Employers Hold the Line on Health Benefit Costs

News Updates

U.S. employers expect their health benefit cost per employee to rise by 4.8 percent, on average, in 2014, according to a survey by consultancy Mercer. Cost growth slowed to 4.1 percent in 2012, a 15-year low. The projected increase for 2014, while still relatively low, represents a slight uptick.


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For some companies, however, slower growth in the cost of coverage will be overshadowed by additional expenses from higher enrollment and fees under the Patient Protection and Affordable Care Act (ACA), according to Mercer's analysis.

When asked to consider the effect of higher enrollment and new fees (such as the reinsurance fee of $63 per covered employee), about half of the employers surveyed said they will spend at least an extra 2 percent on health benefits in 2014 over and above the normal cost increase.

Holding Down Costs

“Employers have made fundamental changes in their health benefit programs in recent years that have put the brakes on unsustainable cost growth,” Beth Umland, Mercer’s director of research for health and benefits, said in a media release.

Organizations estimate that if they make no changes to their current plans, the health benefit cost per employee will jump by an average of 7 percent next year.

One of the key strategies employers are using to manage cost growth is implementing consumer-directed health plans that give workers financial incentives to seek more cost-effective care. Typically, high-deductible plans are paired with a health savings account or health reimbursement arrangement.

The spread of health-promoting wellness programs has also been linked by some to curtailed health care spending.

Storm Clouds in 2015?

About a third of all large-employer health plan sponsors (those with 500 or more workers) do not offer coverage to all people working 30 or more hours per week, as the ACA will require beginning in 2015.

Industries that rely heavily on part-time workers will be the hardest hit by this rule. About half of the survey respondents in retail and hospitality do not offer coverage to all employees working at least 30 hours per week.

Some businesses will minimize the number of newly eligible employees by cutting back on hours for at least some workers (11 percent of all large employers say they will do this). But most companies affected by the rule will simply open their plans to all employees working a minimum of 30 hours per week and brace for rising enrollment.

In addition, next year all Americans will have to have health insurance or face a tax penalty. Because of this rule, fewer employees may choose to waive coverage. Currently, at organizations with 500 or more employees an average of 16 percent of those eligible waive self-coverage.

Looking further ahead, employers indicated they are concerned about the looming excise tax on high-value health plans. Under the ACA, beginning in 2018 employers will pay a 40 percent tax on the cost of health coverage in excess of $10,200 for an individual or $27,500 for a family.

Based on cost data collected in 2011, Mercer estimated that about 40 percent of employers would have to pay the tax on at least one plan if they made no changes to their current plans. Nearly a third of all large organizations surveyed intend to take steps in 2014 to avoid the tax in 2018—in many cases, by adding a high-deductible consumer-directed health plan or working to increase enrollment in an existing plan.

These preliminary findings from Mercer’s National Survey of Employer-Sponsored Health Plans 2013 are based on replies from about 2,000 employers who responded by Sept.10, 2013.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

To read the original article on shrm.org, please click here.