A news release said the National Survey of Employer-Sponsored Health Plans 2004, from Mercer Human Resource Consulting, also found that cost-shifting was more restrained this year than last when employers (especially small employers) sharply raised deductibles and copayments, seeking immediate relief from three years of double-digit increases.
“With benefit reductions explaining only part of the gap between the expected and actual cost increase in 2004, we may also be seeing the effects of longer-term cost management strategies now gaining traction among large employers -consumerism and care management – as well as a slowdown in the utilization of health-care services and more competitive pricing from insurers,” Mercer said in the announcement.
According to the survey, the total cost of health benefits for active employees (for all medical and dental plans offered) rose from $6,215 per employee in 2003 to $6,679 in 2004. This amount includes both employer and employee premium contributions, but does not include employee out-of-pocket expenses.
Meanwhile, costs rose more slowly among the nation’s smallest employers. In organizations with 10-499 employees, cost rose 5.5% to $6,359, while among employers with 500 or more employees, costs were up 9% to $6,918. Smaller employers were helped by increased price competition in 2004, as not-for-profit insurers lowered premiums to reduce surpluses and for-profit insurers were forced to follow suit. “This phase in the underwriting cycle would benefit more small employers, who tend to be fully insured, than large employers, who tend to self-fund their plans,” Mercer wrote.
However, existing small-employer efforts to cut costs may also have slowed employee health-care utilization, researchers said. “When you start the year with a $1,000 deductible and don’t see any major expenses ahead, you think twice about going to the doctor if you have a cold,” Blaine Bos, a consultant in Mercer’s Minneapolis office and one of the study’s authors, said in a news release. “The downside, of course, is that you may also put off getting necessary care. And that’s not good for anyone.” In 31% of small-employer PPO plans, the in-network deductible is $1,000 or more; only 6% of large-employer plans have deductibles that high.
Another factor that may be leading to lower utilization of health care services is the ongoing enrollment shift out of HMOs and point-of-service (POS) plans, which provide first-dollar coverage, into PPOs, which most often include an in-network deductible. In 2004, PPO enrollment rose to 58% of all covered employees, up from 54% in 2003. Point-of-service plan enrollment fell from 14% to 10%. HMO enrollment was flat at 27%, after a two-point drop last year.
Traditional indemnity plans, which are now offered primarily to cover employees outside the area covered by a network plan, enrolled only 4% of covered employees in 2004. While the average per-employee cost is higher nationally for a PPO ($6,095) than for an HMO ($5,827), cost rose by just 6% for PPOs, compared to 11.8% for HMOs.
Perhaps because larger employers typically will not go as far with cost-shifting as small employers will, they are showing more interest in the new consumer-directed health plans (CDHP). In 2004, a CDHP was offered by just 1% of all employers, but by 4% of employers with 500 or more employees and by 12% of jumbo employers (those with 20,000 or more employees). Nationally, 1% of all covered employees enrolled in a CDHP in 2004.
While CDHPs are now few and far between, they probably won’t be for long. Asked late this summer about their plans for the upcoming year, 14% of large employers said they were likely to offer a CDHP in 2005; 26% in total are likely to offer one by 2006. Legislation passed last year allowing for the creation of Health Savings Accounts (HSAs) may speed the process. While most of the current plans use the older type of account, the Health Reimbursement Account, the majority of employers adding a CDHP in 2005 or 2006 will use an HSA.
One reason for the plan’s growing popularity among employers is clearly cost. The early plans are reporting significantly lower cost than any of the other medical plans: $5,233 per employee, nearly $600 less per employee than HMO coverage.
Workforce wellness efforts have steadily gained momentum among large employers over the past five years, and some are now reporting a return on investment. For the first time, a substantial number of these employers (31%) report a return on investment, although most (59%) have not yet attempted to measure it.
The portion of employers offering retiree medical coverage has dropped by nearly half over the past 10 years. In 2004, the percentage of large employers offering coverage to Medicare-eligible employees dipped one point to 20%, while the percentage offering coverage to early retirees held at 28%. Very few small employers offer any retiree coverage.
The survey covered 3,020 employer participants and included public and private employers with at least 10 employees.