Increases for Health Care Premium Rates Lowest in a Decade
The talent, retirement and health solutions firm found that after plan design changes and vendor negotiations, the average health care premium rate increase for large employers in 2013 was 3.3%, down from 4.9% in 2012 and 8.5% in 2011. In 2014, however, average health care premium increases are projected to move back to the 6% to 7% range.
Aon Hewitt’s analysis showed the average health care cost per employee was $10,471 in 2013, up from $10,131 in 2012. The portion of the total health care premium that employees were asked to contribute toward this premium cost was $2,303 in 2013, compared to $2,200 in 2012. Meanwhile, average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, increased 12.8% ($2,239) in 2013, compared to just 6.2% in 2012 ($1,984).
Increases Forecast for 2014
For 2014, average health care costs are projected to increase to $11,176 per employee. Employees will be asked to contribute 22.4% of the total health care premium, which equates to $2,499 for 2014. Average employee out-of-pocket costs are expected to increase to $2,470. These projections mean that over the last decade, employees’ share of health care costs—including employee contributions and out-of-pocket costs—will have increased almost 150% from $2,011 in 2004 to $4,969 in 2014.
“There are many factors that contributed to the lower rate of premium increases we saw over the past two years that we don’t expect to continue in the long term,” said Tim Nimmer, fellow of the Society of Actuaries, member of the American Academy of Actuaries and chief health care actuary at Aon Hewitt. “These include the lagged effect from the economic recession on health care spending and continued adjustments as employers and insurers phase out the conservatism that was reflected in earlier premiums due to uncertainty around economic conditions and health care reform. Additionally, employers and insurers will now be subject to new transitional reinsurance fees and health insurance industry fees. While we are seeing pockets of promising innovation in the health care industry, we expect to see 2014 premium increases shift back towards the 6 percent to 7 percent range overall.”
In terms of costs by plan type, Aon Hewitt forecasts that, on average, companies will see 2014 cost increases of 7.5% for health maintenance organization (HMOs) plans, 6.5% for preferred provider organization (PPOs) plans and 6.5% for point-of-service (POS) plans. That means that from 2013 to 2014, the average cost per person for major companies is estimated to increase from $10,880 to $11,696 for HMOs, $10,222 to $10,887 for PPOs and $11,450 to $12,194 for POS plans.
In 2013, major U.S. markets that experienced rate increases higher than the national average included Los Angeles (6.9%), Orange County (6.9%), Washington D.C. (5.3%) and San Francisco/Oakland/San Jose (4.8%). Conversely, New York City (1.6%), Milwaukee (2.1%) and Atlanta (2.4%) experienced lower-than-average rate increases. Of note, Minneapolis saw a decrease in rate at -0.1%.
“Health care remains a top priority for U.S. employers, and most are taking action to prepare for increasing cost, risk and change,” said Jim Winkler, chief innovation officer for the U.S. Health & Benefits practice at Aon Hewitt. “As the health care industry continues to evolve, employers realize that a traditional ‘managed trend’ approach will be less effective in mitigating costs increases over time. Instead, they are exploring innovative new delivery approaches, requiring participants to take a more active role in their own health care planning, and holding health care providers more accountable to reduce unnecessary expenses and create more efficiency in the way health care is purchased.”
Approaches to Reducing Costs
Recent Aon Hewitt research revealed that 72% of employers focus their health care strategy primarily on programs that improve health risk and reduce medical costs. As the health care landscape continues to evolve, employers will look to reduce costs using a mix of traditional and non-traditional approaches. These include:
Innovative Approaches to Providing Employer-Sponsored Coverage – Private health exchanges are becoming increasingly attractive to organizations that want to offer employees health care choice, while lowering future cost trends and lessening the administrative burden associated with sponsoring a health plan. In this model, employers continue to financially support health insurance, but allow employees to choose from multiple group plan options and insurance carriers via a competitive health-insurance marketplace. According to Aon Hewitt, about 28% plan to move into a private health care exchange over the next three to five years.
Plan Design Strategies – Consumer-driven health plans (CDHPs) have surpassed health maintenance organizations (HMOs) as the second most popular plan option offered by employers. A growing number of employers are offering CDHPs as the only plan option. While just 10% of companies do so today, another 44% are considering it in the next three to five years.
Managing Dependent Eligibility and Subsidies – Many employers are reassessing the way they offer and subsidize health coverage for dependents. Specifically, they are reducing the employer subsidy for covered dependents, implementing or increasing surcharges for adult dependents with access to coverage elsewhere, adopting a unitized pricing approach where employers charge per dependent, and assessing the eligibility of covered dependents in their plans.
Increased Cost Sharing – As health care costs increase overall, the amount of money employees will need to contribute out of their paychecks, both in premiums and out-of-pocket costs, is continuing to climb. Employers are increasing cost sharing by altering plan designs, including shifting from fixed dollar copayments to coinsurance models, where employees pay a percentage of the out-of-pocket costs for each health care service. They are also increasing deductibles out-of-pocket limits and cost sharing for use of non-network providers.
Wellness and Health Programs – With employers facing the impacts of rising health care costs and declining health of the population, employees can expect to see more employers offering programs that encourage them to take a more active role in managing their health. This includes health risk questionnaires and biometric screenings such as blood pressure and cholesterol.
New Provider Payment Strategies – A growing number of employers want to ensure that the health care services they are paying for are actually leading to improved patient outcomes and are seeking to hold providers more accountable. Fifty-three percent of employers are moving toward provider payment models that promote cost effective, high quality health care results will be a part of their future health care strategy, and one in five identified it as one of their three highest priorities.
Aon Hewitt's data is derived from its Health Value Initiative database, which captures health care cost and benefit data for 516 large U.S. employers representing 12.8 million participants, more than 1,200 plans and $61.2 billion in 2013 health care spending.