Mercer | Health Benefit Cost Growth Stable at 4% in 2017

Mercer | Health Benefit Cost Growth Stable at 4% in 2017

With cost growth stable at 4% employers shift focus away from health plan cost-cutting in 2017 – Mercer survey

  • September 13, 2016
  • United States, New York
  • Employers project that per-employee health benefit cost will rise by an average of 4.0% next year after they make planned changes
  • Underlying cost growth has also slowed – cost would rise 5.5% if employers made no changes
  • A minority  of employers favors ACA “repeal and replace,” but most reject excise tax

Early responses from a major Mercer survey show employers predicting that health benefit cost per employee will rise by 4.0% on average in 2017 (see Fig. 1) after they make planned changes such as raising deductibles or switching carriers. Employers have held cost growth to about 4% or less each year since 2011. Prior to that, cost rose by about 6% a year for seven years. 

“This is an impressive achievement during a time when the ACA demanded so much attention, but with health benefit cost increases still double or triple inflation, we can’t declare the problem solved,” said Tracy Watts, senior partner and Mercer’s leader for health reform. “For that, employers as a whole will need to aim higher with the next generation of cost-management strategies in order to target fundamental problems in the health care system.” 

Notably, the projected underlying cost growth from 2016 to 2017 is at a new low of just 5.5%. That’s the increase employers would expect if they made no changes to their medical plans. The difference between the underlying cost growth and the actual cost growth can be an indication of how much or little employers are cutting health plan value by raising deductibles or other cost-sharing provisions. A difference of just 1.5 percentage points for 2017 suggests employers do not plan to do much cost-shifting.  For the past eight years, the difference has been approximately 3 percentage points and has not been less than 2 points. 

One reason employers may be doing less cost-cutting next year is the delay in the effective date of the ACA’s excise tax on high-cost plans from 2018 to 2020, which was announced last December. 

“The excise tax creates an imperative for many employers to cut cost, not just to slow cost growth,” said Ms. Watts.  “Employers have been raising deductibles and out-of-pocket maximums for the past few years and many are reluctant to go any further. The delay lets them take a breather and focus on longer-term strategies with the potential to improve the health care system, like taking advantage of provider payment reforms and quality initiatives.” 

Learning to live with the ACA

With the November presidential election fast approaching, the survey also asked employers what they would like to see changed in the ACA.  A strong majority (80%) of large employers (500 or more employees) favor eliminating the excise tax, and 61% favor eliminating the employer mandate (the so-called “play or pay” rule requiring employers with 50 or more employees to offer coverage or be subject to penalties).  However, fewer than half of large employers (47%) favor repealing and replacing the ACA entirely, perhaps because it is not known what would replace it. Among the largest employers – those with 20,000 or more employees – only 40% favor repeal and replace. 

At the same time, the minimal interest employers have shown in terminating their own plans and sending employees to the public exchanges to purchase coverage has all but evaporated.  Just 2% of large employers (500 or more employees) and 9% of small employers (10-499 employees) say it is at all likely. In 2010, 6% of large employers and 20% of small employers thought it was likely they would terminate their plans. 

“The public exchange helps fill a critical gap in the U.S. health care system, but it hasn’t proven to be an attractive alternative to employer-sponsored coverage,” said Beth Umland, Mercer’s director of research for health and benefits. “Employers are in the health benefits game for the long haul and need to work together to make that a sustainable proposition. 

About the survey

The results discussed here are preliminary findings from Mercer’s National Survey of Employer-Sponsored Health Plans 2016. The complete results, including the actual cost increase for 2016, will be released later this year. The preliminary results discussed above are based on about 1,277 employers who responded by August 11; these results are not weighted and represent only the early responders. Ultimately, approximately 2,500 employers will participate in the survey and the final results will be weighted to be nationally projectable. 

About Mercer

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 annual revenue of $13 billion and 60,000 colleagues worldwide, 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 Follow Mercer on Twitter @Mercer.