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Mercer Survey: Employee Health Care Benefit Costs Expected to Rise 5.4% in 2012

Source: CNN Money

Posted on 23 Sep 2011

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Employee health care benefit costs are expected to increase 5.4% next year, according to an annual survey released by Mercer.

While the projected health insurance increase would be the smallest recorded in 15 years, it still remains well above the general rate of inflation, which stands at 3.9%, and salary growth.

Employers surveyed by Mercer say they have been trying to contain health care costs by raising deductibles, increasing paycheck contributions, and moving employees to lower-cost health plans.

"While 2012's slower cost growth is welcome news, it's still higher than the [consumer price index] -- which means employers won't be letting up their efforts to control costs anytime soon," said Susan Connolly, a partner in Mercer's Boston office.

If they were to make no changes to their plans, employers reported that their benefit costs would increase by 7.1%. While that would still be down from annual increases of about 9% in the past couple of years, most employers say it's still too much for them to absorb.

Number of people without health insurance climbs

As a result of all of these cost-cutting measures, employees are picking up more of the tab. Over the past five years, employers have increasingly shifted costs to employees through higher deductible plans and Mercer expects they will continue to do so. About one-third of survey respondents said they plan to raise deductibles or co-payments next year, Mercer said.

The median in-network PPO deductible for an individual is now $1,000 among small employers and $500 for large employers, according to Mercer.

Employers have also been pushing consumer-directed health plans, or CDHP, which are high-deductible plans with a tax-advantaged spending account like a health saving account attached to it. They are also a lot less expensive than other plans. According to Mercer, a CDHP costs about 15% less than an average HMO or PPO plan.

"Employers see them as a way to provide more value to employees while at the same time managing cost," said Beth Umland, Mercer's director of health and benefits research in a press release.

As a result, Mercer expects to see a surge in the number of these plans being offered in the workplace next year. Currently, about 51% of the companies with 20,000 or more employees that Mercer surveyed offered a CDHP plan. And 58% of the employers Mercer surveyed said they plan to offer one next year.

One interesting but dangerous trend found in the survey is that employees are going to the doctor less. This "slowing utilization" could be a result of the tough economy -- people have less disposable income and therefore are seeking less non-urgent treatment. But it could also be a sign that employers' health management programs are starting to work, said Connolly.

"Earlier risk identification and health education, along with improvements in drug therapies and medical technology, are keeping people with health risks and chronic conditions away from the emergency room," she said.

Mercer's early survey results are based on interviews with about 1,600 employers. The firm expects to release final survey results that include responses from 2,800 employers, by the end of the yea