Employers accelerate efforts to bring health benefit costs under control

Although the average total health benefit cost growth per employee slowed in 2011 (to 6.1% ($10,146 per year), down from 6.9% in 2010), according to Mercer, a benefits consulting firm, health reform is having an impact on employers’ accelerating efforts to bring health benefit costs under control. Respondents to the Mercer survey expect health benefit costs to increase, on average, by 5.7% in 2012. The cost growth from 2010 to 2011 was much smaller for large employers (3.6%) than for small employers (9.9%), Mercer finds.

Impact of health reform. The Patient Protection and Affordable Care Act (PPACA) requirement that employers extend dependent coverage eligibility to employees' children up to age 26 boosted health plan enrollment by an average of 2 percent, Mercer points out. Employers expect that PPACA provisions effective in 2014 that require employers to extend coverage eligibility to all employees working at least 30 hours per week on average, auto-enroll newly eligible employees, and the new mandate that all individuals obtain health insurance coverage, will result in another increase in enrollment. Retailers and other employers with large part-time populations are likely to be the most affected, Mercer observes.

The PPACA provision of greatest concern to the most employers is the excise tax on high-cost plans with nearly half of the Mercer survey respondents rating it as a "significant" or "very significant" concern. Some have high-cost plans simply because they have an older or less healthy workforce or are located in a high-cost area, not necessarily because they offer very generous plans. Only 39% of employers with 50 or more employees believe their current plans won't reach the excise tax cost threshold, which will be tied to the consumer price index (CPI) and increase each year. Nearly all the rest are determined to avoid the tax if they can: 21% say they "will do whatever is necessary to bring cost below the threshold amounts," and 36% say they will attempt to bring the cost below the threshold amounts, acknowledging that "it may not be possible." Only 4 percent will take no action to avoid the tax, Mercer finds.

"Employers that are concerned about a jump in enrollment in 2014 or the excise tax in 2018 see a need to slow cost growth now," says Beth Umland, Mercer's director of research for health and benefits. "While cost-shifting to employees is still going on, this year we saw more employers adopting strategies they believe will provide better results over the long haul."

Fewer than half of all employers (47%, down from 50% in 2011) say they will shift costs to employees in 2012 by raising deductibles or the percentage of the premium employees pay.

"Best practices" save money. As mentioned, large employers reported a significantly lower average health benefit cost increase than small employers in 2011: 3.6% compared to 9.9%. "The health care reform law may have had a greater impact on small employers than large employers in 2011," says Mercer’s Umland. "But the survey also shows that large employers are doing more to control health benefit cost."

Small employers tend to offer less-generous coverage than large employers, and so were more likely to be affected by new PPACA rules restricting annual benefit limitations and mandating free preventive care. However, they are also less likely to invest in the types of programs that large employers are using to manage cost, Mercer suggests.

Commitment to providing health benefits. Employers remain committed to providing health benefit plans to their employees, even after the PPACA-mandated state health insurance exchanges become available in 2014, Mercer finds. Few large employers say they would terminate their health plans and have employees seek coverage in the individual market instead with 9 percent of all employers with 500 or more employees, but 4 percent of those with 5,000 or more employees, say they would do so.

"Employers have had a year to think about the impact of health reform," says Mercer’s Umland. "When they consider the penalty, the loss of tax savings and potentially grossing up employee income so they can purchase comparable coverage through an exchange, many don't see a financial advantage in dropping coverage."

Small employers were more likely to indicate they would terminate their plans in 2014 --19% of those with 10 to 499 employees, about the same proportion as in 2010. Employers of this size are less likely to offer coverage to begin with; they generally offer fully insured health plans and, with small risk pools and little purchasing power, are vulnerable to large rate increases, Mercer suggests. In 2011, the percentage of small employers offering an employee health plan fell from 57% to 53%.

Other health reform-related findings. Self-funding interest has risen amid concerns that new PPACA regulations will drive up the cost of fully insured plans. Of the 28% of employers with 500 or more employees that have a fully insured PPO, one-third say they are likely to switch to self-funding within the next three years. Just 8% of smaller employers say it's likely they will switch.

Grandfathered status: Only about half of all employers (and 37% of large employers) believe they will maintain the grandfathered status of all their health plans until 2014. One-third had no grandfathered plans in 2011 and 18% expect to lose grandfathered status over the next two years.