California Employer Health Benefits: Workers Pay the Price

The percentage of employers offering coverage continued to decline in California, according to a report by the California HealthCare Foundation. Only 57% of employers say they provided health insurance to employees in 2015, down from 69% in 2000. Twenty-seven percent reduced benefits or increased cost sharing, and 41% said they were very or somewhat likely to increase employees’ premium contribution in the next year. This trend will have major implications for household budgets. The report also finds the following:

  • 42% of  firms that had  many workers earning $23,000 or less offered health coverage in 2015 compared to 18% in 2014.
  • Health insurance premiums for family coverage grew 4.5%, which is a slower growth rate than in recent years. Family coverage premiums have seen a cumulative 216% increase since 2002, compared to a 37% increase in prices.
  • The average monthly health insurance premium was $573 for single coverage and $1,554 for family coverage in California, including the employer contribution. It was significantly higher than the national average.
  • 40% of workers in small firms faced an annual deductible of at least $1,000 for single coverage, compared to 10% of workers in larger firms.

How Health Coverage Differs Between Small Firms and Large Firms

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Small and large employers vary substantially in health insurance offer rates and costs, according to a study by the Kaiser Family Foundation. Small employers are less likely to offer coverage. Also, workers at small firms have higher cost sharing. (The study defines small employers as those with three to 199 workers and large employers as those with 200 or more.)

The smallest employers (three to nine workers) are less than half as likely as are large employers to offer health coverage. While family premiums are less expensive at small firms, covered workers face higher premium contributions and higher higher deductibles. The study reveals the following:

Offer Rates
  • 56% of small employers offer health insurance to at least some employees, compared to 98% of large employers.
  • 47% of very small employers (three to nine workers) offer health insurance.
  • 41% of small employers did not offer coverage because of the cost of health insurance.
  • 18% of small employers offer health benefits to part-time workers compared to 35% of  large employers.
  • 3% of small employers offer health benefits to temporary workers compared to 11% of large employers.
Waiting Periods
  • 81% of covered workers at small firms have a waiting period to get benefits compared to 71% of workers at large firms. The average waiting period is 2.2 months at small firms and 1.8 months at large firms.
Premiums
  • In the West, average premiums for single and family coverage are lower for workers at small firms than at large firms.
  • Workers for small firms have average annual premiums for family coverage of $17,938 compared to $16,625 for workers at large firms.
  • Since 2010, average family premiums have grown 25% for small employers and 28% for large employers. Dating back to 2000, family premiums have grown 155% for small employers and 180% for large employers.
Premium Contributions
  • Workers for small firms contribute an average of $899 to their premiums for single coverage compared to $1,146 for workers at large firms.
  • Workers at small firms contribute an average of $5,904 for family coverage compared to an average of $4,549 for workers at large firms.
  • Thirty-two percent of workers at small firms contribute more than half of the premium for family coverage compared to just 8% of workers at large firms.
  • Workers’ contributions to family premiums at small employers have increased 27% since 2010 and 204% since 2000.
  • 34% of small employers contribute more for workers enrolled in family coverage than in single coverage compared to 67% of large employers.
Plan Types
  • 19% of workers in small firms enroll in a point-of-service (POS) plan compared to 6% of workers at large firms.
  • 41% of workers in small firms are in a PPO compared to 56% of workers in large firms.
Deductibles
  • 63% of workers for small firms with single coverage have a deductible of $1,000 or more compared to 39% of workers at large firms.
  • 36% of workers at small firms with single coverage have a deductible of $2,000 or more compared to 12% of workers in large firms.
  • Workers with single coverage at small firms have annual deductibles averaging $700 more than those in large firms. The average difference between small and large employers is more than $1,400 for those with family coverage.
  • The average general annual deductible for single coverage for all covered workers at small firms is $1,507 (up 51% from 2010) and $890 for all covered workers at large firms (up 95% from 2010).
PEOs
  • Many small employers outsource the administrative functions of their health programs. Some employers provide health benefits by entering into a co-employment relationship with a professional-employer organization (PEO). The employer manages the employees, but the PEO hires employees and acts as the employer for insurance, benefits, and other administrative purposes. Five percent of employers with three to 499 workers with health benefits offer coverage with a PEO.
  • 6% of covered workers with health benefits at firms with three to 499 workers are enrolled in a plan offered through a PEO.
Self-Funded Plans
  • 83% of covered workers at large firms are  in a self-funded plan compared to 17% at small firms. The percentage of covered workers at small employers enrolled in a self-funded health plan is unchanged from 1999.

