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Employers Hold the Line on Health Benefit Costs
Affordable Care Ace may add an extra 2 percent to costs in 2014

By Stephen Miller, CEBS  10/3/2013

U.S. employers expect their health benefit cost per employee to rise by 4.8 percent, on average, in 2014, according to a survey by consultancy Mercer. Cost growth slowed to 4.1 percent in 2012, a 15-year low. The projected increase for 2014, while still relatively low, represents a slight uptick.


(click on graph to view larger version)

For some companies, however, slower growth in the cost of coverage will be overshadowed by additional expenses from higher enrollment and fees under the Patient Protection and Affordable Care Act (ACA), according to Mercer's analysis.

When asked to consider the effect of higher enrollment and new fees (such as the reinsurance fee of $63 per covered employee), about half of the employers surveyed said they will spend at least an extra 2 percent on health benefits in 2014 over and above the normal cost increase.

Holding Down Costs

“Employers have made fundamental changes in their health benefit programs in recent years that have put the brakes on unsustainable cost growth,” said Beth Umland, Mercer’s director of research for health and benefits.

Organizations estimate that if they make no changes to their current plans, the health benefit cost per employee will jump by an average of 7 percent next year.

One of the key strategies employers are using to manage cost growth is implementing consumer-directed health plans that give workers financial incentives to seek more cost-effective care. Typically, high-deductible plans are paired with a health savings account or health reimbursement arrangement.

The spread of health-promoting wellness programs has also been linked by some to curtailed health care spending.

Storm Clouds in 2015?

About a third of all large-employer health plan sponsors (those with 500 or more workers) do not offer coverage to all people working 30 or more hours per week, as the ACA will require beginning in 2015.

Industries that rely heavily on part-time workers will be the hardest hit by this rule. About half of the survey respondents in retail and hospitality do not offer coverage to all employees working at least 30 hours per week.

Some businesses will minimize the number of newly eligible employees by cutting back on hours for at least some workers (11 percent of all large employers say they will do this). But most companies affected by the rule will simply open their plans to all employees working a minimum of 30 hours per week and brace for rising enrollment.

In addition, next year all Americans will have to have health insurance or face a tax penalty. Because of this rule, fewer employees may choose to waive coverage. Currently, at organizations with 500 or more employees an average of 16 percent of those eligible waive self-coverage.

Looking further ahead, employers indicated they are concerned about the looming excise tax on high-value health plans. Under the ACA, beginning in 2018 employers will pay a 40 percent tax on the cost of health coverage in excess of $10,200 for an individual or $27,500 for a family.

Based on cost data collected in 2011, Mercer estimated that about 40 percent of employers would have to pay the tax on at least one plan if they made no changes to their current plans. Nearly a third of all large organizations surveyed intend to take steps in 2014 to avoid the tax in 2018—in many cases, by adding a high-deductible consumer-directed health plan or working to increase enrollment in an existing plan.

These preliminary findings from Mercer’s National Survey of Employer-Sponsored Health Plans 2013 are based on replies from about 2,000 employers who responded by Sept.10, 2013. 

Projected Claims Cost Trends

Findings from Segal Consulting's 2013 Segal Health Plan Cost Trend Survey, also released in October 2013, reported projected claims cost increases for both 2013 and 2014. The survey was fielded in May and June 2013, with responses from 99 large health insurance carriers.

Changes to the costs paid by plan sponsors can be significantly different from projected claims cost trends since plans can shift a higher percentage of costs to plan enrollees and take other steps to mitigate rising health care expenses.

The cost trends shown below are for various types of medical plans, with and without prescription drug (Rx) coverage.

 

2013
without Rx

2013
with Rx

2014
without Rx

2014
with Rx

Fee-for-service (FFS) /
Indemnity plans

10.8%

10.0%

10.4%

9.7%

High-deductible health plans (HDHPs)

9.1%

8.6%

8.3%

7.9%

Open-access preferred provider organization (PPO) / point-of-service (POS) plans

8.8%

8.3%

7.9%

7.6%

PPO/POS plans requiring primary care physician gatekeeper referral

9.3%

8.8%

8.4%

8.0%

Health maintenance organizations (HMOs)

8.2%

7.9%

7.2%

7.0%

Source: Segal Consulting

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

Related External Reports:

ACA's Cost Impact: Employer-Sponsored Health Plans, International Foundation of Employee Benefit Plans, October 2013

2014 Segal Health Plan Cost Trend Survey, Segal Consulting, October 2013 

Related SHRM Articles:

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

Largest Employers Continue Shift to High-Deductible Plans, SHRM Online Benefits, August 2013

Employer-Sponsored Family Health Premiums Rose 4% in 2013, SHRM Online Benefits, August 2013

Employers Respond to PPACA's Financial Impact, SHRM Online Benefits, August 2013

Managing Health Care Costs, SHRM Toolkit, July 2013

Health Premium Growth Moderating as Employees Pay Larger Share, SHRM Online Benefits, June 2013

Study: 6.5% Growth in Medical Costs for 2014, SHRM Online Benefits, June 2013

Quick Links:

SHRM Online Benefits page

SHRM Online Health Care Reform Resource Page

SHRM Online Wellness Programs Resource Page 

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