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Industry News

 

Employers Plan to Reduce Health Benefit Cost Significantly in 2010

Friday May 1, 2009

 

New York — April 30
Most employers had their health benefit programs locked and loaded for 2009 before the dramatic onset of the economic crisis in September 2008. Health benefit cost had risen by about 6 percent for four consecutive years, and employers expected a similar increase in 2009. But a new survey of 428 employers conducted by Mercer finds that employers now foresee an increase of 7.4 percent in 2009, confirming fears that the recession would accelerate health cost increases.

“In past recessions we’ve seen an initial cost spike driven by stress-related illnesses, laid-off workers using benefits before their coverage ends and employees who anticipate changes in benefits. Knowing that coverage could end or be significantly changed is an incentive to ‘store up’ procedures and medications that could be unaffordable to an unemployed person,” said Linda Havlin, global intellectual capital leader for Mercer’s health and benefits business.

“At the same time, employers are trying to reduce operating expense to cope with a tough business climate. So the spike is usually followed by a steady decline as employers take aggressive action to lower cost. In the early ’90s the decline was generated by managed care and point-of-service plans. And after 2001 employers began shifting more cost to employees.”

The survey, conducted in March, found that employers are gearing up to bring their average cost increase down to 5.2 percent in 2010. If they achieve this, it would be the lowest annual increase in health benefit cost since 1997, according to Mercer research.

Nearly half of all respondents (46 percent) said they will make more cost-saving changes than usual to their health plans because of economic conditions. “For many employers, simple cost shifting won’t be the silver bullet this time around,” said Ms. Havlin.

“Last year, the average in-network individual deductible was $1,000. Survey results show that many employers are instead considering a consumer-directed health plan.”

More than a fifth of all respondents plan to adopt a consumer-directed health plan (CDHP). These are high-deductible plans with an associated employee-controlled account, either a health savings account or a health reimbursement arrangement. CDHPs are currently offered by an estimated 14 percent of small employers (10-499 employees) and 25 percent of large employers (500-plus employees), according to Mercer’s 2008 national survey. Results from the new survey suggest that the percentage of employers offering CDHPs could double in 2010.

Employers also plan to get tougher on vendors by auditing plans for appropriate payments and accurate dependent eligibility management (49 percent), going out to bid (46 percent) and renegotiating administrative-services only fees (39 percent).

Some survey respondents said they will make some of these types of changes to their 2009 plans. Employers can audit any time they want, but many other changes have to wait until the next plan year.

For more info: http://www.mercer.com