More Companies Increased Contributions to Help Employees Pay Premiums

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Companies are more likely to have added or increased contributions to their employees’ premiums this year compared to the last two years, according to a study by the Transamerica Center for Health Studies (TCHS). The study of 1,500 employers was conducted by the Harris Poll from August 14 to September 3. Forty-four percent of companies expect their healthcare costs to increase in the next 24 to 36 months.

Most employers are trying to keep constant their contribution to employees’ premiums (57%), deductibles (60%), and co-pays/coinsurance (58%). Thirty percent want to maximize their contributions to employees’ premiums to help manage health insurance costs. TCHS Executive Director Hector De La Torre said, “The anticipated increase in healthcare costs correlates to improved quality for many employers.” Forty percent expect the quality of health insurance they offer employees to improve in the next 12 to 36 months while only 10% expect the quality to decline. Companies are most concerned about managing healthcare costs related to cancer (71%), drug expenses (69%), and diabetes and obesity (68%).

Sixty-one percent of employers offer wellness programs. Forty-nine percent of employers that have had a wellness program in the past 12 months say that saving money was the motivation. Eighty-two percent of companies say their wellness program improved workers’ health; 80% say it improved productivity and performance, and 71% say it reduced healthcare costs. De La Torre said, “Providing the best healthcare benefit package possible remains the top healthcare-related priority for employers. Interestingly, employers that offer healthcare benefits are more likely to anticipate profitability, hiring and wage increases in the next two years.”

Consumers Overlook HSA Investment Options

Investment options in health savings accounts (HSAs) are fairly new and not widely used, but they tend to draw larger contributions and have higher balances. In many cases, HSAs allow account owners to invest in mutual funds and other options, much like a 401(k) plan. So how are they working? A report by the Employee Benefits Research Institute finds the following:

  • In 2014, 6.4% of HSA owners used the investment option portion of the account.
  • People contributed $2,636 annually on average when they had investments and $1,224 when they did not have investments.
  • Annual distributions for health care claims averaged $1,777 from HSAs with investments, and $1,293 from HSAs without investments.
  • End-of-year account balances averaged $10,261 among HSAs with investments, and $1,709 in HSAs without them.

Target-Date Funds to Dominate 401(k) Contributions

target401kTarget-date assets are expected to capture almost 90% of 401(k) contributions by 2019, according to research from Cerulli Associates. “The market for target-date funds is highly competitive given the industry’s expectations for future flows, and we anticipate that competition will intensify. Target-date funds captured nearly 40% of flows in 2013, and we expect this number to more than double before the end of the decade,” says Jessica Sclafani, senior analyst at Cerulli.

The Pension Protection Act of 2006, which created the concept of a qualified default investment alternative (QDIA), played a key role in increasing the use of target-date funds in DC plans. Target-date funds provide an ideal investment for DC plans due to their simplicity as a one-stop investment solution, coupled with a significant lack of engagement from participants, she said. The increased use of automatic features, such as auto-enrollment and auto-escalation, will also drive greater assets into target-date strategies. “Asset managers that do not have a proprietary target-date product will be forced to reevaluate their DC strategy, as the assets that are expected to amass in target-date strategies over the next several years cannot be ignored,” Sclafani explains. For more information, visit, www.cerulli.com.

