Health Benefit Cost Increases Will Edge Up In 2015

Employers are predicting that health benefit cost per employee will rise by 3.9 percent on average in 2015, according to early responses from a Mercer survey still in the field. Cost growth slowed to 2.1 percent in 2013, a 15-year low, but appears to be edging back up, Mercer noted.

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 percent on average. However, only 32 percent 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 the Patient Protection and Affordable Care Act (ACA), a significant number of employer health plan sponsors (22 percent) believe they will see enrollment grow next year when they are required to open their plans to all employees working 30 or more hours per week (63 percent were in compliance before reform was enacted, and 15 percent made the necessary changes last year for 2014). Among large retail and hospitality businesses, which typically employ many part-time workers, 39 percent will need to extend coverage in 2015.

“The math is simple—the more employees you cover, the more you spend,” said 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 percent 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 percent).

It is 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, Mercer noted. 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 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-driven health plans (CDHPs) that are eligible for a health savings account cost, on average, 20 percent less than traditional health plans, found Mercer. The study noted that the ACA is clearly accelerating that trend. While about half of large employers offered a CDHP in 2014, 73 percent believe they will have a CDHP in place within three years. And 20 percent say it will be the only choice available to employees (in 2014, only 6 percent of large employers have moved to a “full-replacement” CDHP.)

“The move toward high-deductible CDHPs is spurring other changes as well, such as more voluntary options,” said 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.”

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