Is it actually possible that we could have moderate healthcare cost increases in 2012? For those of you that follow this type of information. you're likely aware that "moderate" is not a word that accurately the trajectory of health care costs over the years. Even during the very week economy of the past few years, healthcare costs have risen 8% - 10% per year.
Preliminary results though from Mercer's National Survey of Employer-Sponsored Health Plans 2011 though is predicting a very modest (by health care standards) increase if 2012.
The latest Mercer survey finds health benefit cost growth for 2012 likely to be the lowest in 15 years:
- Preliminary data from Mercer's annual survey indicate that the average cost of employee health coverage will rise 5.4% in 2012 (after modest plan modifications).
- Slowdown in utilization of health services is holding down cost growth.
- Employers are increasing their investment in consumerism and health management.
- The rising gap between health benefit cost growth and workers' earnings remains.
Preliminary data from the Mercer survey suggest that the average growth in health benefit costs will slow to 5.4% in 2012, the smallest increase since 1997. Still, cost growth remains well above both general inflation and growth in workers' earnings (see Figure 2).
While this increase reflects cost-cutting changes employers will make to their current health benefit programs, such as raising deductibles or moving employees into lower-cost health plans, the survey findings released by Mercer suggest that the underlying trend has slowed as well. Asked how much cost would rise if they made no changes to their current plans, employers reported an average increase of 7.1%. Over the past five years, this underlying health benefit cost trend has been running at about 9%.
The slower trend is good news for workers, because an employer's first line of defense against a high initial renewal rate typically is to change plan provisions so that employees pay more out of pocket for health care. If the underlying trend is lower to begin with, employers will be likely to engage in less cost shifting than they have an recent years.
Understanding the slower cost growth for 2012 means looking at the factors working to hold down the underlying trend along with the actions employers are taking to reduce cost next year. Use of health services, which slowed this year, is one such factor. Some analysts believe the tough economy, combined with generally higher deductibles and other forms of cost-sharing, is affecting utilization – that because employees have less disposable income and are working longer hours, they are less likely to seek non-urgent care.
Employer cost management tactics for 2012
While the underlying cost trend may slow in 2012, an increase of more than 7% – twice the rate of general inflation – is still higher than many employers are willing or able to absorb. Some plan to shift cost to employees by raising premium contributions in 2012. Employers are slightly more likely to increase contributions for dependent coverage (36%) than for employee-only coverage (33%). The difference is greater among the largest employers (42% will raise dependent contributions and 36% will raise employee-only contributions); they may be attempting to compensate for enrolling more dependents under the health reform law's rule stipulating that employees' children up to age 26 be eligible for coverage.
About a third of the survey respondents (33%) say they are raising deductibles or co-payments in 2012. The past five years have seen employers increasingly using this type of cost-shifting, driving the median in-network PPO deductible for an individual to $1,000 among small employers (those with 10–499 employees) and to $500 for large employers last year.
One way employers can give employees a stake in their health care spending without creating a disincentive to use health services when needed is with consumer-directed health plans (CDHPs). These are high-deductible plans with an employee-controlled spending account – a health saving account (HSA) or health reimbursement arrangement (HRA). Many of these plans give employees an incentive to take cost into consideration when seeking health care services by allowing them to save, on a tax-advantaged basis, account dollars they don't spend in a given year for future needs. Preventive care is covered in full.
"We're expecting to see a spike in 2012 in both the number of employers offering CDHPs and in the number of employees enrolling in them," said Beth Umland, Mercer's director of research for health and benefits. "Employers see them as a way to provide more value to employees while at the same time managing cost."
CDHPs are significantly less expensive than traditional PPOs or HMOs – by about 15%, on average. The use of CDHPs has been growing steadily over the past five years, particularly among the largest organizations. In 2010, offerings of CDHPs ranged from 14% among employers with 10–49 employees to 51% among those with 20,000 or more employees. Survey results suggest there will be an increase in offerings of these plans in 2012: 18% and 58% of the smallest and largest survey respondents, respectively, say they plan to offer a CDHP in 2012.
"While 2012's slower cost growth is welcome news, it's still higher than the CPI – which means employers won't be letting up their efforts to control costs anytime soon," said Susan Connolly of Mercer. " Advanced strategies like limited provider network plans and more intensive employee education and engagement will continue to evolve."
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