NEW YORK--(BUSINESS WIRE)--Employers took action on several fronts to hold down growth in the average per-employee cost of health benefits to 3.9% in 2014. While this was a bigger increase than last year’s historically low increase, it is still well below the 7% average rate of growth over the past 15 years. According to the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer, total health benefit cost averaged $11,204 per employee in 2014; this includes employer and employee contributions for medical, dental and other health coverage.
Employers predict that in 2015 their health benefit cost per employee will rise by 4.6% on average. This increase reflects changes they will make to reduce cost; if they made no changes to their current plans, they estimate that cost would rise by an average of 7.1%.
Mercer’s nationally projectable annual survey includes public and private organizations with 10 or more employees; 2,569 employers responded in 2014.
“Employers have done a remarkable job of holding down health cost growth for the past few years,” said Julio A. Portalatin, President and CEO of Mercer. “But with enrollment almost certain to rise in 2015 as major ACA provisions go into effect, they’ll need to intensify their efforts. The strong interest they’re showing in private exchanges suggests that this new benefit delivery system is the innovation they have been waiting for.”
Helping to hold down cost growth in 2014 was the largest one-year increase in enrollment in high-deductible consumer-driven health plans (CDHP), from 18% to 23% of all covered employees. In addition, 3% of large employers (those with 500 or more employees) moved to a private exchange in 2014 (or for 2015) to provide benefits to their active employees, and another 28% say they are likely to do so within the next five years.
Employers brace for 2015 cost "wildcard" -- higher enrollment
Many employers anticipate spending more to cover more employees in 2015 as the ACA provision goes into effect requiring employers to extend coverage to substantially all employees working 30 or more hours per week. Well over a third of large employers (38%) were affected by this rule, and while some have already taken steps to comply, the majority will do so in 2015. What may drive up enrollment still further is that employees who have chosen not to elect coverage in the past now have a stronger incentive to do so -- as the minimum tax penalty for not obtaining coverage rises to $325 for 2015 from just $95 this year.
Consumerism taking hold as enrollment in CDHPs jumps to 23%
Employers of all sizes, but especially large employers, added consumer-directed health plans in 2014. Offerings of CDHPs jumped from 39% to 48% among employers with 500 or more employees, and from 63% to 72% among jumbo employers. CDHP enrollment spiked from 18% to 23% of all covered employees, while enrollment in HMOs fell to just 16%, the lowest level of enrollment seen since the survey began in 1993. Enrollment in traditional PPOs fell as well, from 64% to 61%.
Many employers that did not already cover all employees working 30 or more hours said they would add a lower-cost plan for newly eligible workers, and this may have helped fuel CDHP growth in 2014. The average cost of coverage in a CDHP paired with a tax-advantaged health savings account is 18% less than coverage in a PPO and 20% less than in an HMO: $8,789 per employee, compared to $10,664 for PPOs and $11,052 for HMOs.
These plans are also a top strategy for employers looking for ways to avoid paying the “Cadillac tax” in 2018 – a 40% excise tax on health coverage that costs more than $10,200 for an individual or $27,500 for a family. Mercer estimates that about a third of employers are currently at risk for triggering the tax in 2018 if they make no changes to their most costly plan.
Fewer employers than ever are considering terminating their plans
While Mercer’s past five annual surveys have consistently shown that employers remain committed to offering health coverage, in 2014 the number saying they expect to drop their plans and send employees to the public exchange fell even further. Just 4% of all large employers believe it is likely that they will terminate their employee health plans within the next five years, down from 6% in last year’s survey. And while small employers are still more likely to be considering an exit strategy, the number of those with 50-199 employees that say they are likely to drop their plans fell from 23% in 2013 to just 16% in 2014.
The full report on the Mercer survey, including a separate appendix of tables of responses broken out by employer size, region and industry, will be published in April 2015. For more information, visit www.mercer.com/ushealthplansurvey.
Mercer is a global leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in more than 43 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerInsights.