This year saw the biggest increase ever in the adoption of high-deductible, account-based consumer-directed health plans (CDHPs) by large organizations. Now, 32% of all employers with 500 or more employees offer a CDHP, up sharply from 23% in 2010. The largest employers are the most likely to offer a CDHP (47% of those with 10,000 or more employees do so), but CDHP use grew among small employers as well, from 16% to 20% of those with 10-499 employees.
Overall, 13% of all covered employees are enrolled in a CDHP. Enrollment growth has been rapid – five years ago, CDHPs enrolled just 3% of covered employees.
The appeal of these plans to employers is clear. The cost of coverage in a CDHP with a health savings account is nearly 20% lower, on average, than the cost of PPO coverage – $7,787 per employee compared to $9,385.In addition, some employers see these plans as integral to strategies to improve workforce health. “One feature of the CDHP that employers like is flexibility in funding employees’ spending accounts,” said Susan Connolly, a partner in Mercer’s Boston office. “A growing number of employers are making their account contributions contingent on the employees’ willingness to take steps to improve their own health.”
Wellness Programs Top Strategy
Workforce health management, or “wellness," has emerged as employers’ top long-term strategy for controlling health spending. When asked about a long-term response to the changes initiated by health reform, 87% of large employers say they will add or strengthen programs or policies to encourage more health-conscious behavior.
In 2011 it was clear these efforts were well underway. For a second year in a row there was a sharp increase in the use of incentives or penalties to encourage higher participation rates: 33% of large employers with health management programs provided incentives or penalties, up from 27% last year and 21% in 2009.
In addition, the incentives are becoming more substantial. Five years ago, the most common incentive offered by large employers for completing a health assessment was either a token gift or cash; this year it is a lower premium contribution from the employee (the median reduction in the annual contribution required for employee-only coverage is $240).Health assessments, which are intended to alert employees to possible health risks and to identify individuals who could benefit from disease or lifestyle management programs, are offered by most large employers (70%), but small employers are adopting them as well: 34% offered an assessment in 2011, up from 29% in 2010.
Employers Cite PPACA Concerns
One provision of the Patient Protection and Affordable Care Act (PPACA) that went into effect in 2011 was a requirement that employers extend dependent coverage eligibility to employees’ children up to age 26. Health plan enrollment grew by an average of 2% in 2011 as a result. Provisions going into effect in 2014 include requiring employers to extend coverage eligibility to all employees working at least 30 hours per week on average and auto-enrolling newly eligible employees. Employers expect that these provisions – along with the new mandate that all individuals obtain health insurance coverage – will result in another increase in enrollment. Retailers and other employers with large part-time populations are likely to be the most affected.
Still, the provision that concerns the most employers is the excise tax on high-cost plans – nearly half say it’s a “significant” or “very significant” concern. While some employers offer high-cost plans because generous benefits are part of their attraction and retention strategy, others have high-cost plans simply because they have an older or less healthy workforce or are located in a high-cost area. Only 39% of employers with 50 or more employees believe their current plans won’t hit the excise tax cost threshold, which will be tied to CPI and increase each year.
Nearly all the rest are determined to avoid the tax if they can: 21% say they “will do whatever is necessary to bring cost below the threshold amounts,” and 36% say they will attempt to bring the cost below the threshold amounts, acknowledging that “it may not be possible.” Only 4% will take no action to avoid the tax.
“Employers that are concerned about a jump in enrollment in 2014 or the excise tax in 2018 see a need to slow cost growth now,” said Beth Umland, Mercer’s director of research for health and benefits. “While cost-shifting to employees is still going on, this year we saw more employers adopting strategies they believe will provide better results over the long haul.”
Just under half of all employers (47%) say they will shift cost in 2012 by raising deductibles or the percentage of the premium paid by employees. This is down slightly from 50% saying they would shift cost in 2011.
Despite employers’ concerns about the impact of reform, when asked how likely they are to terminate their health care plans after state-run insurance exchanges become operational, the great majority says “not likely.” Large employers in particular remain committed to their role of health plan sponsor. Just 9% of all employers with 500 or more employees – 4% of those with 5,000 or more employees – say they are likely to terminate their health plan and have employees seek coverage in the individual market after 2014.
A greater portion of small employers say they are likely to terminate their plans: 19% of those with 10-499 employees, essentially unchanged from 20% in 2010. Employers of this size are less likely to offer coverage to begin with; they generally offer fully insured health plans and, with small risk pools and little purchasing power, are vulnerable to large rate increases. In 2011, the percentage of small employers offering an employee health plan fell from 57% to 53%.
Large employers reported a significantly lower average health benefit cost increase than small employers in 2011: 3.6% compared to 9.9%. “The health care reform law may have had a greater impact on small employers than large employers in 2011,” said Umland. “But the survey also shows that large employers are doing more to control health benefit cost.”
Small employers tend to offer less-generous coverage than large employers, and so were more likely to be affected by new PPACA rules restricting annual benefit limitations and mandating free preventive care. However, they are also less likely to invest in the types of programs that large employers are using to manage cost.
Mercer’s survey asked employers about more than 20 “best practices” in managing health plans – strategies intended to control cost, such as providing incentives to improve health habits or contracting with smaller, high-quality, cost-efficient provider networks. When large employers were divided into three roughly equal groups based on the number of best practices they have incorporated, the average per-employee medical plan cost was 7% higher for those using no more than six best practices compared to those using 10 or more. The average cost of the health benefit program as a percentage of payroll was higher as well in the group using fewer best practices – 16% compared to 14%.
- Significant drop in offerings of medical plans for Medicare-eligible retirees - The prevalence of retiree medical plans slid to its lowest point ever in 2011, with just 24% of large employers offering a plan to retirees under age 65 and just 16% offering a plan to Medicare-eligible employees – down from 25% and 19%, respectively. However, some employers that stopped offering a plan for which new hires are eligible continue to offer coverage to employees retiring or hired after a specific date; an additional 15% of all large employers offer coverage to such a closed group.
- Domestic partner coverage - Close to half of large employers include same-sex domestic partners as eligible dependents – 46%, up sharply from 39% in 2010. This varies significantly based on geographic region, from 79% of employers in the West to 28% of employers in the South.
- Spousal surcharges - 15% of large employers have special provisions concerning spouses of employees with other coverage available – 7% impose a surcharge and 7% do not provide coverage at all.
- Annual prescription drug cost increase slowed to just 5% in 2011, down from 10% five years ago and 17% 10 years ago, as employers have implemented strategies to encourage the use of generic and over-the-counter drugs.
- Move to self-funding - Concerns that new PPACA regulations will drive up the cost of fully insured plans has sparked greater interest in self-funding. Of the 28% of employers with 500 or more employees that have a fully insured PPO, one-third say they are likely to switch to self-funding within the next three years. Just 8% of smaller employers say it’s likely they will switch.
- Grandfathered status - Only about half of all employers (and 37% of large employers) believe they will maintain the grandfathered status of all their health plans until 2014. One-third had no grandfathered plans in 2011 and 18% expect to lose grandfathered status over the next two years.
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; 2,844 employers completed the survey in 2011. The survey was conducted during the late summer, when most employers have a good fix on their costs for the current year. Results represent about 800,000 employers and more than 104 million full- and part-time employees.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 late March 2012. The report costs $600 and the report and tables cost $1,200. For more information, visit www.mercer.com/ushealthplansurvey or call Tara Lewis at 212-345-2451.