Decisive action by employers in 2012—in particular, moving more employees into consumer-directed health plans (CDHPs) and beefing up health management programs—was rewarded with the lowest average annual cost increase since 1997, according to the results of HR consultancy Mercer's National Survey of Employer-Sponsored Health Plans, released in November 2012.
The survey is conducted annually among U.S. public and private employers with at least 10 employees; 2,809 employers completed the survey during late summer 2012, when most employers had a good fix on their costs for the current year.
Among the key findings:
• Growth in the average total health benefit cost per employee slowed from 6.1 percent in 2011 to just 4.1 percent in 2012.
• Costs averaged $10,558 per employee in 2012.
• Large employers (those with 500 or more employees) experienced both a higher increase (5.4 percent) and higher average cost.
Employers expect another relatively low increase of 5 percent for 2013. However, this increase reflects changes they plan to make to reduce costs; if they make no changes, costs on average are projected to rise by an average of 7.4 percent, Mercer found.
In 2012, U.S. companies and their employees saw the lowest health care premium rate increases in six years, according to an analysis by consultancy Aon Hewitt. The average health care premium rate increase for large employers in 2012 was 4.9 percent, down from 8.5 percent in 2011 and 6.2 percent in 2010, Aon Hewitt found. In 2013, however, average health care premium increases are projected to jump up to 6.3 percent, the consultancy projects (see the SHRM Online article "6.3% Health Premium Increases Projected for 2013.")
Shift to Consumer-Directed Plans
With a growing number of employers now positioning a high-deductible, account-based CDHP as their primary plan—or their only plan—enrollment in CDHPs jumped from 13 percent to 16 percent of all covered employees in 2012, Mercer found. Many employers see these plans as central to their response to health care reform provisions that will raise enrollment. Over the past two years:
• Offerings of CDHPs have risen from 17 percent to 22 percent of all U.S. employers, and from 23 percent to 36 percent of employers with 500 or more employees.
• 59 percent of very large organizations (20,000 or more employees), which typically offer employees a choice of medical plans, now offer a CDHP.
“If we’re not already at the tipping point for CDHPs—and we may well be—at this rate of growth it’s coming soon,” said Sharon Cunninghis, Mercer's U.S. business leader for health and benefits, in a media statement.
Moving even a small number of employees out of a more expensive plan into a CDHP can result in significant savings for an employer, the study found:
• The cost of coverage in a CDHP with a health savings account (HSA) is about 20 percent lower, on average, than the cost of preferred provider organization (PPO) coverage—$7,833 per employee compared to $10,007.
• When asked if they expect to offer a CDHP five years from now, 18 percent of large employers said they expect to offer it as the only plan, up from 11 percent in 2011.
• Among large employers that offer an HSA-based CDHP, average enrollment rose from 25 percent to 32 percent.
The Patient Protection and Affordable Care Act (PPACA) requires that health plans cover, at a minimum, 60 percent of eligible health plan expenses. “Some employers are resetting their health plan value to move closer to that minimum, and saving money as a result,” said Cunninghis.
Offering a lower-cost CDHP is one way employers “reset” plan value in 2012, she noted, while "others simply raised the deductible of an existing PPO plan."
The average PPO in-network deductible for individuals reached $1,427 in 2012. Typically, large employer plans have smaller deductibles; among employers with 500 or more employees, the average individual deductible rose by about $80 to reach $666.
Wellness Promotion Yields Cost Savings
Over three-fourths of large employers (78 percent) say that senior leadership is supportive or very supportive of health management programs as a means of encouraging more health-conscious behavior, Mercer found.
The largest employers were the most likely to have formally measured the return on investment (ROI) of their health management programs (53 percent of employers with 20,000 or more employees). Of those, more than three-quarters say that their programs have had a positive impact on medical plan trends.
For the third year in a row there was a sharp increase in the use of incentives or penalties to encourage higher participation in these programs:
• 48 percent of large employers with health management programs provided financial incentives or penalties, up from 33 percent in 2011.
• 54 percent of employers with health management programs offered incentives of all types (financial and others such as recognition, gifts or lotteries).
• The most common incentive offered by large employers for completing a health assessment in 2012 is a reduction in the employee’s premium contribution, and the median reduction in the annual contribution required for employee-only coverage is $260.
In addition, a growing number of employers are providing outcome-based incentives for achieving desired health goals, instead of (or in addition to) incentives for participating in programs. Where incentives for achieving, maintaining or showing progress toward specific health status targets were rare in 2011, in 2012 nearly a fifth (18 percent) of large-employer health management programs include them.
Among other findings:
• Retiree medical plans. About one-fourth (24 percent) of large employers offer an ongoing plan to retirees under age 65 and just 17 percent offer a plan to Medicare-eligible employees, essentially unchanged from 2011. An additional 15 percent have stopped offering a plan for which new hires will be eligible but continue to offer coverage to a closed group of employees retiring or hired after a specific date.
• Domestic partner coverage. Close to half of large employers include same-sex domestic partners as eligible dependents—47 percent, up from 39 percent in 2010. This varies significantly based on geographic regions, from 73 percent of employers in the West to 30 percent in the South.
• Spousal surcharges. Very large employers are adopting special provisions concerning spouses of employees with other coverage available. In 2012, 18 percent of employers with 5,000 or more employees had such a provision in place, up from 15 percent in 2011. They either imposed a surcharge for spouses with other coverage available (14 percent) or denied them coverage entirely (4 percent).
• Tobacco use surcharges. Nineteen percent of large employers (up from 17 percent in 2011) vary the employee contribution amount based on tobacco use status, or provide other incentives to encourage employees not to use tobacco. Growth was especially strong among very large employers: 46 percent of employers with 20,000 or more employees now use an incentive, up from just 35 percent in 2011.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Related SHRM Articles:
Employers Embracing CDHPs, SHRM Online Benefits, October 2012
6.3% Health Premium Increases Projected for 2013, SHRM Online Benefits, October 2012
Reconsidering Retiree Medical Strategies, SHRM Online Benefits, October 2012
Incentivizing Good Health: A Success Story, SHRM Online Benefits, October 2012
Study: Wellness Programs Saved $1 to $3 per Dollar Spent, SHRM Online Benefits, September 2012
SHRM Online Benefits page
SHRM Online Health Care Reform Resource Page