Good News in Health Care Costs? 2012 Cost Growth Lowest in 15 Years

Lower usage and healthier employees contributing to cost slowdown.

Seems the news was so good that Mercer couldn't wait until the survey was done to release the results. Early responses from a study still in process suggest that the "average growth in health benefit cost will slow to 5.4% in 2012, the smallest increase since 1997," Mercer says.

Before rejoicing, the cost growth still remains well above both general inflation and growth in workers' earnings.

There are a few reasons for the slowdown. One is that the use of health services has decreased. Some analysts believe the tough economy, combined with generally higher deductibles and other forms of cost-sharing, is affecting utilization. With disposable income and longer working hours, employees are less likely to seek non-urgent care.

Another reason could be the results of employees becoming healthier. Susan Connolly, a partner at Mercer, believes that slowing utilization may also be a sign that programs targeted at improving employee health -- now the rule rather than the exception in employer benefit programs -- are having a positive impact.

A case in point is WIKA Instrument Co., which was able to secure 99% participation rate in its wellness program, driving costs down. (For full story click here.)

Another manufacturer, Lincoln Industries, went even further to help employees become healthy and last year built a 20,000 square-foot facility that will provide medical care, disease management and health coaching. Services will be provided free of charge to employees and their families. (For full story click here.)

"Earlier risk identification and health education, along with improvements in drug therapies and medical technology, are keeping people with health risks and chronic conditions away from the emergency room," said Connolly. "And consumers are more aware that overuse and misuse of health care services will directly impact their wallets as well as their employer's budget."

Cost-Management Tactics

However, even with this slower cost growth, many employers are still looking to limit costs. "Advanced strategies like limited provider network plans and more intensive employee education and engagement will continue to evolve," said Connolly.

Helen Darling, CEO of the National Business Group on Health says that companies will become more aggressive in 2012. "Employers are facing a multitude of challenges posed by rising health care costs, the weak economy and the financial and administrative impact of complying with the new health reform law. As a result, employers are being much more aggressive in their use of cost-sharing techniques and cost control programs, and are making certain that employees have more reasons to be cost-sensitive health care consumers."

That means companies will still be increasing deductibles or moving employees into lower-cost health plans. About a third of the survey respondents (33%) say they are raising deductibles or copayments in 2012. The past five years have seen employers increasingly using this type of cost-shifting, driving the median in-network PPO deductible for an individual to $1,000 among small employers (those with 10499 employees) and to $500 for large employers last year.

The survey reports that companies are somewhat more likely to increase contributions for dependent coverage (36%) than for employee-only coverage (33%). The difference is greater among the largest employers (42% will raise dependent contributions and 36% will raise employee-only contributions); they may be attempting to compensate for enrolling more dependents under the health reform laws rule stipulating that employees' children up to age 26 be eligible for coverage.

Asked how much cost would rise if they made no changes to their current plans, employers reported an average increase of 7.1%. Over the past five years, this underlying health benefit cost trend has been running at about 9%.

"Were expecting to see a spike in 2012 in both the number of employers offering consumer-directed health plans and in the number of employees enrolling in them," said Beth Umland, Mercer's director of research for health and benefits. "Employers see them as a way to provide more value to employees while at the same time managing cost."

CDHPs are significantly less expensive than traditional PPOs or HMOs - by about 15%, on average. The use of CDHPs has been growing steadily over the past five years, particularly among the largest organizations.

A study by the Business Group on Health reported that last year 61% of the companies had a consumer-directed health plan (CDHP). This year that number will be 73%. In addition, about two in ten employers (17%) will have or move to a total replacement consumer-directed health plan in 2012. The most common type of CDHP plan is a high-deductible health plan with a health savings account (75%.)

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