Plan Redesign Results in Lower Health Costs

November 21, 2005 ( - The soaring costs of health care prompted employers to rethink their plan offerings resulting in a third year of slowing health care costs.

A Mercer Health & Benefits news release says health care costs peaked three years ago at nearly 15%, and have slowed each year since then due to initiatives such as cost-shifting and changing vendors. Mercer’s National Survey of Employer-Sponsored Health Plans found a 6.1% rise in health care costs for 2005, and a predicted rise of 6.7% in 2006.

Cost-shifting was the key tactic used to drive down employer health care costs again in 2005, according to Mercer. While the average employee contribution as a percent of premium was basically unchanged, an individual deductible for in-network care is now required in 80% of PPO plans, up from 73% last year. Among employers with 500 or more employees, the median deductible amount rose from $250 to $300. The median small-employer deductible did not change, but 34% of small employers now require a deductible of $1000 or more, compared to 31% of small employers in 2004.

The use of co-insurance increased from 5% to 9% of all PPO sponsors and 18% to 22% of all large employers. Thirty-seven percent of jumbo employers (those with 20,000 or more employees) use co-insurance, compared to 26% last year.

For HMO plans the biggest change was an increase in plans requiring a hospital deductible, up to 64% from 55% in 2004. The average office visit copayment increased for HMO’s from $16 to $18. Twenty-eight percent of sponsors of HMO’s require a higher copayment for specialist visits.

No More Cost Shifting?

Employees may not have to worry about more cost-shifting though. “Scaling back benefits or cost-shifting” received the lowest score (21%) when employers were asked how significant each of six cost-management strategies would be to them over the next five years. Instead employers said “promoting informed and responsible spending by employees for health care” and care management would be key strategies for them.

Thirty-four percent of employers said consumerism will be significant or very significant to them, while 32% said care management will be. Among large employers, 62% gave the highest rating to care management and 55% to consumerism.

In 2005, the use of all types of disease management programs grew. The percentage of employers offering at least one program grew from 32% to 41%. The percentage of large employers offering at least one program grew from 58% to 67%. Health risk assessments, used to identify employees who would benefit from a disease management program, are offered by 46% of large employers, up from 35%. Behavior modification programs, such as smoking cessation and weight management, are offered by 30% of large employers, up from 21%.

More employers are offering incentives for employees to participate in care management programs. In 2005, 17% of large employers offered incentives for participating in risk assessments, and 7% offered incentives to encourage participation in disease management programs. Incentives included cash, lower medical plan copayments or premium contributions, and token rewards or gifts.

As for consumerism strategies, two-fifths of employers provide employees access to a Web site with information on provider quality and cost, and 17% provide employees with a tool to help them choose the health plan that will best meet their needs.

CDHP Surprise

The surprising finding in the survey, according to Mercer, was the lack of interest in consumer-driven health plans (CDHPs) by small employers. When health savings accounts (HSAs) were created, its proponents believed they would expand access to coverage by providing a low-cost option to small employers who might not otherwise offer coverage. In 2005, though, only 2% of small employers used CDHPs, and the percentage of small employers offering any coverage dropped from 66% to 63%. Mercer attributed this in part to the complex plan design considering the limited HR staff of small employers.

CDHP from jumbo employers increased greatly though from 12% to 22% in 2005. Only 5% of large employers (those with 500 or more employees) offered CDHPs. Enrollment in the plans was low, though. Only 1% of all covered employees were enrolled in a CDHP. Enrollment averaged 8% for jumbo employers.


Other key findings of the survey, according to Mercer, include:

  • In 2005, 8% of large employers and 31% of jumbo employers reduced the number of health care plans offered to employees. It seems likely the plans being dropped were HMOs. Among jumbo employers the average number of HMOs offered was 12. Five years ago the average offered was 34.
  • Prescription drug costs for employers increased only 11.5% in 2005, down from 14.3% in 2004. The use of three-tiered copayments in large employers’ card plans rose from 64% to 68%. Fourteen percent of large employers use co-insurance in their card plans, compared with 11% last year. The average copay rose from $15 to $17 for generic drugs, from $33 to $39 for brand-name formulary drugs, and from $57 to $69 for non-formulary brand-name drugs.
  • There was essentially no change in the percentage of employers offering retiree medical coverage: 29% of large employers offer it to pre-Medicare-eligible retirees and 21% offer coverage to Medicare-eligible retirees.
  • In response to Medicare Part D, 44% of large employers said they will seek the subsidy, 4% will offer a plan that wraps around an approved prescription drug plan (PDP), and 3% will contract with a commercial vendor to offer a PDP. Two percent said they will terminate all coverage for Medicare-eligible retirees, and 3% said they will terminate prescription benefits but not medical.
  • Same-sex domestic partner coverage is up from 11% of all employers to 19%.
  • Only 7% of large employers have special provisions concerning spouses that have other medical coverage. Fifteen percent of jumbo employers do.

Results of the survey represent about 600,000 employers and more than 90 million full- and part-time employees. A report on the survey will be available in early March for $500. To order, call 212-345-2451 or go to