Consumerism Kicks into High Gear

gears2aby Leila Morris – Employers took action on several fronts to hold down growth in the average per-employee cost of health benefits to 3.9% in 2014. While this was a bigger increase than last year’s historically low increase, it is still well below the 7% average rate of growth over the past 15 years, according to a survey by Mercer. Total health benefit cost averaged $11,204 per employee in 2014; this includes employer and employee contributions for medical, dental and other health benefits. Employers predict that in 2015 their health benefit cost per employee will rise 4.6%. This increase reflects changes they will make to reduce costs. If they made no changes to their plans, they estimate that cost would rise by an average of 7.1%.

Julio A. Portalatin, president and CEO of Mercer said, “Employers have done a remarkable job of holding down health cost growth for the past few years. But with enrollment almost certain to rise in 2015 as major ACA provisions go into effect, they’ll need to intensify their efforts. The strong interest they’re showing in private exchanges suggests that this new benefit delivery system is the innovation they have been waiting for.”

Helping to hold down cost growth in 2014 was the largest one-year increase in enrollment in high-deductible consumer-driven health plans (CDHP), from 18% to 23% of all covered employees. In addition, 3% of large employers (those with 500 or more employees) moved to a private exchange in 2014 (or for 2015) to provide benefits to their active employees and another 28% say they are likely to do so within the next five years.

Many employers expect to spend more in 2015 when the ACA requires them to extend coverage to employees working 30 or more hours per week. Thirty-eight percent are affected by this rule. While some have already taken steps to comply, the majority will do so in 2015. Employees who have chosen not to elect coverage in the past now have a stronger incentive to do so — as the minimum tax penalty for not getting coverage rises to $325 for 2015 from just $95 this year.

Employers of all sizes, but especially large employers, added consumer-directed health plans in 2014. CDHP offerings jumped from 39% to 48% among employers with 500 or more employees, and from 63% to 72% among jumbo employers. CDHP enrollment spiked from 18% to 23% of all covered employees while enrollment in HMOs fell to just 16%, which is the lowest level of enrollment seen since the survey began in 1993. Enrollment in traditional PPOs fell from 64% to 61%.

Many employers that did not already cover all employees working 30 or more hours said they would add a lower-cost plan for newly eligible workers, which may have helped fuel CDHP growth in 2014. The average cost of coverage in a CDHP paired with a tax-advantaged health savings account is 18% less than coverage in a PPO and 20% less than in an HMO: $8,789 per employee, compared to $10,664 for PPOs and $11,052 for HMOs.

Offering these plans is a top strategy for employers looking to avoid the “Cadillac tax” in 2018. The 40% excise tax on health coverage costs more than $10,200 for an individual or $27,500 for a family. Mercer estimates that about a third of employers are at risk for triggering the tax in 2018 if they make no changes to their most costly plan.

Mercer’s past five annual surveys have shown that employers remain committed to offering health coverage. In 2014 the number of employers that expect to drop their plans and send employees to the public exchange fell even further. Just 4% of all large employers say they are likely to terminate their employee health plans in the next five years, down from 6% in last year’s survey. And while small employers are still more likely to be considering an exit strategy, the number of those with 50 to 199 employees that say they are likely to drop their plans fell from 23% in 2013 to just 16% in 2014. For more information, visit www.mercer.com/ushealthplansurvey.

Last Updated 10/20/2021

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