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Employees’ Health Costs to Approach $5,000 in 2014
Health care forecast sees more cost shifting ahead

By Stephen Miller, CEBS  10/21/2013
 

In 2014 average health care premium increases at large U.S. companies are projected to return to the 6 percent to 7 percent range, up from the 2013 premium-rate rise of 3.3 percent, which was the lowest increase in more than a decade, according to an analysis by consultancy Aon Hewitt. The premium increase excludes new fees under the Affordable Care Act that employers will also be subject to.

The analysis revealed that:

  • Average health care costs at large companies are projected to increase to $11,176 per employee in 2014.

  • Employees will be asked to contribute 22.4 percent of the total health care premium, which equates to $2,499.

  • Average employee out-of-pocket costs are expected to rise to $2,470.

These projections mean that, over the past decade, workers’ share of health care costs (including premium contributions and out-of-pocket costs) will have increased almost 150 percent—from $2,011 in 2004 to $4,969 in 2014.

Year

Employee Out-of-Pocket Cost

Employee Premium Contributions

Total Employee Costs

2014
(projected)

$2,470

$2,499

$4,969

2013

$2,239

$2,303

$4,542

2012

$1,984

$2,200

$4,184

2011

$1,868

$2,086

$3,964

2010

$1,588

$1,924

$3,512

2009

$1,424

$1,794

$3,218

2008

$1,359

$1,688

$3,047

Source: Aon Hewitt

The analysis also showed that 47 percent of large employers have increased participants’ deductibles and/or co-pays in the past year, and another 43 percent are considering doing so in the next three to five years.

Increases by Plan Type

On average, companies will see 2014 cost increases of 7.5 percent for health maintenance organization (HMO) plans, 6.5 percent for preferred provider organization (PPO) plans and 6.5 percent for point-of-service (POS) plans, according to the forecast, which is based on health-care-costs data from 516 large U.S. employers representing 12.8 million participants.

Year

HMO

POS

PPO

2014
(projected)

$11,696

$12,194

$10,887

2013

$10,880

$11,450

$10,222

2012

$10,375

$10,955

$9,955

2011

$9,833

$10,553

$9,508

2010

$9,103

$9,464

$8,790

2009

$8,461

$8,778

$8,363

2008

$7,975

$8,321

$8,004

Plan costs are shown on a per-employee basis. They include employees' premium contributions but not their out-of-pocket costs (i.e., co-payments, co-insurance).

Source: Aon Hewitt


Year

Percentage Increase Nationally

Cost per Employee

2014
(projected)

6.7 percent

$11,176

2013

3.3 percent

$10,471

2012

4.9 percent

$10,131

2011

8.5 percent

$9,662

2010

6.2 percent

$8,903

2009

5.0 percent

$8,380

2008

5.3 percent

$7,983

Costs are shown on a per-employee basis and include employee premium contributions but not their co-pays.

Source: Aon Hewitt

Increases by Major Metropolitan Area

In 2013 the analysis showed that major U.S. markets that experienced rate increases higher than the national average were Los Angeles (6.9 percent); Orange County, Calif. (6.9 percent); Washington, D.C. (5.3 percent); and San Francisco/Oakland/San Jose (4.8 percent).

Conversely, New York City (1.6 percent), Milwaukee (2.1 percent) and Atlanta (2.4 percent) experienced lower-than-average rate increases in 2013. Of note, Minneapolis saw a drop in rate increases at -0.1 percent.

Cost-Mitigating Actions

Health care remains a top priority for U.S. employers, and most are taking steps to prepare for increasing costs, the analysis found. For instance, employers are:

  • Exploring new delivery approaches,such as private health exchanges, intended to make the organization’s future cost burden more predictable.

  • Requiring participants to more actively manage their health through wellness-promoting initiatives. Seventy-five percent of large companies provide health-risk questionnaires, and 71 percent offer biometric screenings of blood pressure and cholesterol.

  • Holding health care providers more accountable to reduce unnecessary expenses and create more efficiency in the way health care is purchased.

  • Shifting to consumer-driven health plans (CDHPs), generally high-deductible plans linked to a health savings account or health reimbursement arrangement. CDHPs have surpassed HMOs as the second most popular plan that employers offer, and a growing number of organizations are offering these as the only option. Although just 10 percent of large companies did so in 2013, another 44 percent are considering it in the next three to five years.

Managing Dependent Eligibility and Subsidies

Employers are also reassessing the way they offer health coverage for dependents, the analysis found. Specifically, they are:

  • Reducing the employer subsidy for covered dependents. Fifty-four percent of companies are considering reducing subsidies across all dependent tiers in the next three to five years.

  • Implementing or increasing surcharges for adult dependents with access to coverage elsewhere. Sixty-nine percent of employers have implemented, or plan to implement, surcharges for adult dependents.

  • Adopting a per-unit pricing approach, by which employers charge per dependent. Even though just 4 percent of employers currently use this strategy, another 47 percent are considering it.

  • Assessing the eligibility of covered dependents. Two-thirds of employers have completed a program audit of covered dependents to ensure that only those who are eligible will remain on the plan.

Another View

Findings from United Benefit Advisors’ 2013 Health Plan Survey of 11,000 U.S. employers of all sizes, also released in October, revealed the following trends:

  • PPO plans continue to be the dominant plan type offered to employees nationally, with approximately 47.2 percent of all workers enrolled in this plan type, which is 4.7 percent more than are enrolled in HMOs and CDHPs combined.

  • CDHP plans are far more prevalent in the Northeast, where 28.8 percent of employees are enrolled in them, compared with the Western region, where only 15.1 percent of employees are in a CDHP and 29.9 percent are enrolled in an HMO.

  • Total annual cost per employee varies greatly across the U.S. In the Northeast an employer’s total annual cost for a single worker is $10,808; in the Southeast it is $7,846.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related SHRM Articles:

Why the Cost Curve Is Bending, SHRM Online Benefits, November 2013

Employees’ Health Costs to Approach $5,000 in 2014, SHRM Online Benefits, October 2013

Employees Open to Private Exchanges, Centers of Excellence, SHRM Online Benefits, October 2013

Employers Hold the Line on Health Benefit Costs, SHRM Online Benefits, October 2013

Consumer-Driven Plans Gain in Popularity, SHRM Online Benefits, October 2013

Time for Defined Contribution Health Benefits?, SHRM Online Benefits, September 2013

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