Employers Shift Health Cost to Workforce

August 10, 2004 (PLANSPONSOR.com) - Small and mid-sized employers cut benefits in their health plans in 2003, holding the cost increase to 9.8% among employers with fewer than 2,000 workers.

Overall, the total cost of health benefits (medical, dental, and any other health plans offered) averaged $6,130 per employee in 2003 . Going forward, 2004 does not look promising, even as employers shift more of the cost to their workforce. The surveyed employers expect an increase of 13.9% in 2004. The smallest among them (those with 10 – 49 employees) expect an increase of 15.2%, according to a survey report released today by Marsh Inc., which analyzes data from 1,904 such employers with 10 – 1,999 employees.

The smallest employers generally are keeping costs down by discouraging coverage of dependents and imposing high deductibles. Among employers with fewer than 50 employees, cost averaged just $5,795 per employee. But mid-sized employers (1,000 – 1,999 employees) experienced an average cost of $6,472 – more than all larger employers ($6,324).

Employers with 10 – 49 employees required employees to pay, on average, 64% of the PPO premium for family coverage. Just 44% of their employees elected family coverage. Employers with 1,000 – 1,999 employees required a family contribution of just 30%, and, not surprisingly, a far greater percentage of their employees elected it (57%).

Shifted Burden

The slowdown in benefit cost increases in 2003 does not signal a cooling of the underlying cost trend; rather, it was the results of employer cost-cutting measures. For example, the percentage of employers requiring a PPO in-network deductible of $1,000 or more jumped from 22% to 34%, while the percentage requiring an HMO physician office copay of $20 or more nearly doubled, rising from 18% to 34%.

Not surprisingly, t he smallest employers have been the first to shift cost, but survey results suggest that in 2004 the larger ones will follow suit. Nearly half (46%) of the surveyed employers with 1,000 – 1,999 employees said they would raise employee contribution percentages in 2004, and 43% said they would shift more cost to employees by raising deductibles, copayments/coinsurance, or out- of-pocket maximums. These figures are both nearly double the percentage of smaller employers planning to shift more cost to employees.

Plan Design

More than half (57%) of the employers with fewer than 2,000 employees offered a preferred provider organization (PPO) in 2003, and 59% of all their covered employees enrolled in one. Health maintenance organizations (HMOs) were offered by 32% of employers and point-of-service (POS) plans by 21%. Just 8% of employers offered a traditional indemnity plan.

Employers preferred PPOs despite higher cost: PPO cost averaged $5,828 per employee while HMO cost averaged $5,029. However, HMO cost rose faster, by 14.2%, while PPO cost rose just 8.9%.

Also, nearly two-fifths (39%) of mid-sized employers said promoting consumerism is part of their current health benefit strategy, even though only 1% have implemented a consumer directed health plan.

A copy of the report may be obtained by contacting Judye Fawver, Marsh’s Benefit Operations, at 612-692-7748.