Human Capital & Careers

Hike in Health-Care Costs Sinks to 20-Year Low

Costs for large companies rose just 3.2% this year, according to Aon Hewitt.
David McCannNovember 12, 2015
Hike in Health-Care Costs Sinks to 20-Year Low

So, your health-care costs are still rising? Take heart: things could be worse. A lot worse.

According to a new study by Aon Hewitt, the rate of cost increase for large companies in 2015, 3.2%, was the lowest since the firm began tracking data in 1996. As recently as 2011, health-care costs spiked by 8.5%.

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health-care-cost-analysis-2011-2016“The sluggish growth in the economy has deterred many individuals from using medical services, and there’s also been modest price inflation [in the overall economy],” says Mike Morrow, senior vice president of Aon Health. “Both factors have been primary drivers for the low rates of premium increases over the past few years.”

Unfortunately, this year’s historically low inflation in medical costs is probably more of a blip than a harbinger of ongoing cost moderation. “As prescription drug costs continue to grow at a double-digit pace and the economy picks up speed, it’s likely that premium rates will start to climb.” The firm projects that the 2016 trend will be up 4.1%.

Despite the current low rate of increase, the average amount that employees of large companies need to contribute toward their health care has increased 134% over the last decade, according to Aon Hewitt. The firm says employees contributed $2,490 toward the premium and $2,208 in out-of-pocket costs, such as co-payments, co-insurance, and deductibles, in 2015. In contrast, employees’ combined premium and out-of-pocket costs were just $2,001 in 2005.

The proportion of total health-care costs covered by employers has decreased about 1% per year since 2012, Aon Hewitt says. Recent research shows that 38% of employers have increased participants’ deductibles, co-payments, or both, while 46% say they may do so in the near future.

Another strategy to contain employers’ costs, high-deductible health plans (HDHPs), is now the second-most-popular plan choice offered by companies, having surpassed HMOs. Sixteen percent of companies offer an HDHP as the only health-plan option today, while 41% more are considering doing so in the next three to five years.

Also, coverage levels for employees’ dependents are on the wane. Aon Hewitt’s research shows that 18% of companies have reduced subsidies for covered dependents, while 17% have added a surcharge for adult dependents with access to other health coverage. Additionally, 43% of companies are considering using unitized pricing, where employees pay per person and not individual versus family.

Perhaps the most interesting cost-mitigation trend, and also among the newest, is the adoption of pay-for-performance strategies. These include:

  • Steering plan participants (through plan design or lower cost) to high-quality hospitals or physicians for specific procedures or conditions (22%);
  • Offering value-based insurance design approaches (28%); and
  • Adopting reference-based pricing, where employers set a pricing cap on benefits for certain medical services for which wide cost variation exists with no discernible differentiation in quality. Only 6% of companies are doing that now, but 53% expect to do so in the next three to five years.

The data in the study were derived from the Aon Hewitt Health Value Initiative database, which captures health-care cost and benefit data for more than 600 large U.S. employers representing 11.7 million participants, more than 1,200 health plans, and nearly $59 billion in 2015 health-care spending.

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