DC Health Benefits Use Expected to Pick Up

July 17, 2014 (PLANSPONSOR.com) - U.S. companies surveyed ranked controlling benefit costs as their largest overall business challenge, and 42% identified reducing or containing health care spend as their top priority.

Arthur J. Gallagher & Co. says in its 2nd annual Benefits Strategy & Benchmarking Survey report almost all employers are subsidizing the plans they offer to employees for the time being (98%), but rising costs present obstacles. For 62% of employers, premiums increased at least 4% at their last renewal, and 25% indicated premiums increased 10% or more.

An increase in employee contributions was the most popular strategy to contain health care costs in the 2014 plan year, while the increase of deductibles and out-of-pocket maximums were identified as the second and third most common adjustments.

The defined contribution model for health benefits has been adopted by a small portion of respondents (1%), but this number is expected to rise as more organizations try to contain their medical costs, according to the report (see “Exploring DC Models in Health Care Benefits”). Employers that have switched to a defined contribution structure noted cost and employee choice as driving factors in their decision. Fifty-two percent (52%) of organizations that made the transition decided to provide a set amount per employee, while 43% based their contribution decision on the plan tier.

While 23% of organizations show interest in the defined contribution model and are considering a move within the next three years, many indicate they would prefer to follow suit rather than being the first in their area or sector to commit. 

High-deductible health plans (HDHPs) are currently offered by 33% of respondents, and 14% of organizations reported this option as their highest enrolled plan—the third highest enrolled overall after preferred provider organization (PPO) and health maintenance organization (HMO) structures. Organizations often make a health savings account (HSA) available to enrollees in their HDHP (see “Why HSAs Should Be on Your Company’s Health Care Playlist”), and 33% of employers reported that more than half of their eligible labor force uses this component. Twenty-six percent (26%) of organizations contribute to the HSA on behalf of their employees and the median of the annual average employer contribution was reported as $1,000.

While only 31% of employers have quantified the cost impact of health care reform, 42% expect costs to rise 6% or more as a result. Twenty-six percent (26%) of employers think health care reform will increase costs by 10% or more.

Most of the survey respondents offer one or two medical plans to their workforce, and 80% reported a PPO offering. The PPO was the highest enrolled plan (60%) and the fully insured funding arrangement has proven to be the most popular (56%). Seventy-eight percent (78%) of organizations reported that at least 70% of their eligible workforce is enrolled in health benefits.

To download the Executive Summary of the report or request purchasing information, visit http://ajg.com/nationalbenefits2014.