U.S. employers are stepping up cost management efforts as they prepare for health care reform requirements, according to a new survey out this week.
Mercer, the human resources consulting firm, found employers’ health care costs grew 4.1 percent in 2012—the smallest increase in 15 years. Employers credit employee health management and a jump in consumer-directed plan enrollment with helping to slow cost growth.
“Employers are very aware that in 2014, when the health reform law’s provisions kick in, they will be asked to cover more employees and face added cost pressure,” says Julio Portalatin, Mercer president and CEO. “They’ve taken bold steps to soften the impact and it’s paying off already.”
Last year, growth was 6.1 percent.
Another benefit to slowing health costs? More employers might keep offering employer health coverage if they do. Mercer found that most employers plan to keep offering coverage, while 7 percent of large employers believe it’s “likely” or “very likely” they will terminate employee health insurance in the next five years. Among smaller firms, the number was higher, at 22 percent.
Dropping employer-sponsored coverage has been a common complaint against the Patient Protection and Affordable Care Act.
Cost 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.
CDHPs and cost-shifting
With a growing number of employers now positioning a high-deductible, account-based consumer-directed health plan as their primary plan, or even their only plan, employee enrollment jumped from 13 percent to 16 percent of all covered employees in 2012.
“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,” says Sharon Cunninghis, Mercer U.S. business leader for health and benefits.
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 employers, and from 23 percent to 36 percent of employers with 500 or more employees. Well over half (59 percent) of very large organizations (20,000 or more employees), which typically offer employees a choice of medical plans, now offer a CDHP.
Moving even a small number of employees out of a more expensive plan into a CDHP can result in significant savings for an employer, Mercer says. The cost of coverage in a CDHP with a health savings account is about 20 percent lower, on average, than the cost of PPO coverage—$7,833 per employee compared to $10,007.
While employers have been reluctant to offer the CDHP as the only medical plan, survey results suggest that attitudes are shifting. When asked if they expect to offer a CDHP five years from now, 18 percent of large employers say 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.
“PPACA requires that health plans cover, at a minimum, 60 percent of eligible health plan expenses,” Cunninghis says. “Some employers are resetting their health plan value to move closer to that minimum, and saving money as a result.”
Other employers say they raised the deductible of an existing PPO plan, and shifting costs to their employees.
Additionally, Mercer says wellness programs are employers’ top long-term strategy for controlling health spending.
For the third year in a row there was a sharp increase in the use of incentives or penalties to encourage higher participation: About half (48 percent) of large employers with health management programs provided financial incentives or penalties, up from 33 percent last year. Including non-financial incentives—such as recognition, gifts or lotteries—that figure reaches 54 percent.
About three-fourths of large employers say that senior leadership is supportive or very supportive of health management programs as a means of encouraging more health-conscious behavior.