Switching to account-based health plans and implementing health management strategies enabled employers to keep their health care cost increases surprisingly low this year, and they plan to continue these strategies in 2010.

Mercer’s National Survey of Employer-Sponsored Health Plans, which included 2,914 employers of all sizes, indicates that health plan costs rose at the slowest pace in a decade this year.

“Many employers feared that health benefit cost growth would spike in 2009 as employees, worried about keeping their jobs and health coverage, consumed more health services than usual,” Mercer states. Instead, the average per-employee cost of health benefits rose just 5.5% to $8,945.

This slower pace is expected to continue in 2010 as employers keep looking for ways to cut costs. Towers Perrin predicts medical benefit expenditures will rise 7%, while Mercer’s survey respondents project their costs will increase about 6% if they continue making changes to plan designs or switch vendors.

Even though cost increases are expected to remain steady, per-employee expenditures will increase. Towers Perrin projects that in 2010, the average annual per-employee expenditure will cross the $10,000 mark for the first time, with employers continuing to fund 78% of that amount. This is despite the fact that employee premium contributions will go up 10%, or just over $200 during 2010, a higher jump than the 8% increase plan sponsors witnessed in 2009, Towers Perrin states.

The average reported cost of medical coverage, as analyzed by coverage level, by the 300 large employers surveyed by Towers Perrin is $5,124 annually for active employee-only coverage, $10,500 annually for employee-plus-one-dependent coverage and $15,084 annually for family coverage.

Cost-reduction strategies

“Small and large employers used different strategies to keep cost growth down in 2009,” says Beth Umland, Mercer’s director of health and benefits research. “Small employers moved employees into low-cost consumer-directed health plans and raised PPO deductibles. We saw relatively little cost-shifting among large employers—what jumped out was a real increase in their use of programs and policies designed to improve workforce health.”

Mercer’s survey suggests that those employers with an ongoing workforce health management or wellness initiatives found their medical plan cost increases two percentage points lower, on average, than among those offering no or limited health management programs. What’s more, nearly three-fourths of employers that have measured the ROI in wellness programs say they are content with the year-over-year savings, lower utilization rates or improved health risks. However, only about a third of large employers have formally measured ROI.

Specifically, a fifth of all large employers—but almost half of those with 20,000 or more employees—use health management incentives, a finding in concert with Towers Perrin’s discoveries. Nearly a fourth of those with 20,000 or more employees (23%) employees’ premium contribution amounts based on their smoker status, up from 17% last year, Mercer reports.

On the other end of the spectrum, small employers held down cost increases by drastically raising deductibles for in-network PPO services, finds Mercer. These actions drove the average PPO deductible among all employers up by about $100 for an individual and $300 for families, to $1,096 and $2,515, respectively. Following the trend of past years, employers kept premium contributions relatively stable, electing to keep the cost of coverage affordable while shifting the burden to those who use health services.

In contrast to large employers, small groups have been slow to adopt high-deductible account-based consumer-driven health plans. But in 2009, DHP offerings among employers with 10-499 employees increased from 9% to 15%, Mercer’s research shows. This helped steer the percentage of all covered employees enrolled in CDHPs from 7% to 9%. Enrollment in PPOs was flat at 69%, while enrollment in HMOs fell from 23% to 21%, perhaps due to the fact that the average HMO cost per employee was higher than the PPO cost in 2009.

CDHPs were much more common among their larger employer counterparts with 20% of employers with 500 or more employees offering the plan, and 43% of those with 20,000 or more employees. Nevertheless, small employers are much more likely to offer CDHPs as their only plan option (55%), compared to just 9% of large employers.

In addition to switching to account-based health plans, the approximately 300 large employers participating in the Towers Perrin survey are utilizing a number of other strategies, including:

