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Mercer: Group Health Care Costs Climb 6.1 Percent as Cost per Employee Tops $10K

Amid steadily rising costs, employers, especially larger organizations, continue to take action to try to hold down cost increases to more manageable levels, according to the Mercer survey.

November 17, 2011
Related Topics: Top Stories - Frontpage, Health Care Reform, Finance/Taxes, The HR Profession, Long Term Care Insurance, Health Savings Account (HSA), Consumer Directed Health Care, Disability Benefits, Dependent Care, Health Care Costs, Policies and Procedures, Benefits, Latest News
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Group health care plan costs increased more than 6 percent in 2011 and the cost per employee crossed the $10,000 mark, according to a survey of more than 2,800 employers released Nov. 16 by Mercer L.L.C. in New York.

The 6.1 percent increase brought health plan costs to an average of $10,146 per employee compared with $9,562 in 2010, according to the survey.

This year's increase is slightly less than in 2010, when costs jumped an average of 6.9 percent, but is in line with cost increases in recent years. From 2005 through 2007, health plan costs rose an average of 6.1 percent annually, while in 2008 costs increased an average of 6.3 percent. In 2009, costs climbed an average of 5.5 percent, which was the smallest rise in a decade.

Amid steadily rising costs, employers, especially larger organizations, continue to take action to try to hold down cost increases to more manageable levels, according to the survey.

For example, 32 percent of large employers—those with at least 500 employees—said they offered a consumer-driven health plan linked to health savings accounts or health reimbursement arrangements in 2011, up sharply from the 23 percent that did so in 2010.

The appeal of CDHPs, which link an HSA or an HRA to a high-deductible health insurance plan, is obvious, Mercer noted: Due to the high-deductible feature, they cost much less than other plans. For example, the cost of medical coverage through a CDHP linked to an HSA averaged $7,787 per employee in 2011. That's about 20 percent less than the average of $9,385 per employee for medical coverage through a preferred provider organization.

In addition, more employers see CDHPs as key to their strategies to improve the health of their employees, Mercer said.

"A growing number of employers are making their account contributions contingent on the employees' willingness to take steps to improve their own health," Susan Connolly, a partner in Mercer's Boston office, said in a statement accompanying the survey.

At the same time, more employers are adding incentives and penalties to boost employee participation in wellness or health management programs. For example, 33 percent of large employers with health management programs provided incentives or penalties this year to encourage participation, up from 27 percent last year.

And an old standby used by employers to hold down cost increases—cost-shifting to employees—is continuing. Forty-seven percent of employers said they intend to raise plan deductibles or increase the percentage of plan premiums paid by employees in 2012.

The survey also found that cost increases were much lower among large employers than smaller organizations—employers with between 10 and 499 employees. Costs rose an average of 3.6 percent in health care plans offered by large employers this year compared with an average of 9.9 percent for small employers.

One reason for that sharp difference may be that the cost impact of complying with the 2010 health care reform law has been much greater on smaller employers than larger ones, said Beth Umland, Mercer's director of research for health and benefits in New York.

Small employers tend to offer less generous coverage than larger employers and were more likely to be affected by health care reform law provisions that went into effect in 2011 that restricts annual dollar limits unless special government waivers could be obtained, and mandated free preventive care except for grandfathered plans, Mercer said.

Small employers also are far more likely to drop their health care plans in 2014 when key provisions—such as federally subsidized premiums for uninsured lower-income individuals to buy coverage through new state insurance exchanges—go into effect.

For example, 19 percent of small employers said it is "likely" or "very likely" that they will terminate coverage in 2014, compared with 9 percent of employers with at least 500 employees and just 4 percent of employers with 5,000 or more employees, according to the survey of 2,844 employers nationwide.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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