Growth in Health Benefit Costs Lowest in 15 Years

September 21, 2011 ( - Early responses from a Mercer survey still underway suggest the average growth in health benefit cost will slow to 5.4% in 2012, the smallest increase since 1997.  
While this increase reflects cost-cutting changes employers will make to their current health benefit programs, such as raising deductibles or moving employees into lower-cost health plans, the preliminary survey findings released by Mercer suggest the underlying trend has slowed as well. When asked how much cost would rise if they made nochanges to their current plans, employers reported an average increase of 7.1%. Over the past five years, this underlying health benefit cost trend has been running at about 9%.

The slower trend is good news for workers, because an employer’s first line of defense against a high initial renewal rate typically is to change plan provisions so employees pay more out of pocket for health care. If the underlying trend is lower to begin with, employers will be likely to shift less cost. For the past several years, employers have reduced their initial renewal rate by about three percentage points on average; in 2012, they are planning to reduce it by about two points.

These results are based on the survey responses submitted by about 1,600 employers through September 8, 2011. In total, Mercer expects about 2,800 employers to participate in this year’s survey.

While the underlying cost trend may slow in 2012, an increase of more than 7% – twice the rate of general inflation – is still higher than many employers are willing or able to absorb. Some plan to shift cost to employees by raising premium contributions in 2012. They are somewhat more likely to increase contributions for dependent coverage (36%) than for employee-only coverage (33%). The difference is greater among the largest employers (42% will raise dependent contributions and 36% will raise employee-only contributions); they may be attempting to compensate for enrolling more dependents under the health reform law’s rule stipulating that employees’ children up to age 26 be eligible for coverage.

About a third of the survey respondents (33%) say they are raising deductibles or copayments in 2012. The past five years have seen employers increasingly using this type of cost-shifting, driving the median in-network PPO deductible for an individual to $1,000 among small employers (those with 10–499 employees) and to $500 for large employers last year.