• Employee incentives. According to survey data, high-performing employers will, over the next few years, expand their use of incentives to engage employees in health and wellness initiatives, such as health risk assessments, wellness programs and biometric screenings.
• Behavioral economics. Employers are beginning to leverage the potential behavioral economics holds to improve consumer decisions about health and health care, with 15% of high performers using this innovative decision design model today and 48% expecting to do so by 2012. Also expected to grow are related programs that promote good decisions and offer convenience as an incentive, including on-site biometric screening, promotion of healthy foods and access to retail clinics.
• Personalized health management and care delivery. Just as doctors are taking steps to personalize treatments to individual needs and preferences to improve outcomes, employers are moving toward segmenting their employee populations and using a broad range of personalized approaches to influence employee behavior and decision making. New directions in customization include:
  • Using social networking to impact employee health and well-being. Seven percent of high performers today use this personalized form of communication and influence, a group expected to more than quadruple in size by 2012. Employers are also using blogs as a communication and connection tool today, with use expected to grow significantly over the next several years.
  • Personalizing care delivery for better outcomes, including return to work. Examples include use of a health advocate to manage a chronic condition or serious illness, lifestyle coaching and integration of disability with medical care management.
  • Leveraging technology innovations to improve health and engage consumers. New applications include personal health records—with use among high performers expected to double over the next few years, from 31% percent to 60%. High performers in increasing numbers also expect to adopt remote biometric monitoring as a way to involve employees in managing their health and improve the quality of care they receive.
• Evolving measurement disciplines. What employers are measuring offers insight into what they value, and the survey shows that they are increasingly defining the success of their health benefit programs in terms of the impact they have on workforce well-being, productivity and the overall health of the employee population. For example, high-performing companies expect to focus increasingly on employee health status and risk, gaps in care through ongoing review of medical claims and employee perceptions of well-being in the workplace.
• Provider incentives. One of the more surprising survey findings is that employers are beginning to show an appetite for using provider incentives or penalties as a means of encouraging new health care practices with the potential to improve outcomes and reduce costs. And while employers' use of provider incentives is happening only at the margins today, the data suggest that employers will be increasingly receptive to this approach, with current use expected to triple over the next few years.

Health reform’s impact

Towers Perrin data suggest that health care reform has the potential to increase the cost burden on employers and that those additional costs would be passed on to employees, further expanding the affordability gap.

For example, the excise tax proposed by the Senate Finance Committee would apply, beginning in 2013 to health programs with combined coverage (medical, dental, vision, flexible spending accounts, etc.) valued at more than $8,000 per year for individuals and $21,000 for families. More than 50% of companies will hit these caps within the next three years if current cost trends continue, and the impact of the caps will only increase over time, even with indexing on the tax thresholds after 2013.

Meanwhile, Mercer found that more than two-fifths (44%) of employers say they would be more likely to offer a plan to their employees if all individuals were required to obtain coverage – a provision that appears in both Senate and House proposals – and 57% would be more likely to offer a health plan if they received an annual tax credit that would reduce the net cost of the health coverage to about $2,000 per employee.

Conversely, less than a fourth (22%) say they would support a requirement to pay 4% of their payroll into a public or private fund to provide coverage to their employees.

Another potential effect of the reform could be the increase in the prevalence of account-based health plans, proffers Towers Perrin. Because ABHPs have lower actuarial value than traditional health plans, they could actually help employers delay hitting excise tax cap limits by up to two years. Adoption of ABHPs has risen significantly from 20% to 60% over the last five years. Premium costs for a traditional ABHP are $8,927 per employee annually, which is 13% less than the average traditional plan and unused account funds roll forward to defray future out-of-pocket costs.

Plan design trends

The Mercer survey uncovered these additional plan design trends.

▪     Health care flexible spending accounts are offered by 27% of all employers but 85% of those with 500 or more employees. The average employee contribution is $1,424, well below the $2,500 cap that has been suggested in health reform proposals.

▪     Mental Health Parity: About half of large employers (49%) were already in compliance with the requirements of the Mental Health Parity Act; 47% have made (or will make) changes to their behavioral health coverage to comply, in most cases by removing special coverage limits.

▪     Spousal coverage: Surcharges or other special provisions to limit election of coverage for spouses who have other coverage available are used by 12% of large employers, up from 8% in 2008.  An additional 5% are considering adding such a provision.

▪     Retiree medical: There was no further erosion in the prevalence of retiree medical coverage in 2009. Among large employers, 28% offer an ongoing plan for pre-Medicare-eligible retirees, and 21% offer one for Medicare-eligible retirees. Ten years ago, in 1999, these figures were 35% and 28%, respectively.

▪     Mini-med or limited health programs: These low-cost plans, intended to cover routine or preventive care only as opposed to catastrophic care, are offered by 7% of large employers and 20% of those with 20,000 or more employees. Large employers in the wholesale/retail industry, which typically employ a great many part-time employees, are the most likely to offer these plans (17%). There was no growth in offerings of these plans in 2009.

▪    Worksite clinics: More than a fourth of large employers (27%) offer an on-site or near-site medical clinic for occupational health services; 11% of large employers offer a clinic for primary care services.