The cost of employee health insurance coverage is expected to rise again next year, albeit at the slowest pace in more than a decade, as employers experiment with a range of cost-saving strategies.
Employee health care costs have been on a steady upward trend for years, accounting for increasingly larger portions of overall business expenses. New reports indicate that health insurance costs have risen sharply in 2011
and are expected to continue climbing next year. In an effort to curb mounting health care expenses, many businesses are adopting lower-cost options
and shifting more of the burden
Early responses from an ongoing Mercer
survey show that health benefits costs will rise an average of 5.4 percent in 2012, the smallest increase since 1997. However, the rate of growth will still exceed the general inflation rate and increases in workers' earnings.
"While 2012's slower cost growth is welcome news, it's still higher than the CPI [consumer price index] which means employers won't be letting up their efforts to control costs anytime soon," according to Susan Connolly, a partner in Mercer's Boston office. "Advanced strategies like limited provider network plans and more intensive employee education and engagement will continue to evolve."
The recent slowdown in the growth rate to a 15-year low reflects widespread cost-cutting efforts implemented by employers, including moving employees to less expensive benefit plans, raising deductibles and increasing worker paycheck contributions.
Without these changes to health care plans, employers estimate that costs would increase 7.1 percent, more than twice the rate of general inflation and a figure that many businesses are not "willing or able to absorb." Over the past five years, health benefit increases have risen an average of 9 percent annually.
"Employers seem to be turning to cost-shifting as an alternative to dropping coverage outright. During the first half of the decade, the share of companies offering health insurance shrank from 68 percent to 60 percent, and the figure for very small firms dropped from 58 percent to 48 percent. But since about 2005 that decline has leveled off," the Washington Post
reports. "Premiums paid directly by workers have galloped ahead of wage increases and inflation rising 131 percent between 2001 and 2011 for family plans. Employer costs for those plans have gone up 113 percent over the same period, as some have asked their workers to take on a higher proportion of premium costs."
To cope with future cost increases, 33 percent of employers plan to raise contributions for employee-only coverage, 36 percent plan to raise contributions for dependent coverage, 33 percent plan to increase deductibles, co-pays and out-of-pocket maximums, 7 percent plan to increase cost-sharing some other way and 39 percent are not planning to ask employees to pay a greater share of the cost, according to Mercer's findings.
Many cost-cutting measures have increasingly shifted the burden onto workers, with the median in-network PPO deductible for an employee at a small business (0-499 workers) rising to $1,000 this year and to $500 for employees of large businesses (over 500 workers).
"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," CNN Money
reports. "They are also a lot less expensive than other plans."
According to Mercer, CDHPs are roughly 15 percent cheaper than traditional health care insurance plans, and their use has risen sharply in recent years. In 2012, CDHP offerings are expected to reach 18 percent among small businesses and 58 percent among larger businesses.
In 2011, annual premiums for employer-sponsored family health coverage have climbed to $15,073, up 9 percent from last year, according to a joint report
this week from the Kaiser Family Foundation and the Health Research and Educational Trust. Workers pay an average of $4,129 of the total, while employers pay $10,944. Meanwhile, premiums for worker-only coverage rose to $5,429, an 8 percent increase from 2010.
"The steep increase in rates is particularly unwelcome at a time when the economy is still sputtering and unemployment continues to hover at about 9 percent. Many businesses cite the high cost of coverage as a factor in their decision not to hire, and health insurance has become increasingly unaffordable for more Americans," the New York Times
notes. "Overall, the cost of family coverage has about doubled since 2001, when premiums averaged $7,061, compared with a 34 percent gain in wages over the same period."
How Health Plans Will Change in 2011
Cut Costs, Keep Health Care
Employers to Raise Workers' Health Care Costs
...Health Benefit Cost Growth for 2012 Likely to be the Lowest in 15 Years
Mercer, Sept. 21, 2011
Surveys: Health Insurance Costs Shifted to Workers, Even as Premiums Surge
by N.C. Aizenman
The Washington Post, Sept. 27, 2011
Health Insurance Costs to Rise Again Next Year
by Deborah Brunswick
CNN Money, Sept. 22, 2011
Employer Health Benefits 2011
The Kaiser Family Foundation / Health Research and Educational Trust, September 2011
Average Annual Premiums for Family Health Benefits Top $15,000...
The Kaiser Family Foundation, Sept. 27, 2011
Health Insurance Costs Rising Sharply this Year, Study Shows
by Reed Abelson
The New York Times, Sept. 27, 2011