After plan design changes and vendor negotiations, the average health care premium rate increase for mid-size and large companies in 2014 was 4.4%, up from 3.3% in 2013. In 2015, Aon Hewitt projects average health care premium increases will be 5.5% after plan design changes and vendor negotiations.
Aon Hewitt’s analysis showed the average health care cost per employee in 2014 was $10,717, up from $10,266 in 2013. The portion of the total health care premium that employees were asked to contribute toward this premium cost was $2,487 in 2014, compared to $2,355 in 2013. Meanwhile, average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, increased from $2,005 in 2013 to $2,295 in 2014.
For 2015, employees will be asked to contribute 23.6% of the total health care premium, which equates to $2,664 for 2015. Average employee out-of-pocket costs are expected to be $2,487. These projections mean that over the last five years, employees’ share of health care costs—including employee contributions and out-of-pocket costs—will have increased more than 52%, from $3,389 in 2010 to $5,151 in 2015.
“Over the past few years, the overall economic situation kept consumer spending on discretionary items, including health care, down, and we observed a lower rate of premium increases,” explains Tim Nimmer, chief health care actuary at Aon Hewitt. “Now, with employment rates stabilizing, individuals are feeling more secure about their financial situation and have been willing to re-engage in using the health care system. As these utilization rates increase, we expect to see health care cost increases follow.”
Amid the evolving health care scene, companies are using a variety of approaches to reduce costs:
Using high-deductible health plans (HDHPs): HDHPs are the second most popular plan choice offered by companies, with 15% offering an HDHP as the only health plan option, and 42% considering doing so in the next three-to-five years.
“Gating” health benefits: More than 60% of companies plan to “gate” employees to richer designs in the next three to five years. For example, companies may offer a basic high-deductible plan to their entire workforce, but make a richer preferred provider organization (PPO) option available to those employees who complete a health risk questionnaire or biometric screening.
Managing dependent eligibility and subsidies: Research shows 58% of companies have completed a program audit of covered dependents to ensure only those who are eligible will remain on the plan, 52% are considering using unitized pricing—where employees pay per person and not individual versus family, and 22% of companies have reduced subsidies for covered dependents, while 18% added a surcharge for adult dependents with access to other health coverage, and an additional half of companies are exploring such approaches over the next few years.
Adopting pay-for-performance strategies: Twenty-four percent of companies currently steer participants (through plan design or lower cost) to high quality hospitals or physicians for specific procedures or conditions, and another 56% are considering doing so in the next three-to-five years. Eighteen percent use integrated delivery models such as patient-centered medical homes to improve primary care effectiveness, and another 56% plan to do so in the next three-to-five years. Ten percent have adopted reference-based pricing—where employers set a pricing cap on benefits for certain medical services for which wide cost variation exists with no discernible differentiation in quality, and another 58% plan to do so in the next three-to-five years.
Aon Hewitt says private health exchanges are emerging as a credible option to organizations that want to offer employees an expanded choice of plans and insurance companies while lowering future cost trends and lessening the administrative burden associated with sponsoring a health plan. With this approach, companies continue to sponsor and subsidize health insurance, but allow employees to choose from multiple group plan options and insurance carriers via a competitive health insurance marketplace.
“Forward-thinking companies are not only looking for near-term cost mitigation, they are using this period of somewhat dampened health care cost increases to accelerate the pace of change within the health system,” says Jim Winkler, chief innovation officer of Health & Benefits at Aon Hewitt. “As costs begin to rise, companies need to be ahead of the game with a health program that encourages consumer accountability while rewarding health care providers that deliver cost effective, high-quality health outcomes.”