A major survey released last week found that nationwide, the cost of employer-sponsored health benefits rose by an average of 6.1 percent in 2006, the same as last year, and employers expect health costs to rise by another 6.1 percent in 2007.
That’s about twice the rate of inflation, but it’s a big improvement from 2002, when health-benefit costs grew by 14.7 percent, the most in 12 years. In 1990, before managed-care plans began curbing health spending, costs went up by 17.1 percent.
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The figures come from the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer Health & Benefits LLC and this year involving nearly 3,000 employers. The survey is widely regarded as one of the largest and most authoritative on the topic.
Only 10 Rhode Island employers participated – too few for a statistically valid sample – but their responses showed slower health cost growth than the national average: 4.1 percent in 2006, to an average of $8,905 per employee, with a 5.6-percent hike expected in 2007.
Traditionally, Rhode Island has seen faster health-care inflation and higher overall costs than the nation as a whole.
For the Northeast, the average reported health-benefits cost increase was 6.3 percent, to $8,180 per employee. Nationally, the average reported cost in 2006 was $7,523.
But the future, the survey indicates, is uncertain. A key strategy for holding down costs in recent years has been to shift costs to workers – directly, by making them pay a bigger share of the premiums, but also indirectly, through choosing plans with high deductibles and co-payments.
Mercer’s survey last year found that only 21 percent of employers viewed further cost-shifting or scaled-back benefits as significant cost-management strategies for the future.
This year’s survey found they were true to their word: Average deductibles, co-pays and out-of-pocket maximums, which rose rapidly from 2000 to 2005, showed only “modest” growth, Mercer said.
Of course “modest” can be a relative term: The average in-network deductible for a preferred-provider organization (PPO), the most common type of health plan, was $846, up 10 percent from last year, the survey shows. And this year, 31 percent of employers envision further cost-shifting or benefits reductions in the future.
Still, employers’ distaste for cost-shifting does raise a “multimillion-dollar question” for employers, said Deborah Wozniak, a consultant in Mercer’s Boston office and one of the study’s authors: “If cost growth in health benefits has stopped slowing, will it now start to accelerate?”
Mercer’s and other surveys have found that employers see promise in “consumer-driven” health care, which involves a combination of financial incentives and education to encourage workers to take better care of themselves and use health services frugally.
But while they may embrace individual strategies, the number actually offering consumer-directed health plans (CDHP), combined with a health savings account (HSA) or health reimbursement account (HRA) is still small: 6 percent, up from 2 percent last year.
Wozniak saw promise in the increase: “Some industry watchers look at the low enrollment in CDHPs and conclude that employees aren’t accepting the model,” she said. “But a three-fold increase in one year suggests otherwise.”
CDHPs delivered substantially lower cost per employee in 2006 than either PPOs or HMOs. CDHP cost averaged $5,770 per employee, versus $6,616 for HMOs and $6,932 for PPOs (but just $6,019 for PPOs with comparable deductibles of $1,000 or more).
Among employers with fewer than 500 workers, the survey found that 14 percent expected to offer a CDHP in 2007, including those who currently offer one, and 16 percent expect to do so by 2008. Currently, only 5 percent of those employers offer CDHPs.
Among employers with 500 or more employees, CDHP offerings are predicted to rise from 11 percent this year to 14 percent in 2007 and 19 percent in 2008, which Mercer described as “good, but not spectacular, growth.” That means future growth in such plans may not be as rapid as it has been in the last two years.
“By now, the early adopters have already acted,” Wozniak said. “We can expect a pause while employers with more of a ‘show-me’ mindset wait for results.”
The other big strategy experts at Mercer and elsewhere have promoted is care management, in which people with asthma, for example, are targeted for extra advice and support to prevent crises, or smokers might be helped to quit.
In 2006, employers added more care-management features to their health plans, Mercer found – in particular, health risk assessments, now offered by 22 percent – and they also added incentives for employees to participate in those programs.
Those strategies do seem to pay off, Mercer noted. Nearly a fourth of all large employers, and half of those with 20,000 or more employees, have attempted to measure the return on investment on various care-management programs, and of those, 79 percent said they are satisfied or very satisfied with the ROI.
Looking ahead, employers seem to value both consumer-driven and care-management strategies: The survey found each was rated important or very important by 43 percent of respondents.
