Employers Expect Health Benefit Cost, Enrollment to Rise

The average total health benefit cost per employee rose 3.9% this year, alongside a 5% enrollment increase in high-deductible, consumer-directed health plans (CDHPs), as revealed in a Mercer survey.

Total health benefit cost averaged $11,204 per employee in 2014. That 3.9% increase is larger than the increase seen in 2013; however, it is still below the 7% average growth rate over the past 15 years. Employers predict that cost will rise again next year, by 4.6% on average, reflecting changes they will make to reduce cost. Without changes, they predict the cost would rise by an average of 7.1%.

Employers were able to hold down the cost of growth in 2014 due to the largest one-year increase in enrollment in CDHPs, from 18% to 23% of all covered employees. In addition, 3% of large employers (those with 500 or more employees) moved to a private exchange to provide benefits to their active employees, with 28% likely to make the shift within five years.

“Employers have done a remarkable job of holding down health cost growth for the past few years,” says Julio A. Portalatin, president and CEO of Mercer. “But with enrollment almost certain to rise in 2015 as major Affordable Care Act (ACA) provisions go into effect, they’ll need to intensify their efforts. The strong interest they’re showing in private exchanges suggests that this new benefit delivery system is the innovation they have been waiting for.”

As the ACA provision requiring employers to extend coverage to substantially all employees working 30 or more hours per week goes into effect, employers anticipate spending more on coverage in 2015. Currently, 62% of large employers are in compliance with ACA requirements, 15% took action to comply in 2014, and 23% waited to comply until 2015. Employers are prompted to comply as the minimum tax penalty for not obtaining coverage rises to $325 for 2015, up from $95 this year. The survey finds that employers have already taken steps to limit the number of employees gaining eligibility, with about 10% of large employers reporting they have reduced the hours of employees who consistently worked 30 or more hours per week.

Some employers have also looked to dependent coverage as a way to manage enrollment growth. This year, 9% of large employers and 27% of jumbo employers (those with 20,000 or more employees) imposed surcharges on spouses who have other coverage. These statistics coincide with an increase of CDHP offerings, specifically, 39% to 48% for large employers and 63% to 72% for jumbo employers. CDHPs provide options for employers looking to add a lower-cost plan for newly eligible workers, as well as those looking for ways to avoid paying the Cadillac tax” (a 40% excise tax on health coverage costing more than $10,200 for an individual or $27,500 for a family) in 2018. Most employers still offer a CDHP as a choice alongside a traditional PPO or HMO, while 18% of large employers say it’s likely they will offer a CDHP as a full replacement within the next three years.

“Growth in enrollment is truly the wildcard for employer costs next year,” says Tracy Watts, Mercer’s national leader for health reform. “If employers wind up covering many more people, their spending will go up faster than the underlying growth in cost per employee might imply. That will increase the pressure to find new ways to manage cost.”

The study identifies the median individual deductible in a health savings account (HSA)-based plan is $2,500, and $1,500 for preferred provider organization (PPO) plans. In a consumerism strategy, high deductibles are meant to give employees a financial incentive to shop more carefully for health services. The greater availability of transparency tools allows more employees to compare health provider price and quality information, and factor cost into their decision-making. More than three-quarters (77%) of large employers say their employees now have access to this type of information, either telephonically, on the web, or through a mobile app. In addition, ‘telehealth’ services were more prevalent in 2014, as offerings from large employers increased from 11% to 18%, and 18% to 34% for jumbo employers. These services allow employees to access primary care services over the phone at a low cost to help keep out-of-pocket spending low.

Survey results revealed a decrease in employers who say they expect to drop their plans and send employees to the public exchange, with a mere 4% stating they will terminate their employee health plans within the next five years. The full report, “National Survey of Employer-Sponsored Health Plans,” is available here.