NEW YORK--(BUSINESS WIRE)--An urgent goal of many businesses today is to lower their exposure to the fast-approaching 40% excise or “Cadillac” tax, one of the Affordable Care Act’s (ACA’s) final provisions, effective in 2018. Employers’ actions helped to hold growth in health benefits cost per employee to just 3.8% in 2015, under 4% for the third straight year.
According to the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer, total health benefits cost averaged $11,635 per employee in 2015. This cost includes both employer and employee contributions for medical, dental and other health coverage, for all covered employees and dependents. Large employers (500 or more employees) saw a lower average increase than did smaller employees – 2.9% compared to 5.9%. Mercer’s survey has 2,486 participants in 2015.
Employers predict that in 2016 their health benefits cost per employee will rise by 4.3% on average after they make plan changes to reduce cost. Without any changes, employers estimate that cost would rise by an average of 6.3%--but about half of all employers said that they would make changes in 2016.
“Employers are moving on several fronts to hold down health cost growth,” said Julio A. Portalatin, President and CEO of Mercer. “In the best scenarios, they’re addressing workforce health, restructuring provider reimbursement to reward value, and putting the consumer front and center by providing more options and more support. In other cases, the pressure to avoid the excise tax is leading to some cost-shifting, plain and simple.”
More employees than ever are enrolled in consumer-driven health plans (CDHPs). Enrollment nearly doubled for large employers over the past three years – from 15% to 28% of covered employees –helping to hold down cost growth. Among small employers (10-499 employees), enrollment has risen from 17% to just 19%. Overall, one out of four covered employees is now enrolled in a CDHP.
Excise tax is a challenge, especially for employers without a “Cadillac” plan
Mercer estimates that 23% of large employers have at least one plan with cost that will exceed the excise tax threshold in 2018 if they make no changes between now and then. That’s down from 33% last year, because employers continue to make changes to slow cost growth. But, the percentage of employers at risk will rise each year that medical inflation exceeds the general CPI; by 2022, 45% of employers are estimated to be liable for the tax unless they make changes.
Those with very rich plans have room to maneuver. But among large employers, only 44% of the plans expected to reach the excise tax cost threshold in 2018 have an actuarial value (AV) of 90% or higher, like the Platinum plans on the public exchange. Another 45% are Gold-level plans (AV of 80%-89%); the rest are Silver or Bronze-level. So, even some employers without “Cadillac” plans are facing the Cadillac tax.
Consumerism broadens: more people, more tools
Consumer-directed health plans continue to be a key means for minimizing excise tax exposure. Fully one-fourth of all covered employees are now enrolled in a CDHP—a high-deductible health plan that includes an employee account, most often a health savings account (HSA). The largest employers have moved the fastest to add CDHPs – 73% of employers with 20,000 or more employees now offer one, and 30% of their covered employees are enrolled.
Most employers offer a CDHP alongside other medical plan choices, and building CDHP enrollment over time is an ongoing challenge. An HSA-eligible CDHP costs about 18% less than a traditional PPO on average, and it’s typically the lowest-cost option for employees in terms of their paycheck deduction. Still, among large employers that offered the CDHP as an option alongside traditional medical plans for at least three years, only 29% of employees, on average, elect to enroll.
But that may changes as employers add tools to help employees actually become better health care consumers. For example, employers are moving quickly to implement telemedicine services -- telephonic or video access to providers -- as a low-cost, convenient alternative to an office visit for some types of non-acute care. Offerings of telemedicine services jumped from 18% to 30% of all large employers. Now, more and more consumers have real, and financially substantive, “shopping” choices: An employee can pay $40 for a telemedicine visit, $70 to stop in at a retail clinic, or $125 for an office visit.
The ability to compare prices for higher-cost services is becoming a reality as well. More large employers contracted with a specialty vendor to provide their employees with a “transparency tool” – an online resource to help them compare provider price and quality: among employers with 20,000 or more employees, 24% provided transparency tools in 2015, up from just 15% last year. When employees can comparison shop, employers can give incentives to avoid the most expensive providers – in turn giving those providers a reason to adjust their prices. With “reference-based pricing,” for example, employers set a limit on how much they will cover for a specific service in a specific area, and the patient is responsible for the cost above that amount. Use of reference-based pricing rose from 11% to 13% among large employers in 2015.
Employers are also getting more creative in how they support workforce health – perhaps the most employee-friendly route to long-term cost management. About one-fourth of large employers (24%) encourage employees to track their physical activity with a “wearable” device, while 30% use mobile apps designed to engage employees in caring for their health. They are broadening the focus of workforce health and wellness programs to include other elements of well-being, offering programs to address sleep disorders (39%, up from 32% last year), improve resiliency (42%), and provide help in managing finances (69%).
Sharp drop in small employers considering terminating their plans
Mercer’s surveys have consistently shown that large employers remain committed to offering health coverage. In the early days of health reform, sizable numbers of small employers thought it was likely that they would drop their plans and send employees to the public exchange. As late as 2013, 21% of employers with 50-499 employees said they were likely to drop their plans within the next five years, but this number fell to 15% in 2014 and to just 7% this year. Among employers with 500 or more employees, just 5% say they are likely to drop their plans, essentially unchanged from 4% last year.
- Private exchanges are gaining momentum: 6% of large employers already use a private exchange for active employees or will by next year’s open enrollment, a 50% increase in just one year. Significantly, an additional 27% of large employers are considering switching to an exchange within five years.
- Egg freezing is covered by 5% of all large employers (11% of those in the Northeast). In vitro fertilization is covered by 24%; this number has remained essentially the same over the past 15 years.
- Gender reassignment surgery is covered by 11% of all large employers (up from 8% in 2014) and by 29% of employers with 20,000 or more employees (up from 25%).
- Tobacco-use surcharges 29% of large employers (up from 26% in 2014) vary the employee contribution amount based on tobacco-use status or provide other incentives to encourage employees not to use tobacco. Among those reducing the premium for non-tobacco use, the median reduction is $400. The majority of employers (59%) include e-cigarettes in their definition of tobacco.
- Domestic partner coverage There was a big jump in the prevalence of employers that include same-sex domestic partners as eligible dependents, from 55% to 64% of all employers, and from 76% to 81% of jumbo employers. While there was growth nationally, there is still significant regional variation, from 80% of all employers in the West to 47% in the South.
- Spousal surcharges and exclusions There was no growth among large employers in the use of provisions excluding spouses with other coverage available (8%), but the use of spousal surcharges rose from 9% to 12% of all large employers. Among jumbo employers, 26% require a surcharge, essentially unchanged from last year. The median surcharge is $100 monthly.
The Mercer National Survey of Employer-Sponsored Health Plans is conducted using a national probability sample of public and private employers with at least 10 employees; 2,486 employers completed the survey in 2015. The survey was conducted during the late summer, when most employers have a good fix on their costs for the current year. Results represent about 600,000 employers and nearly 100 million full- and part-time employees. The error range is +/–3%.
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 2016. For more information, visit www.mercer.com/ushealthplansurvey.
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.