Small employers are particularly feeling the heat of rising health benefit costs, according to the Mercer National Survey of Employer‑Sponsored Health Plans 2018.

Among smaller employers (those with 10 to 499 employees), costs rose by 5.4 percent on average, while mid-size and large employers with 500 or more employees held cost growth to 3.2 percent, according to the survey.

For all 2,409 employers polled, average total health benefit cost per employee rose by 3.6 percent, compared to an increase of 2.6 percent in 2017. While overall cost growth remains moderate, averaging 3.3 percent annually over the past five years compared to 5.7 percent over the prior ten-year period, it continues to outpace inflation.

In 2018, employees paid, on average, 25 percent of the total cost of coverage through paycheck deductions — nearly $3,200 per employee on average not including out-of-pocket costs.

Among smaller employers, the average PPO in-network deductible rose sharply in 2018, topping $2,000 for an individual. Most large employers did not raise PPO deductibles, the plan type with the highest enrollment.

“Employers are very aware of the burden that high health care costs places on employees,” says Sharon Cunninghis, who leads Mercer's Health business in the U.S. “We're helping them implement cost-saving strategies that don't shift expense to employees and can actually improve affordability, access and outcomes — like better clinical management of specialty drugs, preventing and properly treating opioid addiction, and steering individuals to high-quality, cost-effective providers.”

Success with CDHPs…

Sophisticated cost management strategies can be harder for smaller employers to implement, according to Mercer, as they have fewer resources to devote to plan management and are more likely to be fully insured, with less flexibility than self-funded employers. Their go-to cost management approach tends to be giving employees more financial responsibility for health care spending.

Indeed, many smaller employers moved to high-deductible consumer-directed health plans (CDHPs), which cost them 13 percent less, on average, than a traditional PPO. CDHP prevalence jumped to 38 percent in 2018, up from 29 percent among employers of this size.

The prevalence of CDHPs among midsize and large employers, already high, grew more slowly, from 64 percent to 68 percent. While most employers of this size continue to provide these plans as an option, there was an increase in those offering it as the only plan available to employees at the largest worksite — 13 percent, up from 10 percent in 2017.

At the same time, employers moved to make these plans more affordable and attractive, according to Mercer. Typically, CDHPs are offered with a tax-advantaged health savings account (HSA). More sponsors made contributions to employees' accounts (82 percent, up from 77 percent) and the average individual contribution rose to $694 from $653, a 6.3 percent increase.

“The ACA's “Cadillac tax” on high-cost plans really jump-started the use of CDHPs as a cost management strategy,” says Tracy Watts, Mercer's leader for health reform. “The fact that we're seeing more employers adding these plans, encouraging enrollment by making bigger account contributions, and even dropping their other medical plans, demonstrates that even though the tax has been delayed until 2022, they still feel the threat.”

Nationally, enrollment in CDHPs rose from 30 percent to 33 percent of all covered employees.

…But new emphasis on care delivery

Survey results suggest that, following five years of relatively modest cost growth, more midsize and large employers are foregoing the short-term savings offered by cost-shifting and turning to strategies addressing care delivery and health management.

Employers continued to add telemedicine services (80 percent, up from 71 percent) and the average utilization rate for 2017 inched up to 8 percent of eligible employees from 7 percent the prior year. About half (51 percent) provide employees with an expert medical opinion service, which makes it easy for them to get a second opinion from a highly qualified specialist, according to Mercer.

Targeted programs that provide support for people with chronic conditions and other health issues (such as diabetes, infertility and cancer) are offered by 56 percent. Enhanced care management programs, featuring medical professionals who provide support throughout the entire care episode and help resolve claims issues, are offered by 36 percent of employers.

Employers are also providing employees with access to Centers of Excellence (COE) for surgeries and growing range of other complex treatments. Some steer employees to the COE with financial incentives or even by requiring they use it. This is most common with transplants (25 percent), bariatric care (14 percent) and oncology (10 percent). Among employers that steer employees to a COE and have evaluated performance, most have seen cost savings, better outcomes and greater patient satisfaction.

“These and other 'future-focused' strategies are making a difference for many employers,” says Ms. Watts. “They may take more time to reduce medical costs than greater employee cost-sharing, but in the process they change how plans manage care, how providers are reimbursed, and even how people behave.”

In addition, employers are starting to ramp up efforts to detect and eliminate fraud, waste and abuse by health care providers, according to the survey. While most health plans provide some level of service to address fraud, waste and abuse, a small number of employers are purchasing enhanced services or going outside the health plan to a specialty vendor. So far, just 6 percent of all midsized and large employers (18 percent of those with 20,000 or more employees) have taken this step, but many more say they are considering it.

Drugs, opioid addiction driving costs

Prescription drugs remained the top cost driver, respondents say. Among employers with 500 or more employees, overall drug benefit cost rose by about 7 percent, as cost for specialty drugs rose by about 12 percent.

Employers have made at least some progress with runaway specialty drug costs, as annual cost growth for these therapies slowed in 2018 to just under 12 percent from over 15 percent last year, according to the survey. About half of mid-sized and large employers (51 percent) now steer members to specialty pharmacies for better pricing.

While only about a fourth of midsized and large employers (28 percent) have already taken steps to address opioid addiction in the workforce, another 28 percent plan to by 2020. While 44 percent say it's not a priority, that drops to just 13 percent of very large employers (20,000 or more employees).

5-year focus: High-cost claims & cultures of health

For a second year in a row, the survey asked midsize and large employers to identify their most important health benefit strategies over the next five years. “Managing high cost claims” was at the top of the list, with 79 percent of employers rating it as very important or important. Many of the strategies discussed above are ways to address this critical issue.

“Creating a culture of health” was a close second — selected by 76 percent of employers, up from 70 percent last year, the biggest jump for any strategy.

Actions employers are taking now to build a culture of health include providing healthy food choices in cafeterias and meetings (63 percent), prohibiting smoking on the work campus (57 percent), providing onsite fitness facilities (33 percent), offering resources to support financial health (54 percent), and a range of technology-based resources to engage employees in caring for their health and fitness (54 percent) — all of these are ways to visibly reinforce good health habits, Mercer says.

But a separate analysis conducted by the employee benefits brokerage firm suggests that one of the most important steps an employer can take is to include support for a healthy workplace culture in the company vision or mission statement, since this has a ripple effect throughout the organization.

In 2018, 27 percent of all midsize and large employers have prioritized employee well-being in this way, up from 23 percent last year. And among the very largest employers (20,000 or more employees), 50 percent have, up from 43 percent last year.

“In a time of tough competition for talent, a strong culture of health can be a key differentiator,” says Mercer's Jean Moore, senior director of US Health Specialty Practices. “Over half of the large employers who measured the value of their well-being programs reported improved employee engagement and/or improved attraction and retention.”

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