Total health benefit costs for active employees increased 9.2 percent this year to an average of $9,321 per employee in Wisconsin, according to the National Survey of Employer-Sponsored Health Plans, conducted annually by New York-based Mercer Health & Benefits LLC. After making changes to plan design and/or to plan vendors, Wisconsin employers expect health benefits costs to increase by 6.6 percent in 2006, according to the survey.
Health care costs in Wisconsin continue to outpace the rest of the country, according to the survey. Nationally, U.S. employers said total health benefits costs for their active employees increased by only 6.1 percent to an average of $7,089 per employee. However, U.S. employers expect health benefits costs to increase by 6.7 percent in 2006, according to the survey, slightly above the projected cost increase in Wisconsin.
Wisconsin employees are contributing less to their health benefits plans than employees in the rest of the country, according to the survey. In Wisconsin the average employee contribution for employee-only coverage is $70 per month for a PPO and $71 per month for an HMO. In the Midwest, the average employee contribution amount for employee-only coverage is $82 per month for a PPO and $122 per month for an HMO. Nationally, the average employee contribution for employee-only coverage is $96 per month for a PPO and $103 per month for an HMO.
When annual health benefit cost increases in the U.S. peaked three years ago at nearly 15 percent, employers responded with an unprecedented flurry of plan redesign, according to Mercer Health & Benefits.
U.S. employers predicted in 2004 that their health benefit cost would rise by an average of 10 percent in 2005 if they made no changes. However, they expected to lower that increase to about 7 percent through a variety of initiatives, including cost-shifting and changing vendors, according to the Mercer report. The survey results indicate that, nationally, employees succeeded in hold-
ing down the health benefits cost increases.
The Mercer survey is conducted using a national probability sample, with nearly 3,000 employer participants in 2005. Employers sampled were public and private, with at least 10 employees. The survey was conducted during the late summer, when most employers have a good idea of their costs for the current year. The survey results represent about 600,000 employers and more than 90 million full-time and part-time employees. The survey has a margin of error of plus or minus 3 percent.
A tactic that U.S. employers used to lower their 2005 cost increase was cost-shifting. While the average employee contribution as a percent of premium was essentially unchanged, employers increased employee cost-sharing at the point of service. An individual deductible for in-network care is now required in 80 percent of PPO plans, up from 73 percent last year. Among large employers (500 or more employees) the median deductible amount rose from $250 to $300. The median small employer deductible did not change, but the percentage of small employers requiring a deductible of $1,000 or more reached 34 percent, up from 31 percent in 2004. Fewer large employers require a deductible of this size (9 percent), but their number is growing as well.
The use of coinsurance as a means of sharing the cost of office visits increased, from 5 percent to 9 percent of all PPO sponsors and from 18 percent to 22 percent of all large sponsors, according to the survey. Among jumbo employers (20,000 or more employees), the use of coinsurance jumped from 26 percent to 37 percent. This is a significant departure from the recent past, in which PPOs moved to copays to compete more effectively with HMOs for enrollment. Coinsurance reflects the actual cost of the service provided and thus is seen as a consumerist strategy. It also tends to shift more cost to employees than copays do.
Large employers shifted cost to employees by raising their out-of-pocket costs for care, rather than by raising their premium contributions, said Susan Rabe, a Milwaukee-based consultant with Mercer Health & Benefits.
"This signals their preference for keeping the cost of the plan down for all employees by shifting cost to those who use it most," she said.
In HMO plans, the biggest change was an increase in plans requiring a hospital deductible (from 55 percent to 64 percent) and an increase in the average office visit copayment from $16 to $18. Over a fourth of HMO sponsors (28 percent) impose a higher copayment for specialist visits, on average $29.
Employers were asked how significant each of six different cost-management strategies would be to their organizations over the next five years. "Scaling back benefits or cost-shifting" received the lowest scores, with just 21 percent of all employers saying this strategy would play a significant or very significant role over the next five years. The two strategies that the most employers say they will focus on are consumerism, defined as "promoting informed and responsible spending by employees for health care," and care management, a range of programs designed to improve employee health, including disease management.
Over a third of all employers (34 percent) said consumerism will be significant or very significant to their cost-management efforts over the next five years, while 32 percent said care management will be significant or very significant. Interest in both strategies is higher among large employers, who gave the highest rating to care management (62 percent), followed by consumerism (55 percent).
"Many employers see these strategies as two sides of the same coin," Rabe said. "Care management programs require the active involvement of employees in improving their health, while consumerist strategies engage the employees in managing health care cost."
Care management programs grew strongly in 2005, lending support to employers’ assertion that this will be a key strategy for the next five years. Use of all types of disease management programs grew, and the percentage of employers offering at least one program jumped from 32 percent to 41 percent. Two-thirds of large employers now offer one or more disease management programs.
"As employers are shifting cost to employees who use more health care, they’re also implementing programs to help them get better care and learn how to better manage their own health," Rabe said.
Health risk assessments, sometimes used to identify employees who could benefit from a disease management or other care management program, are offered by 46 percent of large employers, up from 35 percent. The use of behavior modification programs (such as smoking cessation or weight management programs) rose sharply as well, from 21 percent to 30 percent of large employers.
Employers are beginning to offer incentives to encourage employees to participate in care management programs, with large employers taking the lead. In 2005, 17 percent of large employers that offer health risk assessments provided an incentive, as did 7 percent of those offering one or more disease management programs. These incentives are often cash, but some employers tie them to the medical plan, offering lower copayments or premium contributions. Others provide token rewards or gifts. The value of the incentives offered varies widely, with about a third of these employers (35 percent) providing incentives worth $25 or less and about a fourth (27 percent) providing incentives worth more than $100.
