Originally posted October 17, 2013 on http://www6.lexisnexis.com
In 2013, U.S. companies and their employees saw the lowest health care premium rate increases in more than a decade, according to an analysis by Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON). After plan design changes and vendor negotiations, the average health care premium rate increase for large employers in 2013 was 3.3 percent, down from 4.9 percent in 2012 and 8.5 percent in 2011. In 2014, however, average health care premium increases are projected to move back to the 6 percent to 7 percent range.
Aon Hewitt’s analysis showed the average health care cost per employee was $10,471 in 2013, up from $10,131 in 2012. The portion of the total health care premium that employees were asked to contribute toward this premium cost was $2,303 in 2013, compared to $2,200 in 2012. Meanwhile, average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, increased 12.8 percent ($2,239) in 2013, compared to just 6.2 percent in 2012 ($1,984).
For 2014, average health care costs are projected to increase to $11,176 per employee. Employees will be asked to contribute 22.4 percent of the total health care premium, which equates to $2,499 for 2014. Average employee out-of-pocket costs are expected to increase to $2,470. These projections mean that over the last decade, employees’ share of health care costs-including employee contributions and out-of-pocket costs-will have increased almost 150 percent from $2,011 in 2004 to $4,969 in 2014.
“There are many factors that contributed to the lower rate of premium increases we saw over the past two years that we don’t expect to continue in the long-term. These include the lagged effect from the economic recession on health care spending and continued adjustments as employers and insurers phase out the conservatism that was reflected in earlier premiums due to uncertainty around economic conditions and health care reform. Additionally, employers and insurers will now be subject to new transitional reinsurance fees and health insurance industry fees,” said Tim Nimmer, fellow of the Society of Actuaries, member of the American Academy of Actuaries and chief health care actuary at Aon Hewitt. “While we are seeing pockets of promising innovation in the health care industry, we expect to see 2014 premium increases shift back towards the 6 percent to 7 percent range overall.”
Costs by Plan Type
On average, Aon Hewitt forecasts that companies will see 2014 cost increases of 7.5 percent for health maintenance organization (HMOs) plans, 6.5 percent for preferred provider organization (PPOs) plans and 6.5 percent for point-of-service (POS) plans. That means that from 2013 to 2014, the average cost per person for major companies is estimated to increase from $10,880 to $11,696 for HMOs, $10,222 to $10,887 for PPOs and $11,450 to $12,194 for POS plans.
Costs are plan costs (premium or budget rate) on a per employee basis. They include employee contributions, but not their out-of-pocket costs (i.e., co-payments, coinsurance).
2013 Cost Increases by Major Metropolitan Area
In 2013, major U.S. markets that experienced rate increases higher than the national average included Los Angeles (6.9 percent), Orange County (6.9 percent), Washington DC (5.3 percent) and San Francisco/Oakland/San Jose (4.8 percent). Conversely, New York City (1.6 percent), Milwaukee (2.1 percent) and Atlanta (2.4 percent) experienced lower-than-average rate increases in 2013. Of note, Minneapolis saw a decrease in rate increases at -0.1 percent.
Employer Actions to Mitigate Trend
“Health care remains a top priority for U.S. employers, and most are taking action to prepare for increasing cost, risk and change,” said Jim Winkler, chief innovation officer for the U.S. Health & Benefits practice at Aon Hewitt. “As the health care industry continues to evolve, employers realize that a traditional ‘managed trend’ approach will be less effective in mitigating costs increases over time. Instead, they are exploring innovative new delivery approaches, requiring participants to take a more active role in their own health care planning, and holding health care providers more accountable to reduce unnecessary expenses and create more efficiency in the way health care is purchased.”
Recent Aon Hewitt research shows that 72 percent of employers focus their health care strategy primarily on programs that improve health risk and reduce medical costs. As the health care landscape continues to evolve, employers will look to reduce costs using a mix of traditional and non-traditional approaches. These include:
Innovative Approaches to Providing Employer-Sponsored Coverage – Private health exchanges are becoming increasingly attractive to organizations that want to offer employees health care choice while lowering future cost trends and lessening the administrative burden associated with sponsoring a health plan.
In this model, employers continue to financially support health insurance, but allow employees to choose from multiple group plan options and insurance carriers via a competitive, health insurance marketplace.
According to Aon Hewitt research, about 28 percent plan to move into a private health care exchange over the next three-to-five years. Eighteen large employers, includingWalgreensand 2013 participantsSears Holdings,Darden Restaurantsand Aon plc, are offering health benefits this fall through theAon Hewitt Corporate Health Exchange, the nation’s largest multi-carrier private health care exchange.
Plan Design Strategies – Aon Hewitt’s research shows that consumer-driven health plans (CDHPs) have surpassed health maintenance organizations (HMOs) as the second most popular plan option offered by employers. A growing number ofemployers are offering CDHPs as the only plan option. While just 10 percent of companies do so today, another 44 percent are considering it in the next three to five years.
Managing Dependent Eligibility and Subsidies – Many employers are reassessing the way they offer and subsidize health coverage for dependents. Specifically, they are:
Reducing the employer subsidy for covered dependents. Aon Hewitt’s research shows that 54 percent of employers are considering reducing subsidies across all dependent tiers in the next three-to-five years. Implementing or increasing surcharges for adult dependents with access to coverage elsewhere. Aon Hewitt’s research shows 69 percent of employers have implemented or plan to implement surcharges for adult dependents. Adopting a unitized pricing approach, where employerscharge per dependent. While just 4 percent of employers currently adopt this approach, another 47 percent are considering it in the future. Assessing the eligibility of covered dependents in their plans. A recent Aon Hewitt survey shows that two-thirds ofemployers have completed a program audit of covered dependents to ensure only those who are eligible will remain on the plan.
Increased Cost Sharing – As health care costs increase overall, the amount of money employees will need to contribute out of their paychecks-both in premiums and out-of-pocket costs-is continuing to climb. Today, employees’ share of the overall health care premium is 22 percent, compared to just 18.6 percent a decade ago. Additionally, Aon Hewitt’s research shows that 47 percent ofemployers have increased participants’ deductibles and/or copays in the past year, and another 43 percent are considering doing so in the next three-to-five years.
According to Aon Hewitt, employers are increasing cost sharing through:
Altering plan designs, including shifting from fixed dollar copayments to coinsurance models, where employees pay a percentage of the out-of-pocket costs for each health care service. Increasing deductibles out of pocket limits and cost sharing for use of non-network providers.
Wellness and Health Programs – With employers facing the impacts of rising health care costs and declining health of the population, employees can expect to see more employers offering programs that encourage them to take a more active role in managing their health. For example, 75 percent of employers offer health risk questionnaires (HRQs) and 71 percent offer biometric screenings such as blood pressure and cholesterol.
New Provider Payment Strategies – A growing number of employers want to ensure that the health care services they are paying for are actually leading to improved patient outcomes and are seeking to hold providers more accountable. According to Aon Hewitt’s research, 53 percent of employers said that moving toward provider payment models that promote cost effective, high quality health care results will be a part of their future health care strategy, and one in five identified it as one of their three highest priorities.
About the Data
Aon Hewitt’s data is derived from the Aon Hewitt Health Value Initiative database, which captures health care cost and benefit data for 516 large U.S. employers representing 12.8 million participants, more than 1,200 plans and $61.2 billion in 2013 health care spending.