. They are using new tactics to personalize employees’ interactions with health and well-being programs to keep them engaged on a daily basis. Nearly a third of large employers encourage employees to track their physical activity with a “wearable” device (31%, up from 24% last year), while 37% use mobile apps designed to motivate healthy behavior, up from 30% (see Figure 10). In addition, more than half (54%) now provide employees with a health advocacy service, where, in the best programs, a health advocate helps members find the right healthcare provider, compare costs, and resolve claims problems. That advocate will stay in touch throughout a care episode to provide support as it is needed.
Employers predict that in 2017 their total health benefit cost per employee will rise by 4.1% on average. This increase reflects changes they will make to hold down cost, such as switching carriers, adding a CDHP, or changing plan design. If they made no changes to their current plans, they estimate that cost would rise by an average of 6.3%.
“Last year, preparing for 2016, employers were still doing whatever they had to do to avoid incurring the excise tax,” said Ms. Watts. “But with the delay in implementation to 2020, employers have some breathing room to work on strategies that are less about shifting cost and more about improving the system for the long-term. For example, many employers are getting creative with provider networks and new reimbursement schemes. The market has taken baby steps in that direction, but so far there’s relatively little money at stake for providers based on outcomes. We want to change that.”
Mercer estimates that 21% of all employers with 50 or more employees (and 31% of large employers) currently offer a plan whose cost would exceed what is likely to be the excise tax threshold in 2020, assuming they made no changes to the plan before then.
- Gender reassignment surgery is covered by 14% of all large employers, up from 11% in 2015 and 8% in 2014. Among employers with 20,000 or more employees, the prevalence of this coverage jumped from 29% to 43%.
- Domestic partner coverage Following the 2015 Supreme Court decision legalizing same-sex marriage in all states, 11% of large employers say they no longer make same-sex domestic partners eligible for health benefits. The percentage covering same-sex domestic partners fell from 62% in 2015 to 57% in 2016 – after it had risen sharply from 2014 to 2015. However, employers are even less likely to cover opposite-sex domestic partners (47%).
- Spousal surcharges and exclusions Just over one in ten large employers exclude spouses with other coverage available (11%, up from 8% in 2015). The use of spousal surcharges also rose from 12% to 14% of all large employers. Among employers with 20,000 or more employees, only 8% exclude spouses, while 27% require a surcharge. The median monthly surcharge is $100.
- Egg freezing is covered by 5% of all large employers, unchanged from last year. Among employers with 20,000 or more employees, 10% cover egg freezing. In vitro fertilization is covered by 25%; this number has remained essentially the same over the past 15 years. While 25% cover in vivo fertilization, only 16% cover this service for same-sex couples.
- Tobacco-use surcharges 35% of large employers (up from 29% in 2015) vary the employee contribution amount based on tobacco-use status or provide other incentives to encourage employees not to use tobacco. Among those reducing the premium for non-tobacco use, the median annual reduction is $600.
Survey methodology 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; 2,544 employers completed the survey in 2016. 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 nearly 100 million full- and part-time employees, with an error range 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 2017. For more information, visit https://www.imercer.com/ecommerce/products/employer-sponsored-health-plans.
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.