The nation's small and mid-sized employers cut benefits in their health plans in 2003, holding the cost increase to 9.8% among employers with fewer than 2,000 workers. According to a survey report released today by Marsh Inc., which analyzes data from 1,904 such employers, the total cost of health benefits (medical, dental, and any other health plans offered) averaged $6,130 per employee in 2003.
The smallest employers generally are keeping costs down by discouraging coverage of dependents and imposing high deductibles. Among employers with fewer than 50 employees, cost averaged just $5,795 per employee. But mid-sized employers (1,000 - 1,999 employees) experienced an average cost of $6,472 -- more than all larger employers ($6,324).
Marsh's Mid-sized Employer Health Plans 2003 is based on responses from 1,904 employers with 10 - 1,999 employees. The study is drawn from a national, scientific survey conducted by Mercer Human Resource Consulting. Both Marsh and Mercer are operating companies of Marsh & McLennan Companies,Inc. (MMC).
Among mid-sized employers included in the survey with fewer than 2,000 employees in the North Central region of the U.S., employee healthcare costs per employee rose 10.1 percent to reach $6,999. The region includes: Ohio, Michigan, Illinois, Indiana, Minnesota, North Dakota, South Dakota, Nebraska, Iowa, Wisconsin, Kansas, and Missouri.
"The dilemma for mid-sized employers is that they must compete with the largest employers for labor, and thus must offer a comparable benefit package. Yet they often do not have the purchasing power of large employers, nor do they benefit from the same economies of scale," said Judye Fawver, Vice President, Employee Benefits of Marsh's office in Minneapolis.
According to the report, employers with 10 - 49 employees required employees to pay, on average, 64% of the PPO premium for family coverage. Just 44% of their employees elected family coverage. Employers with 1,000 -1,999 employees required a family contribution of just 30%, and, not surprisingly, a far greater percentage of their employees elected it (57%).
Cost-shifting Was The Key To Cost Slowdown
Although the slowdown in benefit cost increases in 2003 was welcome, it does not signal a cooling of the underlying cost trend; rather, it was the results of employer cost-cutting measures. For example, the percentage of employers requiring a PPO in-network deductible of $1,000 or more jumped from 22% to 34%, while the percentage requiring an HMO physician office copay of $20 or more nearly doubled, rising from 18% to 34%.
Ms. Fawver observed that mid-sized firms have room to go even further. "Consumers spent less in 2003 as a percentage of total health benefit cost than they did in the 1960s," she said. "Then, employee out-of-pocket spending amounted to nearly two-fifths of the total cost of coverage; today, it amounts to just about 12%."
The smallest employers have been the first to shift cost, but survey results suggest that in 2004 the larger ones will follow suit. Nearly half (46%) of the surveyed employers with 1,000 - 1,999 employees said they would raise employee contribution percentages in 2004, and 43% said they would shift more cost to employees by raising deductibles, copayments/coinsurance, or out-of-pocket maximums. These figures are both nearly double the percentage of smaller employers planning to shift more cost to employees.
Overall, the surveyed employers expect an increase of 13.9% in 2004. The smallest among them (those with 10 - 49 employees) expect an increase of 15.2%.
Consumerism Emerges As Leading Tactic For Managing Cost
Although health care will once again be a central topic of debate in the upcoming presidential elections, Ms. Fawver believes "employers must consider a future where, in the absence of meaningful state or federal reform, costs will continue to rise at double-digit rates."
While few mid-sized employers (1%) have implemented consumer-directed health plans, the new medical benefit design that generally includes high-deductible insurance, an employee-controlled account, and health-care decision support tools, nearly two-fifths (39%) indicated that promoting consumerism --defined as informed and responsible spending by employees for health-care service -- is part of their current health benefit strategy. Consumerism includes such tactics as providing information about provider cost and quality and replacing copayments with coinsurance so that employees benefit when they use less expensive providers.
Even switching to a prescription drug design that encourages the use of generic drugs promotes consumerism by letting employees feel the financial consequences of choosing -- or allowing their doctor to choose -- brand- name drugs over generics.
Among mid-sized employers offering prescription drug card plans, the use of three-tiered copayments -- increasing copay amounts for generic, preferred brand, and nonpreferred brand-name drugs -- reached 50% in 2003. The copayment amounts in card plans averaged $11 for a generic drug, $22 for a preferred brand-name drug, and $38 for a nonpreferred brand-name drug.
PPO Is Plan Of Choice For Mid-sized Employers And Their Employees
Well over half (57%) of the employers with fewer than 2,000 employees offered a preferred provider organization (PPO) in 2003, and 59% of all their covered employees enrolled in one. Health maintenance organizations (HMOs) were offered by 32% of employers and point-of-service (POS) plans by 21%. Just 8% of employers offered a traditional indemnity plan.
Employers preferred PPOs despite higher cost: PPO cost averaged $5,828 per employee while HMO cost averaged $5,029. However, HMO cost rose faster, by 14.2%, while PPO cost rose just 8.9%.
"It's easier to make plan design changes to a PPO," said Ms. Fawver, "and these days, employers want that flexibility. The critical issue is how to achieve flexibility while keeping PPO networks exclusive enough to drive deeper discounts and lower costs."