Aided by the move of more employees into lower-cost consumer-driven health care plans, group plan costs increased by just over 4 percent in 2012, the smallest increase in 15 years, according to a survey of more than 2,800 employers released Nov. 14 by Mercer L.L.C. in New York.
The 4.1 percent increase brought health plan costs to an average of $10,558 per employee in 2012, compared with $10,146 per employee in 2011, according to the survey.
This year's increase is sharply less than in 2011, 2010 and 2009, when costs increases averaged 6.1 percent, 6.9 percent and 5.5 percent, respectively.
One factor behind the easing of health care cost increases is increased employee enrollment in CDHPs. Employee enrollment in CDHPs in 2012 jumped to 16 percent, up from 13 percent in 2011 and 11 percent in 2010.
CDHP costs lower
With the cost of CDHPs — which link a health savings account or health reimbursement arrangement to a high-deductible plan — about 20 percent lower than more traditional plans such as preferred provider organizations, employers can reap significant cost savings when only a small number of employees switch to CDHPs, Mercer noted.
In 2012, the cost of medical coverage through a CDHP linked to an HSA averaged $7,883 per employee compared with an average cost of $10,007 per employee for coverage through a PPO.
And employee enrollment in CDHPs is certain to increase for a very pragmatic reason: More employers say they intend to make CDHPs the only health care plan they offer to employees. By 2017, 18 percent of large employers — those with at least 500 employees — say they expect that CDHPs will be the only plan they will provide, up from just 11 percent last year.
Already, the percentage of employers, especially larger organizations, offering CDHPs, has soared. In 2012, 36 percent of large employers offered CDHPs, up from 32 percent in 2011 and 23 percent in 2010.
"If we're not already at the tipping point for CDHPs — and we may well be — at this rate of growth it's coming soon," Sharon Cunninghis, leader of Mercer's U.S. health and benefits business in New York, said in a statement.
Other ways to manage costs
Other steps employers are taking to better manage costs are the addition of incentives and penalties to increase employee participation in wellness or health management programs. For example, 48 percent of large employers with health management programs provided financial incentives or penalties in 2012, up from 33 percent in 2011.
A majority of the largest employers — those with at least 20,000 employees — have formally measured the return on investment of their health management programs. Of those, more than 75 percent say those programs have had a positive impact on medical cost trends.
Employers also continue to use the familiar strategy of cost-shifting to employees to keep down costs. For example, the average deductible large employers imposed for individual in-network care delivered through PPOs hit $666 in 2012, up from $587 in 2011 and $501 in 2008.
As previous Mercer surveys have found, the overwhelming majority of employers intend to keep offering health care coverage. Just 5 percent of employers with at least 5,000 employees, 9 percent of those with at least 500 employees and 22 percent of employers with less than 500 employees say they are "very likely" or "likely" to terminate coverage within the next five years.
Other survey findings include:
• Health care plan cost increases vary considerably by region. For example, costs in 2012 surged by an average of 7.7 percent for large employers in the West, the highest percentage increase of any region. At an average cost of $11,969 per employee, large employers in the West had the highest costs by region. On the other hand, health care plan costs for large employers in the Northeast increased by just 1.5 percent — the lowest of any region — in 2012, to an average of $11,500 per employee. One possible reason for that sharp regional cost difference is that CDHP enrollment among large employers in the Northeast jumped by more than 50 percent in 2012, rising from 11 percent to 17 percent, while CDHP enrollment among employers in the West remained flat at 10 percent of employees in both 2012 and 2011, noted Beth Umland, Mercer's director of research for health and benefits in New York.
• Large employers in the South had the lowest health care plan costs in 2012, with an average cost of $10,005 per employee, up 6 percent, followed by Midwest employers, whose 2012 costs averaged $11,026 per employee, up 6.4 percent.
• More than half — 56 percent — of employers said they would consider providing coverage through private health insurance exchanges. The appeal of private exchanges, Mercer notes, is that they allow employers to offer their employees a broader choice of benefits, while allowing health insurers to compete for their business.