Amidst all the talk of health benefit costs skyrocketing, there may be good news on the horizon. Early responses to a Mercer survey still in the field suggest that the average growth in health benefit cost will slow to 5.4% in 2012, the smallest increase since 1997. Still, cost growth remains well above both general inflation and growth in workers’ earnings.
While this increase reflects cost-cutting changes employers will make to their current health benefit programs, such as raising deductibles or moving employees into lower-cost health plans, the preliminary survey findings released yesterday suggest that the underlying trend has slowed as well. Asked how much cost would rise if they made no changes to their current plans, employers reported an average increase of 7.1%. Over the past five years, this underlying health benefit cost trend has been running at about 9%.
The slower trend is good news for workers because an employer’s first line of defense against a high initial renewal rate typically is to change plan provisions so that employees pay more out of pocket for health care. If the underlying trend is lower to begin with, employers are likely to shift less cost. For the past several years, employers have reduced their initial renewal rate by about three percentage points on average; in 2012, they are planning to reduce it by about two points.
Some analysts believe the tough economy, combined with generally higher deductibles and other forms of cost-sharing, is affecting health care utilization — that because employees have less disposable income and are working longer hours, they are less likely to seek non-urgent care.
On the other hand, Susan Connolly, a partner at Mercer, says that slowing utilization may also be a sign that programs targeted at improving employee health — now the rule rather than the exception in employee benefit plans — are having a positive impact.
“Earlier risk identification and health education, along with improvements in drug therapies and medical technology, are keeping people with health risks and chronic conditions away from the emergency room,” says Connolly. “And consumers are more aware that overuse and misuse of health care services will directly impact their wallets as well as their employer's budget.”
While the underlying cost trend may slow in 2012, an increase of more than 7% (twice the rate of general inflation) is still higher than many employers are willing or able to absorb. Some plan to shift costs to employees by raising premium contributions in 2012. They are somewhat more likely to increase contributions for dependent coverage (36%) than for employee-only coverage (33%). The difference is greater among the largest employers: 42% will raise dependent contributions and 36% will raise employee-only contributions. They may be attempting to compensate for enrolling more dependents under the health reform law’s rule stipulating that employees’ children up to age 26 be eligible for coverage.
As in previous years, consumer-driven health plans are expected to be a popular cost-containment option for employers next year. “We’re expecting to see a spike in 2012 in both the number of employers offering CDHPs and in the number of employees enrolling in them,” says Beth Umland, Mercer’s director of research for health and benefits, noting the use of CDHPs has been growing steadily over the past five years, particularly among the largest organizations. In 2010, the prevalence of CDHPs ranged from 14% among employers with 10–49 employees to 51% among those with 20,000 or more employees. Survey results suggest we will see an increase in offerings of these plans in 2012: 18% and 58% of the smallest and largest survey respondents, respectively, say they plan to offer a CDHP in 2012.