"While still in a growth mode, care management is now a mature strategy. Employers are no longer just paying lip service to this concept," Rabe said. "Could these programs be one reason behind the slowing cost increase? You bet."
For some employers, a deterrent to adding or maintaining care management programs has been the difficulty of proving their effect on lowering health benefit cost. Improved health may not result in an immediate savings but rather curb spending further down the road. As programs gain longer track records, more employers are attempting to measure the return on their investment.
Over a fifth of all large employers offering care management programs say they have attempted to measure ROI (21 percent, up from 14 percent in 2004). Among employers with 20,000 or more employees, this rises to 45 percent.
Employers implemented a range of consumerist strategies in 2005. Two-fifths of all employers now provide employees access to a website with information on provider quality and cost, and 17 percent provide a tool to help them select the plan that will best meet their needs based on expected health care utilization.
Many of the nation’s largest employers took the step of implementing a consumer-directed health plan (CDHP). Among jumbo employers (20,000 or more employees), CDHP offerings rose sharply, from 12 percent to 22 percent. Otherwise, CDHPs saw only modest growth. Only 2 percent of all employers with 10 or more employees offered CDHPs in 2005, and only 5 percent of large employers – those with at least 500 employees – offered them.
Enrollment in CDHPs also remained low. Nationally, just 1 percent of all covered employees are enrolled in CDHPs. When a CDHP was offered alongside other medical plans in 2005, on average 14 percent of employees chose to enroll. Among the jumbo employers offering CDHPs, enrollment averaged 8 percent.
When Health Savings Accounts (HSAs) were created by the Medicare Modernization Act of 2003, proponents said HSAs would expand access to coverage by providing a less-expensive option for small employers who might not otherwise offer coverage. This theory hasn’t panned out: use of CDHPs by this group reached only 2 percent in 2005, while the percentage offering any form of health plan dropped from 66 percent to 63 percent.
"It seems the cost difference – about 13 percent lower than the average cost of HMO coverage, and 18 percent lower than the average PPO cost – just wasn’t enough to prevent some small employers from dropping coverage," Rabe said. "The more complex plan design may also be a deterrent given that most small employers don’t have a robust HR staff."
Many small employers instead lowered plan cost by raising deductibles (34 percent of small PPO sponsors require an individual deductible of $1,000 or more).
"In 2005, a PPO with a $1,000-plus deductible was less costly than the average CDHP," Rabe said.
In 2004, a much higher percentage of small employers said they were likely to offer a CDHP in 2005 (12 percent) than actually did so (2 percent). So, while 11 percent of small employers this year say they are likely to offer a plan in 2006, this figure should be taken as an expression of interest rather than a projection, according to Mercer. Jumbo employers, who solidify plans earlier in the year, are better able to provide accurate predictions for the upcoming year. Among this group, CDHP offerings are likely to rise to 29 percent in 2006 and to 31 percent in 2007 .
One way for an employer that offers multiple health plans to save money is to drop one of their more expensive plans. In 2005, eight percent of all large employers, and 31 percent of those with 20,000 or more employees, reduced the number of health plans offered. With HMO enrollment falling from 27 percent to 25 percent of all covered employees, it seems likely that the plans being dropped were HMOs.
Among the jumbo employers, who offer the most plans, the average number of HMOs offered across all sites fell from 18 to 12 (the median fell from eight to six). Five years ago, these very large employers offered an average of 34 HMOs.
"HMO plan design, with first-dollar coverage and office visit copays, insulates employees from the actual cost of care," Rabe said. "But with employers focused on making employees into better health care consumers, they want more cost-sharing – and more transparent cost-sharing. This disconnect may explain the slipping HMO enrollment figures."
One of the forces driving medical plan cost has been sharp prescription drug benefit cost increases, which peaked in 2000 at 18 percent. Employers responded by implementing tiered co-payments to encourage greater use of generic drugs and preferred brand-name drugs – and to increase the employee share of the cost. In 2005, large employers reported that the increase in prescription drug spending at their last renewal was 11.5 percent, down from 14.3 percent in 2004, suggesting that these efforts have had the desired effect.
According to a Mercer pharmacy benefit specialist, the underlying drug trend, which is based on the actual cost of pharmaceuticals and the rate of utilization, is currently averaging around 15 percent.
In 2005, the use of three-tiered co-payments in large employers’ card plans rose from 64 percent of employers to 68 percent. The use of coinsurance also rose, especially among jumbo employers, who are more likely to use a specialized pharmacy benefit manager.
Now, 14 percent of all large employers with card plans use coinsurance to share drug cost with employees, up from 11 percent last year. Among employers with 20,000 or more employees, 35 percent use coinsurance. The use of coinsurance directly helps to bring down cost trend, because the employee’s share of the cost goes up with cost inflation, unlike with a fixed co-payment.
Average co-payment amounts were relatively stable for card plans, but rose sharply in mail-order plans. In large employers’ three-tier mail-order plans, the generic drug co-pay rose from an average of $15 to $17; the preferred brand-name drug co-pay rose from $33 to $39; and the non-preferred brand-name co-pay jumped from $57 to $69.
"Steep co-pays for non-formulary drugs and, to an even greater extent, coinsurance give employees a strong incentive to think about which drug they buy for a specific condition," Rabe said.
Small Business Times, December 9, 2005, Milwaukee, WI
