Group health plan costs increased 6.1 percent this year to an average of $7,983 per employee, up from $7,523 last year, according to a survey of nearly 3,000 employers released last month by Mercer.
That marks the third consecutive year that health care plan costs have increased 6.1 percent. While that is roughly double the rise in the Consumer Price Index, it is a big improvement from just a few years ago, when annual health plan increases were rising by double digits and employers despaired about their seeming inability to bring costs under control. In 2002, for example, costs jumped an average of 14.7 percent; in 2003, costs climbed an average of 10.1 percent.
"The good news is that cost increases are flat and are not going in the wrong direction," says Blaine Bos, a survey author and a partner in Mercer’s Minneapolis office.
And the easing of health care inflation is likely to continue. In 2008, survey respondents expect costs to increase an average of 5.8 percent after taking into account changes they will make in plan designs as well as other factors.
One factor checking cost increases is greater use of health management programs, such as wellness programs that give employees incentives to improve their health and disease management programs that aim to reduce costs for employees with chronic conditions.
Indeed, 80 percent of employers with at least 500 employees have put health management programs in place, with just under two-thirds saying their programs have helped to control costs, according to Mercer.
But some employers are going beyond health management programs to offer consumer-driven health care plans, which expose employees to big health care costs through high deductibles. The plans, though, do more than raise deductibles.
The plans are linked to accounts—either health savings accounts or health reimbursement arrangements—that employees can tap to pay uncovered health care expenses, including deductibles. In both accounts, unused amounts roll over to pay expenses in succeeding years, and employees can keep HSA balances, even after they leave a company, and apply them to future medical expenses, including during retirement.
CDHPs are strikingly less expensive than other health care plan designs, according to the Mercer survey. In 2007, HSA-based plans cost an average $5,679 per employee while HRA-based plans cost an average of $6,224.
By contrast, preferred provider organization plans cost an average $7,352 per employee, making them $1,673 more expensive that HSA-based plans and $1,128 more expensive than HRA-based plans.
It’s not only the high deductible in CDHPs that encourages employees to use services more carefully, according to the survey.
The per-employee cost of PPOs with deductibles of at least $1,000 averaged $6,644, $965 less than an HSA-based plan and $420 less than an HRA-based plan.
That cost difference lends support to the theory that the account feature encourages more careful employee spending, according to the survey.
Those cost differences have gotten employers’ attention, especially the nation’s largest companies. This year, 29 percent of respondents with at least 20,000 employees offered an HSA, up from 22 percent last year; 31 percent of the largest employers say it is likely they will offer an HSA-based CDHP next year.
Employee enrollment in CDHPs, while still low, also is growing. In 2005, just 1 percent of employees were enrolled in CDHPs, but that figure climbed to 3 percent in 2006 and reached 5 percent in 2007.
If enrollment in CDHPs continues to climb, that could positively affect health plan costs. As employees shift from more expensive plans into less expensive plans, employers’ overall cost per employee drops. This is what we saw happen in a big way when employees moved out of traditional indemnity plans and into managed care plans in the mid-1990s, Bos says.
Still, even if increases are remaining steady, the cost of providing coverage is more than a growing number of smaller employers can afford. Last year, 61 percent of employers with fewer than 200 employees offered health care coverage, down from 66 percent in 2003 and 69 percent in 2001.
Even a 6 percent increase, year after year, makes providing health care coverage unaffordable for smaller employers, Bos says.
Requiring employers to offer a health care plan or pay a fee to reduce the number of uninsured is not an idea broadly embraced by employers. Fifty percent of respondents say they disapproved of the so-called “play or pay” approach to expanding coverage.
Other approaches to expanding coverage were less controversial. For example, the survey found that 48 percent of employers approved of legislation requiring plans to lengthen the time that dependent children can be covered by a parent’s health insurance.
Additionally, 61 percent of respondents approved of proposals that would require health plans to allow all employees, including those not eligible for coverage, to make pretax contributions to the plans.