Employers Held Health Plan Costs Down by Shifting More to Employees

November 19, 2008 (PLANSPONSOR.com) - Employers held health benefit cost increases to about 6% in 2008 for a fourth straight year, but that meant shifting more cost to employees, according to the Mercer National Survey of Employer-Sponsored Health Plans.

A Mercer press release said its survey found that total health plan cost per employee rose by 6.3% in 2008 – remaining at the around 6% level since 2005. Employers expect a similar increase for 2009 – 6.4%.

However, that projection reflects changes that employers plan to make in the level of benefits, the type of plan offered, or the plan vendor. If they made no changes, the cost of their largest medical plan would rise by about 8%, they predict.

The median deductible required by employers for individual coverage in PPO health plans jumped to $1,000 in 2008, up from $500 last year, according to the press release. This finding refers to traditional PPOs – not the high-deductible health plans where a deductible of at least $1,100 is required in order to deposit tax-free money in a Health Savings Account (HSA).

In 2000, only about half of employers imposed a deductible for PPO coverage, compared to about four-fifths today, and when they did the median amount was just $250. PPOs are the most popular type of health plan, enrolling 69% of all covered employees.

The survey found little change in the percentage of employers offering coverage to active employees: 65% of all employers sponsored a health plan in 2008, up from 2007’s 63%. Health plan offerings vary significantly by employer size, with nearly universal coverage among employers with 500 or more employees. However, as part-time workers grow as a percentage of the total work force, Mercer found that 61% of large employers that use part-time employees provide them with health coverage.

There was a sharp increase in the number of large employers offering CDHPs, a health plan coupled with either an HSA or a Health Reimbursement Arrangement (HRA) in 2008, from 14% to 20% of employers with 500 or more employees. The plans are most common among the very largest employers (20,000 or more employees), where they are offered by 45%, up from 41% in 2007.

Growth has been slower among small employers, as Mercer found that just 9% of employers with 10 - 499 employees offer a CDHP, up from 7% in 2007. Small employers are more likely simply to offer a high-deductible PPO without an account feature.

Enrollment in CDHPs reached 7% of all covered employees in 2008, up from 5% last year.

The Mercer survey found that CDHPs delivered substantially lower cost per employee than either PPOs or HMOs in 2008. CDHP cost averaged $6,207 per employee, compared to $7,815 for PPOs and $7,768 for HMOs. Of the two types of CDHPs, HSA-based plans were less expensive than HRA-based plans ($6,027 versus $6,420).

The most obvious explanation for the difference in cost between CDHPs and the other medical plan types is the higher deductible, but even compared to the average cost of PPOs with deductibles of $1,000 or higher ($6,661 per employee), CDHPs still cost less by over $400, Mercer said. The 2008 cost increase for CDHPs was 4%, compared to 6.3% for PPOs and 9.1% for HMOs.

Most of the CDHPs added in 2008 were based on HSAs, which do not require an employer contribution. Over a fourth of large HSA sponsors (29%) do not contribute, but among those that do, the average contribution is $694.

While the majority of employers offer one or more health management programs, large employers, in particular, are now adding incentives to encourage employees to use the programs or improve health habits, Mercer said. Of large employers offering a health management program, 26% use incentives, up from 23% in 2007.

Nearly one-fifth of the very largest employers (those with 20,000 or more employees) have special plan provisions relating to an employee's smoker status - most often, requiring a lower premium contribution from non-smokers than from smokers (17%). Large employers are also increasingly using health risk assessments to learn about their employees' health habits (65% versus 56% in 2007).

Provisions related to employees' smoker status remain rare among all employers (less than 1%), but their use is growing among very large employers. In 2008, 15% of employers with 10,000 or more employees required smokers to pay more toward the cost of coverage than non-smokers, up from 12% in 2007.

Retiree Health Care

Early-retiree medical coverage is becoming increasingly rare, the Mercer National Survey of Employer-Sponsored Health Plans found, with just 27% of large employers still offering it to new hires, down from 46% 15 years ago. Even among the largest employers (20,000 or more employees), fewer than half (47%) provide this benefit. Even coverage for Medicare-eligible retirees has slipped to 19% of all large employers, from 40% 15 years ago.

Other findings of the 2008 Mercer National Survey of Employer-Sponsored Health Plans, according to a Mercer press release, included:

  • Opinions on specific health care reform proposals vary considerably, but employers are most in favor of an individual mandate requiring everyone to have coverage if they can afford it, either through their employer or purchased on their own (53% approve or strongly approve, 30% disapprove or strongly disapprove). However, there is little support for either a single-payer system like Canada's (29%) or an employer "play or pay" mandate (31%).
  • Same-sex domestic partner coverage is offered by 24% of all employers and 34% of large employers. The larger the employer, the more likely they are to include domestic partners as eligible dependents: 74% of those with 20,000 or more employees cover same-sex domestic partners up from 68% in 2007.
  • 8% of large employers use special provisions to limit election of coverage for spouses who have other coverage available and 6% are considering it for 2009. Among employers with 20,000 or more employees, 15% use these special provisions.
  • Mini-med or limited health programs - low-cost plans that are intended to cover routine or preventive care only (as opposed to catastrophic care) - are offered by 7% of large employers and 20% of those with 20,000 or more employees. Large employers in the wholesale/retail industry, which typically employs many part-time employees, are most likely to offer these plans (31%).
  • About a third of large employers (32%) offer an onsite or near-site medical clinic for occupational health services; 13% of large employers offer a clinic for primary care services.

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. Nearly 2,900 employers completed the survey in 2008.

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 2009. The report costs $600 and the report and tables cost $1,200. For more information, visit www.Mercer.com/ushealthplansurvey .