HEALTH BENEFIT COST GROWTH ACCELERATES, SURVEY SAYS

Business Wire –

Nov. 22: New York – 2010 is Year Zero for health reform the year against which the effects of the new Patient Protection and Affordable Care Act (PPACA) will be measured.

Growth in the average total health benefit cost per employee, which had slowed last year to 5.5%, picked up steam, rising 6.9% to $9,562, the biggest increase since 2004, according to the latest National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer.

Employers expect high cost increases again in 2011. They predicted that cost would rise by about 10% if they made no health program changes, with roughly two percentage points of this increase coming solely from changes mandated by PPACA for 2011. However, employers expect to hold their actual cost increase to 6.4% by making changes to plan design or changing plan vendors.

Mercer’s survey includes public and private organizations with 10 or more employees; 2,836 employers responded in 2010. “Employers did a little bit of everything to hold down cost increases in 2010,” said Beth Umland, Mercer’s director of health and benefits research. “The average individual PPO deductible rose by about $100.

Employers dropped HMOs, which were more costly than PPOs this year. Large employers added low-cost consumer-directed health plans and found ways to encourage more employees to enroll in them. And more employers provided employees with financial incentives to take better care of their health.”

Large employers experienced a sharper cost increase than smaller employers in 2010. Cost rose by 8.5% among employers with 500 or more employees, but by just 4.4% among those with 10–499 employees.

“Large employers may have been taken by surprise by the uptick in the cost increase this year,” said Susan Connolly, a Partner in Mercer’s Boston office. “Higher prices for health care services seem to be part of the equation, but if the recession caused a slowdown in utilization last year, we may also be seeing the effect of employees getting care they’ve been putting off.”

Enrollment in CDHPs offered by the nation’s largest employers jumps sharply in 2010

Overall enrollment in high-deductible, account-based consumer-directed health plans (CDHPs) grew from 9% of all covered employees in 2009 to 11% in 2010.

CDHP enrollment has risen by two percentage points each year since 2006.

With the cost of HSA-based CDHP coverage averaging just $6,759 per employee among all employers in 2010 – almost 25% lower than the cost of PPO coverage the appeal of these plans is clear.

“As both employers and employees become more comfortable with high-deductible plans, we’re seeing more organizations willing to commit to the consumerism concept,” said Ms. Connolly. “Over the past few years employers have worked on finding a balance between giving employees more responsibility for their health care spending and providing the support to help them succeed.”

Already committed to employee health management, employers add financial incentives to build participation

Employers will soon be more limited in how they can shift cost to employees.

Starting in 2014, PPACA sets minimum standards for “plan value” (the percentage of health care expenses paid by the plan) and “affordability” (the employee’s share of the premium relative to household income). These changes are bringing greater focus on improving workforce health as a way to control health benefit cost.

Over the past decade employers have added a wide range of programs under the employee health management or “wellness” umbrella, from health risk assessments (offered by 69% of large employers in 2010) to disease management programs (73%) to behavior modification programs (50%).

In 2010 more employers added incentives or penalties to encourage more employees to participate: 27% of large employers with health management programs provided incentives, up from 21% last year. In addition, the incentives are becoming more substantial. Three years ago, a token gift like a hat or water bottle was the most common incentive for completing a health risk assessment; now it is cash (typically, $75) or a lower premium contribution (typically, a reduction of $180).

Results are encouraging: For a second year in a row, medical plan cost increases in 2010 were about two percentage points lower, on average, among employers with extensive health management programs than among those employers offering limited or no health management programs.

Very large employers are also increasingly willing to reward employees who demonstrate responsibility for their own health. More than a fourth of those with 20,000 or more employees require lower premium contributions from nonsmokers – 28%, up from 23% last year. An additional 6% provide other incentives to nonsmokers.

Employers drop retiree medical plans in favor of subsidizing individual coverage

The prevalence of retiree medical plans slid to its lowest point ever in 2010, with just 25% of large employers offering an ongoing plan to retirees under age 65 (down from 28% in 2009) and just 19% offering a plan to Medicare-eligible employees (down from 21%). An additional 10% of employers have closed their retiree plans to new hires but continue to offer coverage to employees retiring or hired after a specific date.

A diminished tax break for employers who provide retiree drug plans and the anticipated availability of better Medicare coverage as the government shrinks the so-called “doughnut hole” gap in prescription drug coverage are among the factors that have employers reexamining their retiree health programs.

As some employers take the step of terminating group coverage for retirees, they are softening the blow with a subsidy to help pay for individual coverage. Nearly one in ten of the largest employers (those with 20,000 or more employees) now provide such a subsidy in lieu of a group plan.

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