Human Capital & Careers

Health Benefit Cost Hike Is a Drop

Preliminary results from a Mercer survey says corporate health-care costs will rise, but the hike is the lowest in a decade.
Stephen TaubSeptember 4, 2008

As expected, health benefits costs are predicted to rise next year. However, the increase is estimated to be lower than it has been in a decade, according to a preliminary look at Mercer’s annual survey.

According to the benefits consulting company, early survey results indicate that cost growth is likely to slow to 5.7 percent in 2009, which would be the lowest increase in more than 10 years. Indeed, at the beginning of the decade, health benefit costs were rising at a double-digit annual rate.

Last year, Mercer’s annual survey found that average health benefit cost per employee rose 6.1 percent in 2007. Mercer is still conducting its survey of 2008 costs, in which it polled 1,317 companies.

One big reason for the continued slowdown is that companies are increasingly offloading health benefit expenses onto employees. Fifty-nine percent of the respondents who said they are taking action to reduce their 2009 costs, also said they plan to raise deductibles, copayments, coinsurance or employee out-of-pocket spending limits.

In fact, Mercer noted that employee cost-sharing has risen sharply over the past five years. Between 2003 and 2007, the median family deductible for in-network services in a preferred provider organization (PPO) — the type of plan offered by the most employers — rose from $1,000 to $1,500.

Another 19 percent of the respondents said they will lower their 2009 costs by adding a consumer-directed health plan (CDHP), which is a high-deductible plan with an employee-controlled spending account (a health saving account (HSA) or health reimbursement arrangement). “Many of these plans give employees an incentive to take cost into consideration when seeking health care services by allowing them to save account dollars they don’t spend in a given year for future needs,” Mercer said.

The consulting firm added, however, that it’s too early to make a final assessment of how well this new plan model works. Among the survey respondents that currently offer a CDHP, the expected 2009 cost increase averaged 4.5 percent, compared to 6.4 percent for respondents not offering a CDHP. Last year, 12 percent of all surveyed companies — and 20 percent of those with 500 or more employees — said they were “very likely” to implement a CDHP by 2009, according to Mercer.

“This opportunity for saving is good news for employers committed to offering health coverage. But even though CDHPs cost about 20 percent less than a typical medical plan, the percentage of very small employers providing employee coverage keeps shrinking,” said Blaine Bos, a senior Mercer health and benefits consultant. “This is one of the leading causes of the increase in the number of uninsured over the past few years, and a troublesome finding for policymakers who were counting on these plans — specifically HSAs — to reverse the trend.”

Mercer officials emphasized that the statistics are preliminary findings from its National Survey of Employer-Sponsored Health Plans 2008. Complete results, including the actual cost increase for 2008, will be released by the end of the year.

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