Employers Expect a Recession-Driven Spike in 2009 Health Costs

April 30, 2009 (PLANSPONSOR.com) - Health benefit cost had risen by about 6% for four consecutive years and employers expected a similar increase in 2009, but a new survey of 428 employers, conducted by Mercer, finds that employers now foresee an increase of 7.4% in 2009, due to the recession.

Mercer explained that a recession cost spike can be driven by stress-related illnesses, laid-off workers using benefits before their coverage ends, and employees who anticipate changes in benefits. According to a news release, the survey, conducted last month, found that employers are gearing up to bring their average cost increase down to 5.2% in 2010, which would be the lowest annual increase in health benefit cost since 1997.

Nearly half of all respondents (46%) say they will make more cost-saving changes than usual to their health plans because of the current economic conditions. More than a fifth of all respondents (22%) plan to adopt a consumer-directed health plan (CDHP), a high-deductible plan with an associated employee-controlled account, either a health savings account or a health reimbursement arrangement.

Mercer’s 2008 national survey indicated CDHPs are currently offered by an estimated 14% of small employers (10 – 499 employees) and 25% of large employers (500 or more employees), and results from the new survey suggest that the percentage of employers offering CDHPs could double in 2010, the news release said.

Employers also plan to get tougher on vendors, by auditing plans for appropriate payments and accurate dependent eligibility management (49%) (see Employers See Substantial Savings from Dependent Eligibility Audits ), going out to bid (46%), and renegotiating administrative-services only fees (39%).

The majority (58%) of respondents to a recent survey by Mercer have experienced layoffs since September 1, 2008, and 44% say additional layoffs are likely or very likely. A new COBRA extension was signed into law with the economic recovery legislation which requires employers to allow employees involuntarily terminated any time between September 1, 2008, and December 31, 2009, to have an opportunity to elect COBRA and receive a government subsidy to offset 65% of the cost (see Employers Consider COBRA Subsidy Impact on Health Costs ).

According to a Mercer news release, the majority of respondents with former employees eligible to enroll in COBRA say they are concerned (46%) or very concerned (28%) about the degree of administrative complexity involved in managing the federal COBRA subsidy through offsets to payroll taxes. Still, when asked whether the benefits of the federal COBRA subsidy for their organization outweigh the additional administrative burden, respondents tend to agree (42% agree, 31% disagree).

The reauthorization of the Children's Health Insurance Program (CHIP) attempts to broaden the safety-net for low-income children who are not eligible for Medicaid and whose parents might not be able to afford the contribution required by their employer for dependent coverage (see New Health Care Legislation Requires Disclosures from Employers ). More than half (52%) of respondents to Mercer's survey say they have low-wage employees whose children might be eligible for CHIP. Most employers have not attempted to educate those workers about the availability of CHIP, but now the majority with low-wage employees (56%) say they are "likely" or "very likely" to communicate with their employees about the recent expansions of CHIP.

With the heightened visibility of this legislation, 41% of these respondents believe that it would help employees lower their net cost of covering their dependents. Only 8% say they subsidize the cost of dependent coverage to the point that CHIP subsidies would not have an impact.

Mercer asked employers whether they approved or disapproved of health reform proposals that are still on the table. While there is still considerable disagreement on many proposals, a strong majority (64%) disapproves of a Canadian-style single-payer system, according to Mercer's news release.

Large employers (those with 500 or more employees) are more likely to approve than disapprove of two proposals designed to increase access - an individual mandate and an employer "play or pay" mandate - but a majority are sitting on the fence or opposed. "That's not surprising, given that they still don't know how specific requirements for eligibility, contributions and design will impact their current cost," said Linda Havlin, global intellectual capital leader for Mercer's health and benefits business, in the announcement.

Overall, 44% of respondents approve and 29% disapprove of a requirement that all individuals who can afford it obtain coverage, either through an employer or purchased individually (see House Panel Finds Employer Health System Support ). The largest employers (5,000 or more employees) are most in favor: 56% approve and only 16% disapprove.

Large employers are also slightly more likely to approve than disapprove of a requirement that all employers offer an employee health plan or else pay into a fund to cover the uninsured: 40% of large employers approve, while 32% disapprove. Small employers are more likely to disapprove (43%) than approve (34%).

When asked about specific elements that might be part of "play or pay" legislation, not one of the elements received majority approval. The highest level of support was for a minimum standard for all employer-sponsored or individual coverage (48% support, 28% oppose) and an option allowing all employers to let their employees use insurance exchanges (37% support, 21% oppose).

Their opposition was strong against paying into a fund if their plans do not meet a set participation level (29% support, 41% oppose) and to pay at least a set amount for employee health coverage (36% support, 37% oppose). Employers with 5,000 or more employees were most likely to oppose a required employer contribution level (44%).