Mercer Sees Lower Employer Health Benefit Cost Increase

More employees moving into lower-cost medical plans contributed to one of the smallest increases in total health benefit costs per employee in decades, Mercer contends.

According to Mercer’s National Survey of Employer-Sponsored Health Plans, 2016’s average increase of 2.4% is the lowest since 2013 and, before that, since 1997. Total health benefits costs averaged $11,920 per employee in 2016. This cost includes both employer and employee contributions for medical, dental and other health coverage, for all covered employees and dependents. Small employers (10 to 499 employees) again reported lower costs—$11,271—compared to $12,288 for large employers with 500 employees or more. 

Enrollment in high-deductible consumer-directed health plans (CDHPs) has been rising for a decade and in 2016 jumped to 29% of all covered workers, up from 25% in 2015. Employee paycheck deductions are typically lower for CDHPs than for other medical plan choices they might have. At the same time, employers have been taking steps to mitigate employees’ growing financial risk by making telemedicine and other less-expensive types of care available to help stretch their workers’ health care dollars.

Coverage in a CDHP that is eligible for a health savings account (HSA) cost 22% less, on average, than coverage in a traditional PPO plan among large employers, even when employer contributions to employee HSA accounts are included, Mercer says. Adding CDHPs has been a key strategy for employers concerned about the ACA’s excise tax on high-cost plans. The largest employers have moved the fastest: Among organizations with 20,000 or more employees, 80% offer a CDHP and enrollment jumped from 29% to 40% of covered employees in 2016.

Despite the CDHP’s lower cost, most employers continue to offer it as a choice and not as a full replacement. While 61% of large employers now offer a CDHP (up from 59% last year), just 9% offer it as the only plan available to employees.

“For employees who can manage the high deductible, a CDHP can be a financially smart move,” says Tracy Watts, Mercer’s leader for health care reform. “Employers are trying to make it easier to choose a CDHP by offering resources to help employees manage their spending on health care. But the fact that most employers still offer a CDHP as an option alongside other choices shows they understand it may not be the right plan for everyone.”

Offering telemedicine services* has quickly become the norm, Mercer says: 59% of all large employers offer these services, up from just 30% last year. Savings for members can be significant, especially before the deductible is met, as a typical charge for a telemedicine visit is $40, compared to $125 for an office visit. Most large employers (82%) also now cover visits to a retail clinic through their plan, providing another lower-cost, convenient option. Before the deductible, a visit to a typical retail clinic might cost around $60.

Being able to compare prices on higher-priced services is another way to save money. More large employers contracted with a specialty vendor to provide their employees with a “transparency tool”—an online resource to help them compare provider price and quality. Among those with 20,000 or more employees, 28% provided transparency tools through a specialty vendor in 2016, up from just 15% two years ago. An additional 62% say their health plan provides some type of transparency tool.

Prescription drugs present an especially thorny problem for both employers and plan members trying to manage their spending. While the overall medical benefit cost trend is low, it is being disproportionally driven by sharp increases in prescription drug benefits costs. Large employers reported that drug benefit costs rose 7.4%, on average, at their last renewal and predict an increase of 7.9% at their next renewal.

“Employers have had limited success in curbing drug benefit cost increases,” says Watts. “The issue of drug pricing has attracted the attention of lawmakers at the state and federal level and ultimately we may see some regulation in this area. In the meantime, employers can act like insurance companies and get more involved in the drug purchasing process to drive better value.”

Many employers see improving workforce health as key to long-term cost management, Mercer surveys have found. They are using new tactics to personalize employees’ interactions with health and well-being programs to keep them engaged on a daily basis. Nearly one-third of large employers encourage employees to track their physical activity with a “wearable” device (31%, up from 24% last year), while 37% use mobile apps designed to motivate healthy behavior, up from 30%. In addition, more than half (54%) now provide employees with a health advocacy service, where, in the best programs, a health advocate helps members find the right health care provider, compare costs, and resolve claims problems.

Employers predict that in 2017, their total health benefit costs per employee will rise by 4.1% on average. This increase reflects changes they will make to hold down cost, such as switching carriers, adding a CDHP, or changing plan design. If they made no changes to their current plans, they estimate that cost would rise by an average of 6.3%.

“Last year, preparing for 2016, employers were still doing whatever they had to do to avoid incurring the excise tax,” says Watts. “But with the delay in implementation to 2020, employers have some breathing room to work on strategies that are less about shifting cost and more about improving the system for the long-term. For example, many employers are getting creative with provider networks and new reimbursement schemes. The market has taken baby steps in that direction, but so far there’s relatively little money at stake for providers based on outcomes. We want to change that.”

Mercer estimates that 21% of all employers with 50 or more employees (and 31% of large employers) currently offer a plan for which cost would exceed what is likely to be the excise tax threshold in 2020, assuming they made no changes to the plan before then.

The Mercer National Survey of Employer-Sponsored Health Plans is conducted using a national probability sample of public and private employers with at least 10 employees; 2,544 employers completed the survey in 2016. The full report on the Mercer survey, including a separate appendix of tables of responses broken out by employer size, region and industry, will be published in March 2017. More information is here.