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Health care reform's impact on enrollment is wild card that could boost spending
Employers expect that their health coverage cost per employee will rebound in 2014 by an average of 8 percent if they make no changes to their current plans; the small group market could be hit even harder.
The good news is that slower cost growth continued in 2013 as employers took action in anticipation of new cost pressures that will arise over the next few years from health care reform. According to the
National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer, growth in the average total health benefit cost per employee slowed from 4.1 percent in 2012 to just 2.1 percent in 2013.
Costs averaged $10,779 per employee in 2013; this includes employer and employee contributions for medical, dental and other health coverage.
But employers expect that the growth rate in the per-employee cost of coverage will rebound in 2014 to 5.2 percent overall, which reflects changes they will make to reduce costs; if they made no changes to their current plans, they estimate that costs would rise by an average of 8 percent (Fig. 1).
The survey included public and private organizations in the U.S. with 10 or more employees; 2,842 organizations responded during the late summer of 2013, when most employers have a good fix on their costs for the current year.
Small Versus Large Employers
While cost growth has slowed among organizations of all sizes, it was lowest for small employers in 2013. Among those with 10-499 employees, average cost rose by only about 1 percent, while among very large organizations (those with 5,000 or more employees) it rose 3.7 percent (Fig. 2).
However, many plans in the small-group market, generally with fewer than 50 employees, have reported substantially higher rates for 2014 as they face the same essential benefit mandates and age-rating changes as individual market plans (see box at the end of this article).
Small employers shifted costs to workers in 2013 via higher deductibles, which helped to hold down costs: The average PPO in-network individual deductible jumped 15 percent in 2013 to $1,663 (Fig. 3). Large employers focused on raising enrollment in low-cost consumer-directed health plans and improving employee health management programs.
Higher Enrollment Could Boost Spending
Many employers expect to spend more to cover more workers in 2014. The Affordable Care Act (ACA) mandate requiring all individuals to obtain coverage or face a tax penalty goes into effect in 2014.
“The good news is that employers have already taken decisive action to slow cost growth so they will be in a better position to handle the challenges ahead,” said Julio A. Portalatin, president and CEO of Mercer. “But the impact of the ACA on enrollment levels remains a huge question mark.”
Currently, 22 percent of an organization’s eligible employees, on average, waive coverage for themselves either because they are covered under another plan or because they choose to go without it. Among employees who do enroll, an average of 53 percent select dependent coverage. But in 2014, because of the individual mandate, it is likely that fewer people will waive coverage for themselves and more will choose dependent coverage—although the extent of the change is difficult to predict.
Some large employers say they will take steps to control growth in enrollment, most commonly by increasing the employee contribution for dependent coverage (18 percent) or employee-only coverage (10 percent). Some already impose a surcharge on premium contributions for spouses who have other coverage available (9 percent of large employers) or even make them ineligible for coverage (7 percent of large employers); it seems likely that these provisions will become more common next year (Fig. 4).
“A big question is how many employees will enroll for the first time, given that the tax penalty for not obtaining coverage is relatively small,” said Tracy Watts, Mercer’s national leader for health reform. “But an employer might wind up covering more dependents if others in the area have made changes to discourage their employees from enrolling dependents.”
The majority of large organizations believe that higher enrollments and new fees will boost their benefit spending in 2014. The median increase predicted is 3.5 percent, although some employers (13 percent) expect their spending on health benefits to rise by more than 10 percent (Fig. 5).
“Cost increases from higher enrollment would be on top of the normal increase in the per-employee cost of coverage,” explained Watts.
Enrollment in CDHPs
Nationally, enrollment in consumer-directed health plans (CDHPs) rose from 16 percent of covered employees in 2012 to 18 percent in 2013 (Fig. 6). This is the same portion that enrolled in health maintenance organizations (HMOs). In the Midwest, CDHP enrollment is now nearly triple that of HMOs (27 percent compared with 10 percent).
CDHPs are an important option for employers looking for a low-cost plan to make extending coverage to additional employees more affordable. The average cost of coverage in a CDHP paired with a tax-advantaged health savings account (HSA) is 17 percent less than coverage in a PPO and 20 percent less than in an HMO: $8,482 per employee, compared with $10,196 for PPOs and $10,612 for HMOs (Fig. 7).
2018 Excise Tax
CDHPs will also be a key strategy for employers that need to find a way to lower costs in 2018, when they will be required to pay a 40 percent excise tax on health coverage that costs more than $10,200 for an individual or $27,500 for a family. Mercer estimates that about a third of employers are currently at risk for triggering the excise tax in 2018 if they make no changes to their most costly plan. Nearly two-thirds of all large employers and about one-third of small employers say they expect to offer a CDHP within three years (Fig. 8).
Workforce health management or wellness initiatives are one of employers’ top strategies for controlling spending on health care. While most organizations believe that health management programs are making a difference, proving return on investment (ROI) remains a challenge for many. The largest employers are the most likely to have formally measured the ROI of their health management programs (46 percent of employers with 20,000 or more workers). Nearly nine out of 10 of these employers say their programs have had a positive effect on slowing medical-benefit cost increases.
Perhaps because they are seeing results, employers are increasingly willing to invest in the success of these programs. More than half of large organizations with health management programs now use financial incentives to encourage higher participation: 52 percent, up from 48 percent in 2012 and 33 percent in 2011 (Fig. 9).
These incentives are often substantial. Among employers that offer lower premium contributions to employees who complete a health assessment, the median reduction in the annual contribution required for employee-only coverage is $250. In addition, a growing number of employers are providing incentives for achieving desired outcomes, instead of (or in addition to) incentives for participating in programs. In 2013, 20 percent of large employers are using outcomes-based incentives, up from 18 percent in 2012.
Staying in the Game
Consistent with results from Mercer’s past four annual surveys, in 2013 few large employers—just 6 percent of those with 500 or more employees—believe it is likely that they will terminate their employee health plans within the next five years and send employees to the public health insurance exchanges. But the portion of small employers that say they likely will end their plans within five years jumped from 22 percent in 2012 to 31 percent in 2013 (Fig. 10).
Among other survey findings:
Small Plans Facing Higher Cost Increasesthan Large Plans
While employers with fewer than 50 workers do not have to provide health coverage under the Affordable Care Act (ACA), if they do they are required to comply with the same essential benefit mandates, age-rating changes, and pre-existing condition reforms that plans in the individual market face, reports
Health Care Policy and Marketplace Review.
These mandates are translating into significant cost increases for small employers. One Maryland broker with 90 small-group accounts reports his smallest plan cost increase for 2014 was 15 percent, his largest was 69 percent, and most were in the 30 percent to 40 percent range. By comparison, Mercer announced the average employer health care cost increase for 2014 will be 5.2 percent, meaning small groups could have reasonably expected an increase under 10 percent without the ACA, according to this analysis.
The biggest rate increases are generally going to those employers with the youngest groups the most impacted by the new "age compression" rules.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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