Health Plan Costs Up Slightly; What Employers Are Doing About It

November 13, 2014

In 2014, U.S. companies and their employees saw a slight uptick in the rate of U.S. health care cost increases, according to an analysis by corporate health and benefits consultant Aon Hewitt.

After plan design changes and vendor negotiations, the average health care premium rate increase for mid-size and large companies in 2014 was 4.4 percent, up from 3.3 percent in 2013.

In 2015, Aon Hewitt projects average health care premium increases will be 5.5 percent after plan design changes and vendor negotiations.

According to Aon Hewitt, companies are implementing high deductibles, requiring health screenings for richer plans, reducing subsidies for dependents, and exploring private health exchanges and other approaches to try to stay ahead of increases in health costs.

Rising Cost per Employee

Aon Hewitt’s analysis showed the average health care cost per employee in 2014 was $10,717, up from $10,266 in 2013. The portion of the total health care premium that employees were asked to contribute toward this premium cost was $2,487 in 2014, compared to $2,355 in 2013. Meanwhile, average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, increased from $2,005 in 2013 to $2,295 in 2014.

For 2015, average health care costs are projected to increase to $11,304 per employee. Employees will be asked to contribute 23.6 percent of the total health care premium, which equates to $2,664 for 2015. Average employee out-of-pocket costs are expected to be $2,487.

These projections mean that over the last five years, employees’ share of health care costs—including employee contributions and out-of-pocket costs—will have increased more than 52 percent, from $3,389 in 2010 to $5,151 in 2015.

“Over the past few years, the overall economic situation kept consumer spending on discretionary items—including health care—down, and we observed a lower rate of premium increases,” said Tim Nimmer, chief health care actuary at Aon Hewitt. “Now, with employment rates stabilizing, individuals are feeling more secure about their financial situation and have been willing to re-engage in using the health care system. As these utilization rates increase, we expect to see health care cost increases follow.”

Costs by Plan Type

Year HMO POS PPO National
2015* $11,386 $12,344 $11,141 $11,304
2014 $10,762 $11,711 $10,570 $10,717
2013 $10,356 $11,101 $10,127 $10,266
2012 $9,876 $10,621 $9,862 $9,934
2011 $9,360 $10,232 $9,420 $9,473
2010 $8,665 $9,176 $8,708 $8,729

*Projections
†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).

Employer Approaches

Aon Hewitt said its research indicates companies are implementing a mix of traditional and non-traditional approaches to try to control health costs.

This period of “somewhat dampened health care cost increases” is a time for companies to advance change within the health system, according to Jim Winkler, chief innovation officer of Health & Benefits at Aon Hewitt. “As costs begin to rise, companies need to be ahead of the game with a health program that encourages consumer accountability while rewarding health care providers that deliver cost effective, high-quality health outcomes,” he said.

According to Aon Hewitt, the approaches being tried by companies include:

High-deductible health plans (HDHPs)Aon Hewitt’s research shows that HDHPs are the second most popular plan choice offered by companies, surpassing HMOs. Fifteen percent of companies offer a HDHP as the only health plan option today, and another 42 percent are considering doing so in the next three-to-five years.

“Gating” health benefits – More than 60 percent of companies plan to “gate” employees to richer designs in the next three-to-five years. This strategy requires employees to complete a “task” to access richer design options. For example, companies may offer a basic high-deductible plan to their entire workforce, but make a richer PPO option available to those employees who complete a health risk questionnaire or biometric screening.

Managing dependent eligibility and subsidies Aon Hewitt’s research shows:

  • 22 percent of companies have reduced subsidies for covered dependents, while 18 percent added a surcharge for adult dependents with access to other health coverage. An additional half of companies are exploring such approaches over the next few years.
  • 52 percent of companies are considering using unitized pricing—where employees pay per person and not individual versus family.
  • 58 percent of companies have completed a program audit of covered dependents to ensure only those who are eligible will remain on the plan.

Adopting pay-for-performance strategies – An increasing number of companies have adopted or plan to adopt a number of pay-for-performance strategies:

  • 24 percent of companies currently steer participants (through plan design or lower cost) to high quality hospitals or physicians for specific procedures or conditions and another 56 percent are considering doing so in the next three-to-five years.
  • 18 percent use integrated delivery models such as patient-centered medical homes to improve primary care effectiveness, and another 56 percent plan to do so in the next three-to-five years.
  • 10 percent have adopted reference-based pricing—where employers set a pricing cap on benefits for certain medical services for which wide cost variation exists with no discernible differentiation in quality. Another 58 percent plan to do so in the next three-to-five years.

Exploring new ways to select and purchase health care benefits – Private health exchanges are becoming increasingly attractive to organizations that want to offer employees expanded choice of plans and insurance companies while lowering future cost trends and lessening the administrative burden associated with sponsoring a health plan. In this model, companies continue to sponsor and subsidize health insurance, but allow employees to choose from multiple group plan options and insurance carriers via a competitive, health insurance marketplace. Aon Hewitt recently announced that, across the 18 companies returning to its Aon Active Health Exchange, rates for medical coverage will increase an average of 5.3 percent for 2015 without accounting for individual decisions to buy up or buy down coverage.

Source: Aon Hewitt

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