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Group health plan costs rising more slowly

Group health plan costs rising more slowly

Group health care plan costs increased more than 6% in 2011, and the cost per employee crossed the $10,000 mark, according to a survey of more than 2,800 employers released last week by Mercer L.L.C. in New York.

The 6.1% 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 somewhat less than in 2010, when costs jumped an average of 6.9%, but is in line with cost increases in recent years. From 2005 through 2007, health plan costs rose an average of 6.1% annually, while in 2008 costs increased an average of 6.3%. In 2009, costs climbed an average of 5.5%, which was the smallest increase 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% of large employers—those with at least 500 employees—offered a consumer-driven health plan linked to health savings accounts or health reimbursement arrangements in 2011, up sharply from the 23% that did so in 2010.

The appeal of CDHPs 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% 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% of large employers with health management programs provided incentives or penalties this year to encourage participation, up from 27% last year.

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

The survey also found cost increases were much lower among large employers than smaller organizations—employers with between 10 and 499 employees. Health care plan costs increased an average of 3.6% among large employers this year compared with an average of 9.9% 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 restricted annual dollar limits unless special government waivers could be obtained and that 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 take effect, such as federally subsidized premiums for uninsured lower-income individuals to buy coverage through new state insurance exchanges.

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

In general, though, when employers “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,” Ms. Umland said.

Other survey findings include:

• Prescription drugs costs rose just 5% in 2011, compared with 10% five years ago and 17% 10 years ago. Mercer attributed slowing cost increases to employer design strategies that encourage the use of less costly generic and over-the-counter medications.

• Retiree health care plans continue to dwindle. In 2011, 24% of large employers offered coverage to retirees under 65, and 16% offered coverage to Medicare-eligible retirees. As recently as 2005, 29% of large employers offered coverage to retirees under 65, while 21% offered coverage to Medicare-eligible retirees.

• Nearly half of respondents with at least 50 employees said they had a “significant” or “very significant” concern about a provision in the health care reform law that will impose a 40% excise tax on health care premiums that exceed certain amounts, which takes effect in 2018.

While the tax would be imposed on insurers—and, in the case of self-funded employers, third-party claims administrators—experts expect insurers and TPAs to recover the taxes they pay through new charges on employers.