03 Dec 2013 rise in employer health costs lowest in years

Originally posted November 20, 2013 by Dan Cook on https://www.benefitspro.com

Is it the lull before the storm?

Employers, it appears, worked hard to hold down health plan cost increases this year. A Mercer study released Wednesday reported that the increase — just 2.1 percent over last year — was the lowest hike since 1997.

But don’t count on another new low in 2014.

Employers told Mercer they expect health plan costs to jump 5.2 percent next year if they keep on looking for – and finding — ways to restrain health costs.

If they chucked all those efforts, employers say, the increase next year would be more along the lines of 8 percent.

Let’s not rain on the cost-reduction parade quite so quickly. Employer health costs have been reined in of late, and the efforts should be recognized.

The best performance came from the employer group represented by those with 10 to 499 employees. Their costs nudged up just 1 percent this year over last. Even large employers experienced just a 3.7 percent increase — still lower than the overall 4.1 percent increase in 2012 vs. 2011.

Part of the reduction in cost came from the increasing popularity of high-deductible health plans for employees, the study said. Consumer driven health plans are now entrenched in the workplace and offer savings to employers. As the study said:

“Nationally, enrollment in CDHPs rose from 16 percent of covered employees in 2012 to 18 percent in 2013. This is the same portion that enrolled in HMOs. In the Midwest, CDHP enrollment is now more than double that of HMOs (27 percent compared to 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 is 17 percent less percent than coverage in a PPO and 20 percent less than in an HMO.”

Employers also point to wellness plans as contributing to lower costs, although most can’t quantify the contribution.

As Mercer’s Julio A. Portalatin, president and CEO, said, “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. But the impact of the ACA on enrollment levels remains a huge question mark.”

Employers pointed to the uncertainties of the implementation of the Patient Protection and Affordable Care Act as drivers for next year’s anticipated uptick.

They expect to be providing coverage for more workers in 2014 as the PPACA kicks in, which will add to their costs. “Next year, because of the individual mandate (contained in the PPACA), it is likely that fewer employees will waive coverage for themselves and more will elect dependent coverage – although the extent of the change is difficult to predict,” the study said.

Tracy Watts, Mercer’s national leader for health reform said “there are a lot of unknowns when it comes to enrollment.”

“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. But an employer might wind up covering more dependents if others in the area have made changes to discourage their employees from enrolling dependents,” she said.

Other highlights mined from the Mercer data:

• In 2015 employers, more large employers are going to be required to offer health coverage to workers. Among all large employers, 32 percent say they expect to be affected, while 48 percent of large wholesale/retail companies say they will have to offer coverage.
•  Fifty-five percent of respondents said they now include same-sex domestic partners as eligible dependents.
• Twenty-three percent of large employers vary the employee contribution amount based on tobacco-use status or provide other incentives to encourage employees not to use tobacco. That’s up from 19 percent in 2012. Among employers with 20,000 or more employees, 46 percent now use an incentive.