Early responses from a major Mercer survey still in the field show employers predicting that health benefit cost per employee will rise by 3.9% on average in 2015. Cost growth slowed to 2.1% in 2013, a 15-year low, but appears to be edging back up (see Figure 1). The projected increase for 2015 reflects actions employers will take to manage cost. If they made no changes to their plans for 2015, they predict cost would rise by 5.9% on average. However, only 32% of respondents are simply renewing their existing plans without making changes.These results are based on responses from more than 1,700 employers to Mercer's National Survey of Employer-Sponsored Health Plans through September 1. The survey is still in the field.
"The average projected increase for 2015 may still be relatively low, but it does not come easily," said Tracy Watts, Senior Partner and Mercer's National Health Reform Leader. "Employers have to work hard each year to keep cost increases manageable. And health reform is certainly creating new challenges."
Under health reform, a significant number of employer health plan sponsors (22%) are likely to see enrollment grow next year when they are required to open their plans to all employees working 30 or more hours per week (63% were in compliance before reform was enacted, and 15% made the necessary changes last year for 2014). Among large retail and hospitality businesses, which typically employ many part-time workers, 39% will need to extend coverage in 2015.
"The math is simple -- the more employees you cover, the more you spend," says Beth Umland, Mercer's Director of Research for Health and Benefits. "But this additional spending isn't accounted for when we talk about the low growth in the cost of coverage."
While there has been much speculation that employers would reduce staff or cut hours to limit the number of employees becoming eligible in 2015, few of the surveyed employers say they will take either of those routes. However, many say they will manage schedules more carefully to avoid workers' occasionally working 30 or more hours in a week (53% of those that must extend coverage to more employees in 2015) or to make it clear to new hires that they will work fewer than 30 hours (31%).
It's hard to predict how many newly eligible employees - generally lower-paid, variable-hour workers - will choose to enroll in health plans when given the chance. The tax penalty for individuals who do not obtain coverage will rise in 2015, to a minimum penalty of $325 per individual. When this penalty first went into effect in 2014, the minimum amount was only $95, and few employers experienced significant growth in enrollment.
"But 2015 could be a different story - not just because the penalty is higher, but because many employees will now have the option to enroll who didn't before," said Ms. Watts.
Employers ramp up cost management efforts
One strategy employers are using to soften the increase in health spending in 2015 is adding a low-cost, high-deductible health plan for the newly eligible employees - or for all employees. Consumer-directed health plans (CDHPs) that are eligible for a health savings account cost, on average, 20% less than traditional health plans. Health reform is clearly accelerating that trend. While about half of large employers offer a CDHP today, nearly three-fourths (73%) say they will have a CDHP in place within three years. And 20% say it will be the only choice available to employees (today, only 6% of large employers have moved to "full-replacement" CDHPs.)
"The move toward high-deductible consumer-directed plans is spurring other changes as well, such as more voluntary options," said Ms. Watts. "While some employees are comfortable with a lower level of coverage, offering supplemental insurance alongside a high-deductible plan gives employees access to more protection if they want it."
Private benefit exchanges, such as Mercer Marketplace, make it easier for employers to offer a range of medical plan options and voluntary benefits.
About the survey
These are preliminary findings from Mercer's National Survey of Employer-Sponsored Health Plans 2014. The survey is still in the field and complete results, including the actual cost increase for 2014, will be released by the end of the year. The preliminary results discussed above are based on about 1,700 employers who responded by September 1; these results are not weighted and represent only the early responders. Ultimately, around 2,800 employers will participate in the survey and the final results will be weighted to be nationally projectable.