Employers Adopt CDHPs, Drop HMOs to Rein in Costs

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.  

The survey found employers dropped HMOs, which were more costly than PPOs this year, and large employers added low-cost consumer-directed health plans, to try to rein in costs. Employers predict cost will rise by about 10% in 2011 if they make no health program changes, with roughly two percentage points of this increase coming solely from changes mandated by PPACA for 2011; however, they expect to hold their actual cost increase to 6.4% by making changes to plan design or changing plan vendors.  

According to a press release, 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.   

CDHP enrollment rose fastest this year among the largest employers, those with 20,000 or more employees. Over half of these employers offered a CDHP in 2010 – 51%, up sharply from 43% last year. Enrollment rose even faster, swelling from 9% to 15% of covered employees.   

The cost of HSA-based CDHP coverage averaged just $6,759 per employee among all employers in 2010 – almost 25% lower than the cost of PPO coverage.  

The survey found employers that engage in the most extensive communication efforts aimed at encouraging health-conscious behaviors report higher levels of employee satisfaction. Among HSA sponsors with “very extensive” communication, 46% say employee response to the plan has been “strongly positive,” compared to 25% of those that make little or no effort with communication.   

Offerings of HMOs fell from 28% of all employers to 26% in 2010. Cost was undoubtedly a factor, according to Mercer. HMO coverage cost about $100 more per employee than PPO coverage ($8,892 compared to $8,781). HMO enrollment peaked in 2001 at 33% and has been eroding ever since, sliding from 21% to 19% of all covered employees in 2010.  

Wellness Programs Paying Off?  

Over the past decade employers have been adding 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%).   

Nearly two-thirds of employers that have measured the return on their investment in health management programs say they are satisfied with the year-over-year savings, lower utilization rates or improved health risks. For a second year in a row, Mercer’s National Survey of Employer-Sponsored Health Plans found 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.   

According to the press release, in 2010 more employers added incentives or penalties to encourage higher participation rates: 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).   

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.  

“As employers see tangible evidence that health management can bend medical trend and contribute to a more productive workforce, they’re more willing to spend money to get their people into the program,” said Susan Connolly, a Partner in Mercer’s Boston office, in the announcement. “And because PPACA allows employers to use much larger incentives than we typically see, there’s still plenty of room to raise the bar on rewarding behavior change.”