Health Benefit Costs Will Increase 5.7% in 2009

Employers shift cost, move employees into lower-cost plans

After three years of double-digit growth in the first half of the decade, annual health benefit cost increases slowed to about 6% in 2005 and have stayed there ever since. Findings released on Sept. 4 by Mercer indicate that cost growth is likely to slow a little further in 2009, to 5.7% -- which would be the lowest increase in more than 10 years. Last year, Mercer's annual survey found that average health benefit cost per employee rose 6.1% in 2007.

For the 1,317 employer health plan sponsors that have responded to Mercer's study, the total cost to renew their current health plans -- if they were to make no changes -- would grow by nearly 8% on average. Small employers (those with 10-499 employees) would see an even higher increase, of about 10%. However, the majority of respondents say they will take action to lower their actual cost increases.

"It's a relief to see cost growth trending down, even slightly," said Blaine Bos, a senior Mercer health and benefits consultant. "But this is not an unqualified success story. While some employers are holding down cost growth with innovative methods of improving health care quality and efficiency, more typically employers struggling with increases they can't handle resort to the tried and true method of shifting cost to employees."

Professor Alan Cohen, executive director of Boston Universitys Health Policy Institute and professor of health policy and management at the BU School of Management has a different take on the findings. These survey results provide further evidence that our health care system is fundamentally broken and that employers, stressed by rising health care costs, are once again seeking to shift a larger share of the cost burden to employees. Rising deductibles, co-pays, and out-of-pocket spending limits will put painful pressure on many workers and their families."

Well over half (59%) of employers taking action to reduce their 2009 cost increase will raise deductibles, copayments, coinsurance or employee out-of-pocket spending limits. Employee cost-sharing has risen sharply over the past five years: Between 2003 and 2007, the median family deductible for in-network services in a PPO (the type of plan offered by the most employers) rose from $1,000 to $1,500.

A smaller number of the employers -- 19% -- say they will lower their 2009 costs by adding a consumer-directed health plan (CDHP), which is a high-deductible plan with an employee-controlled spending account (a health saving account (HSA) or health reimbursement arrangement). Many of these plans give employees an incentive to take cost into consideration when seeking health care services by allowing them to save (on a tax-advantaged basis) account dollars they don't spend in a given year for future needs. While it's too early to make a final assessment of how well this new plan model works, among the survey respondents that currently offer a CDHP the predicted 2009 cost increase averaged 4.5%, compared to 6.4% for respondents not offering a CDHP.

CDHPs are significantly less expensive than traditional PPOs or HMOs. Last year, 12% of all employers - and 20% of those with 500 or more employees -- said they were "very likely" to implement a CDHP by 2009.

Consumer-directed health plans are not likely to provide relief to many workers and the fact that 12% of employers said that they were very likely to implement such a plan by 2009 does not necessarily translate into actual implementation of these plans, added Cohen.

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