Employers Hold the Line on Health Benefit Cost Per Employee in 2014
Mercer, October 1, 2013
Based on early responses from a major survey conducted annually by Mercer, employers expect health benefit cost per employee will rise by 4.8% on average in 2014
“The recession has been one factor behind slower cost growth, by dampening utilization,” said Beth Umland, Mercer’s director of research for health and benefits. “But employers have made fundamental changes in their health benefit programs in recent years that have put the brakes on unsustainable cost growth.”
Employers estimate that if they made no changes to their current plans, health benefit cost per employee would rise by 7% on average in 2014.
One of the key strategies employers are using to manage cost growth is implementing consumer-directed health plans, which give employees financial incentives and information resources to seek more cost-effective care and are typically paired with an employee-controlled account. Another is health management (or “wellness”) programs focused on improving workforce health. And an emerging trend for 2014 that is expected to accelerate in 2015 is the use of private exchanges, such as Mercer Marketplace, which make it easier for employers to offer a range of medical plan options and voluntary benefits and which can be a tool in cost management.
About a third of all large employer health plan sponsors (those with 500 or more employees) do not currently offer coverage to all employees working 30 or more hours per week, as will be required under the Affordable Care Act (ACA) beginning in 2015. Industries that rely heavily on part-time workers will be the hardest hit by this rule. About half of respondents in retail and hospitality currently do not offer coverage to all employees working 30 or more hours per week.
Some employers will minimize the number of newly eligible employees by cutting back on hours for at least a portion of their workforce – 11% of all large employers say they will do so. But most employers affected by the rule will simply open their plans to all employees working 30 or more hours per week and brace for rising enrollment.
“Rising enrollment will be an even bigger issue in 2015 when the shared responsibility penalty goes into effect,” said Ms. Watts. “While some employers are going ahead with plans to expand eligibility in 2014 despite the delay, most of those with the big part-time populations are holding off and will feel the pinch in 2015.”
Few large employers – just 5% – say it’s likely they will terminate their health plans within the next five years, even though public insurance exchanges will provide another source of health coverage. About a fifth of employers with fewer than 200 employees say it’s likely they will terminate their plans; employers of this size are much less likely to offer coverage to begin with.
Under the ACA, beginning in 2018 employers will pay a 40% tax on the cost of health coverage in excess of $10,200 for an individual or $27,500 for a family. “This tax has been dubbed the ‘Cadillac tax’ but that’s really a misnomer,” said Ms. Watts. “Health coverage can often be expensive without being overly generous.”
Based on cost data collected in 2011, Mercer estimates that about 40% of employers would have to pay the tax on at least one plan if they made no changes to current plan design. Nearly a third of all large employers say they are taking steps in 2014 to avoid the tax in 2018 – in many cases, by adding a high-deductible consumer-directed health plan or taking steps to increase enrollment in an existing plan.
http://www.mercer.us/press-releases/1557830
Comment:
By Don McCanne, M.D. These preliminary findings just released by Mercer indicate that employers will continue to take steps to reduce their own costs of their health benefit programs, by shifting even more costs to their employees. One of the more shocking new numbers is that nearly a third of large employers are taking steps in 2014 to avoid the 40 percent excise tax on expensive plans – a tax that will be assessed in 2018. These expensive plans do not have overly generous benefits, but they are expensive only because health care has become so expensive. To avoid the tax, most employers will be offering high-deductible, consumer-directed health plans which expose employees to greater out-of-pocket expenses. Although only 5 percent of large employers say that they will terminate their plans within the next five years, the deterioration in coverage will surely cause a backlash from those who need care and cannot afford the out-of-pocket expenses. It may be that those who currently feel secure with the plans they get through their work may be the ones who will eventually clamor for single payer once they see how exposed their plan revisions will leave them.
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