Survey: Health plan costs rose 3.4% in 2014

But increases expected to grow slightly faster in 2015

Employee health benefit costs for New England employers rose again in 2014, but at a more modest rate than in the past as businesses continue to seek new ways to hold down costs.

According to the survey of 172 New England-based employers taking part in benefits consulting firm Mercer’s larger 2014 National Survey of Employer-Sponsored Health Plans, the cost of total health benefits for active employees increased by 3.4 percent in 2014, to an average of $12,429 per employee. That compares with a national average increase of 7 percent a year over the last years, Mercer reported.

Even though it’s a slower growth rate, the increases are prompting employers to continue to find ways to reduce costs.

Asked about their 2015 costs, respondents in New England estimated that if they made no changes to their current plan, cost would rise by 6 percent. However, they said they expect to hold their cost increase to 4 percent by making changes to plan design and/or plan vendors.

Nationally, the survey found that employers expect their health plan costs will rise by an of 7.1 percent next year, although with changes in vendors or plan design, they should hold increase down to 4.6 percent.

Many U.S. employers anticipate spending more to cover more employees in 2015 as the ACA provision goes into effect requiring employers to extend coverage to substantially all employees working 30 or more hours per week.
Also potentially driving up enrollment is that employees who have chosen not to elect coverage in the past now have a stronger incentive to do so, since the minimum tax penalty for not obtaining coverage rises to $325 for 2015 from just $95 this year.

“Growth in enrollment is truly the wild card for employer costs next year,” said Tracy Watts, Mercer’s national leader for health reform. “If employers wind up covering many more people, their spending will go up faster than the underlying growth in cost per employee might imply. That will increase the pressure to find new ways to manage cost.”

The survey did find that, nationally, employers have taken steps to limit the number of employees gaining eligibility, most often by more carefully managing the schedules of those who occasionally worked more than 30 hours a week and by keeping new hires to less than 30 hours.

About 10 percent of all large employers in the national survey said they have reduced the hours of employees who consistently worked 30 or more hours per week. But only 3 percent said they have reduced headcount, and just 9 percent said they have increased headcount in response to the new rule.

In addition, 52 percent of New England respondents said they offered a high-deductible consumer-directed health plan with an account feature (an HSA or HRA) in 2014. Asked to think ahead three years, 67 percent of respondents expect their organization will offer such a plan by 2017.

Nationally, the number of employees enrolling in consumer-driven health plans grew substantially from 18 percent to 23 percent. It was the largest one-year increase, according to the survey, and helped to slow rising costs substantially.

As for the kinds of benefits employees are using, 50 percent covered in respondents’ health plans are enrolled in PPO/POS plans, 26 percent in HMOs and 25 percent in consumer-directed plans.

Employers also were asked how likely they are to terminate their medical plans within the next five years and send employees to the public health exchange to seek coverage.

Only 4 percent of New England respondents said they are likely or very likely to do so. Nationally, 4 percent of large employers and 16 percent of small employers say they are likely or very likely to terminate their plans within five years.

Another result of the national survey found that dependent coverage has also come under scrutiny as employers look for other ways to manage enrollment growth. Some employers now impose a surcharge on the premiums for spouses who have other coverage available (9 percent of large employers) or even make them ineligible for coverage (also 9 percent).

The median surcharge is an additional $100 per month.