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.

Millennial Workers Not Saving Enough to Get Company Matching Contributions

Participation in 401(k) plans is strong among workers in their 20s and 30s, but many are not saving enough to take full advantage of their employer’s 401(k) match – potentially leaving thousands of dollars on the table and hurting their long-term financial health, according to a study by Aon Hewitt. While the average participation rate of young Millennial workers (age 20 to 29) is 73%- and 77% for older Millennials (age 30-39), many are saving at a low rate. Nearly 40% of 20 to 29 year olds and 31% of 30 to 39 year olds are saving at a level that is below the company match threshold.

Rob Austin, director of Retirement Research at Aon Hewitt said, “Automatic enrollment has significantly improved participation in 401(k) plans for all employees over the past 10 years—but even more so for young workers. However, once they’re in the plan, young workers seem to fall victim to inertia with many continuing to save only at the default rate, or slightly above, and risking their long-term savings by not receiving the full employer matching contributions that are offered.”

Leaving matching contributions on the table can cost young workers a significant amount of long-term savings. Consider a 25-year old worker who makes $30,000 annually and works for an employer that provides the typically company match – $1-for-$1 up to 6 percent. If that 25-year old starts saving the full match amount of 6% immediately upon employment and continues to do so until she reaches age 65, she’ll have more than $950,000 saved in her 401(k).  If that same worker waits until age 30 to begin saving 6%, she will have less than $715,000 saved at age 65. Five years of missed 401(K) contributions will cost the employee her $225,000 over her career. In order to make up the gap, she would need to increase her savings by 4% percent and start saving 10% of pay each year for the next 35 years.

“For young workers, it may seem insignificant to increase 401(k) contributions by a few percentage points, particularly at a point in their career and life when they’re likely earning a smaller salary, but the long-term effects can be remarkable,” explained Austin. “Employers can help Millennials improve their financial outlook by encouraging them to save at least at the match threshold through targeted communications and online tools and resources. To take it a step further, they can also increase the default contributions so that workers are saving at the match threshold immediately upon enrollment into the plan, or by offering automatic contribution escalation, which increases a workers’ contribution rate over time. The bottom line is young workers need to save more, starting now.” For more information, visit www.aonhewitt.com.

A Report on HSA Balances and Contributions

The Employee Benefit Research Institute (EBRI) released its HSA Database on 1.5 million accounts with total assets of $2.7 billion as of December 31, 2013. The following are EBRI’s findings:
• Enrollment in HSA-eligible health plans is estimated to range from 15.5 million to 20.4 million policyholders and their dependents. Estimates are that there are 10.7 million accounts holding $19.3 billion in assets as of Dec. 31, 2013. Seventy percent of HSAs have been opened since 2011.
• The average HSA balance was $1,766 at the end of 2013, up from $1,280 at the beginning of the year. Average account balances increased with the age of the owner of the account. Account balances averaged $697 for owners under age 25 and $4,460 for owners ages 65 and older.
• HSAs with individual or employer contributions accounted for 69% of accounts and 87% of assets. Six percent of these accounts ended the year with a zero balance.
• Individuals who made contributions deposited an average of $2,032 to their account. HSAs receiving employer contributions received $1,184, on average.
• Four-fifths of HSAs with a contribution also had a distribution for a health care claim during 2013.
• Among HSAs with claims, the average amount distributed for health care claims was $1,953.
• Distributions for health care claims increased with age, with the exception of those ages 65 and older. Average annual distributions were $667 for account owners under age 25, $2,335 for account owners ages 55 to 64, and $2,017 for account owners ages 65 and older. Average annual distributions were higher for older accounts. However, the likelihood of taking a distribution for health care claims was higher among newer accounts.
• HSAs are likely to keep growing. Thirty percent of larger employers are expected to offer an HSA-eligible health plan or HRA as the only plan option by 2015.

Last Updated 06/23/2021

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