Employers have been trying to get health-benefits costs under control for years, but against the backdrop of uncertainty created by health-care reform, those efforts are accelerating and getting more urgent.
That’s so even though growth in the average total health benefit cost per employee, which had reached 6.9% last year, slowed to 6.1% in 2011, according to an annual survey by the consulting firm Mercer. The study forecasted another drop in the growth rate for 2012, to 5.7%. The average 2011 cost per employee was $10,146, according to the survey, which included 2,844 organizations, roughly half with less than 500 employees and half with 500 or more (see Editor’s Note explaining the survey methodology at the end of the article).
In a tough economy where high benefit cost increases often have to be balanced with lower pay increases, cost management is already important. “But given the new cost pressure from health reform, for many employers it’s becoming an imperative,” says Mercer partner Susan Connolly.
One provision of the Patient Protection and Affordable Care Act (PPACA) that went into effect in 2011 was a requirement that employers extend dependent-coverage eligibility to employees’ children up to age 26. Health-plan enrollment grew by an average of 2% in 2011 as a result.
Provisions going into effect in 2014 include requiring employers to extend coverage eligibility to all employees working at least 30 hours per week on average and auto-enrolling newly eligible employees. Employers expect that these provisions – along with the new mandate that all individuals obtain health insurance coverage – will result in another increase in enrollment. Retailers and other employers with large part-time populations are likely to be the most affected.
Still, the provision that concerns the most employers is the stiff 40% excise tax on high-cost plans, slated to take effect in 2018, for health-benefit coverage that costs more than $10,200 for an individual employee or $27,500 for dependent coverage. Nearly half of respondents say that’s a “significant” or “very significant” concern.
While some employers offer high-cost plans because generous benefits are part of their attraction and retention strategy, others have high-cost plans simply because they have an older or less healthy workforce or are located in a high-cost area. Only 39% of employers with 50 or more employees believe their current plans won’t hit the excise tax cost threshold, which will be tied to the consumer price index and is virtually certain to increase each year.
Nearly all the rest are determined to avoid the tax if they can: 21% say they “will do whatever is necessary to bring cost below the threshold amounts,” and 36% say they will attempt to bring the cost below the threshold amounts, while acknowledging that “it may not be possible.” Only 4% will take no action to avoid the tax.
Just under half of all employers (47%) say they will shift cost in 2012 by raising deductibles or the percentage of the premium paid by employees.
Meanwhile, employers with 500 or more employees reported a significantly lower cost increase than smaller employers in 2011: 3.6% compared with 9.9%. But, says Beth Umland, Mercer’s director of research for health and benefits, “the survey also shows that large employers are doing more to control health-benefit cost.”
For example, this year brought the biggest-ever increase in large organizations’ adoption of high-deductible, account-based, consumer-directed health plans (CDHPs). Now, 32% of employers with 500 or more employees offer a CDHP, up sharply from 23% just a year ago. The largest employers are the most likely to do so (47% of those with 10,000 or more employees), though CDHP use grew among small employers as well, from 16% to 20% of those with 10-499 employees.
Overall, 13% of all covered employees are enrolled in a CDHP. Enrollment growth has been rapid – five years ago, CDHPs enrolled just 3% of covered employees.
The appeal of these plans to employers is clear. The cost of coverage in a CDHP with a health savings account is nearly 20% lower, on average, than the cost of PPO coverage – $7,787 per employee compared with $9,385.
In addition, some employers see these plans as integral to strategies to improve workforce health. “One feature of the CDHP that employers like is flexibility in funding employees’ spending accounts,” says Connolly. “A growing number of employers are making their account contributions contingent on the employees’ willingness to take steps to improve their own health.”
[Editor’s note: Mercer aims to present average results from representative samplings of all employers in the country. Since small employers vastly outnumber large ones, the firm surveys a disproportionate number of large companies so that it can provide meaningful results for that group. But to arrive at average figures, weights are then applied – in other words, the results of small employers count more. The averages, within a 3% error margin, are what could have been expected if every single employer were surveyed.]