Cost growth projected to remain stable at 4 percent for 2017

Employers are predicting that health benefit cost per employee will rise by 4 percent on average in 2017, according to early responses from Mercer’s National Survey of Employer-Sponsored Health Plans 2016. Employers have held cost growth to about 4 percent or less each year since 2011. Prior to that, cost rose by about 6 percent a year for seven years, Mercer noted. These preliminary results are based on 1,277 employers who responded by August 11.

“This is an impressive achievement during a time when the ACA demanded so much attention, but with health benefit cost increases still double or triple inflation, we can’t declare the problem solved,” said Tracy Watts, senior partner and Mercer’s leader for health reform. “For that, employers as a whole will need to aim higher with the next generation of cost-management strategies in order to target fundamental problems in the health care system.”

According to the survey, the projected underlying cost growth from 2016 to 2017 is at a new low of just 5.5 percent. That’s the increase employers would expect if they made no changes to their medical plans. The difference between the underlying cost growth and the actual cost growth can be an indication of how much or little employers are cutting health plan value by raising deductibles or other cost-sharing provisions. A difference of just 1.5 percentage points for 2017 suggests employers do not plan to do much cost-shifting. For the past eight years, the difference has been approximately 3 percentage points and has not been less than 2 points.

One reason employers may be doing less cost-cutting next year is the delay in the effective date of the ACA’s excise tax on high-cost plans from 2018 to 2020, which was announced last December.

“The excise tax creates an imperative for many employers to cut cost, not just to slow cost growth,” said Watts. “Employers have been raising deductibles and out-of-pocket maximums for the past few years and many are reluctant to go any further. The delay lets them take a breather and focus on longer-term strategies with the potential to improve the health care system, like taking advantage of provider payment reforms and quality initiatives.”

ACA changes. The survey also asked employers what they would like to see changed in the ACA. Eighty percent of large employers (500 or more employees) favor eliminating the excise tax, and 61 percent favor eliminating the employer mandate (the so-called “play or pay” rule requiring employers with 50 or more employees to offer coverage or be subject to penalties). However, fewer than half of large employers (47 percent) favor repealing and replacing the ACA entirely, perhaps because it is not known what would replace it. Among the largest employers—those with 20,000 or more employees—only 40 percent favor repeal and replace.

At the same time, the minimal interest employers have shown in terminating their own plans and sending employees to the public exchanges to purchase coverage has all but evaporated. Just 2 percent of large employers (500 or more employees) and 9 percent of small employers (10-499 employees) say it is at all likely. In 2010, 6 percent of large employers and 20 percent of small employers thought it was likely they would terminate their plans.

“The public exchange helps fill a critical gap in the U.S. health care system, but it hasn’t proven to be an attractive alternative to employer-sponsored coverage,” said Beth Umland, Mercer’s director of research for health and benefits. “Employers are in the health benefits game for the long haul and need to work together to make that a sustainable proposition.

SOURCE: Mercer press release, September 13, 2016.

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