Paul Shaheen, my associate from The Horton Group, an employer benefits brokerage and consultancy, sent me their latest LegalEase newsletter today. It’s worth posting because it’s an in-depth and fascinating article concerning projected employer health care costs for 2008.
2008 Per-Employee Health Care Costs To Exceed $9,300; Wide Disparities Foreseen
By Stephen Miller, October 2007
[From SHRM Online’s Compensation & Benefits Focus Area]
The average corporate health benefit expenditure in 2008 will be $9,312 per employee “an increase of 7 percent over 2007” with annual per-employee contributions exceeding $2,000, according to Towers Perrin’s 2008 Health Care Cost Survey.
But while the cost trend is broadly holding steady, there are significant cost differences for companies that are actively and effectively managing program performance. Those “high-performing companies” will see annual per-employee costs of about $1,500 less than low performers in 2008, or nearly a 20 percent differential, according to the firm’s analysis.
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‘High-performers’ will see per-employee health costs
nearly 20 percent lower than ‘low-performers.’
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The survey database includes information on the health benefit programs provided by more than 300 of the nation’s largest employers, covering nearly 6 million U.S. employees, retirees and dependents.
“The good news is that, for the first time in over a decade, we are seeing a number of companies keeping cost growth near the Consumer Price Index for medical services (medical CPI), which currently stands at about 4 percent,” said Dave Guilmette, managing director of the Towers Perrin health and welfare practice.
In flat dollar terms, 2008 gross health care expenditures are expected to rise by an average of $577 per employee, to an average total cost of $9,312. Employers are expecting to subsidize 78 percent of next year’s premium costs, and employees will have to cover the remaining 22 percent, plus usage-based co-pays, deductibles and co-insurance.
| Other Surveys Project: The 2008 Segal Health Plan Cost Trend Survey foresees the health cost trend for U.S. point-of-service medical plans (for actives and retirees under 65) decelerating to a 10.5 percent rise for 2008.Meanwhile, PricewaterhouseCoopers anticipates the following average increases in 2008 medical costs:
*Consumer-directed health plans, including health savings accounts (HSAs) and health reimbursement arrangements (HRAs): 7.4 percent. |
While Towers Perrin foresees the employer-employee premium cost share remaining the same as the 2007 split, the accelerated increase in the actual employee contribution “combined with decreasing benefit values” means that the 22 percent employee share actually buys less coverage than in past years. For example, the incremental out-of-pocket cost employees will assume in 2008 because of plan design changes is approximately $200.
Employee contributions, on average, will jump by $156 per employee per year to $2,040, an 8 percent increase that is roughly twice that of annual employee merit increases. The combined effect is that over the past five years, out-of-pocket costs for employees have essentially doubled, a clear indication of how pronounced the affordability issue remains, particularly for low-wage workers.
Coverage Levels Breakdown
Analyzing the data by coverage level, the average reported 2008 cost of medical coverage will be:
- For active-employee-only coverage: $4,704 per year ($392 monthly).
- For employee-plus-one-dependent coverage: $9,660 per year ($805 monthly).
- For family coverage: $13,704 per year ($1,142 monthly).
The total cost for retirees under age 65 is the highest in the survey, at $569 per month for retiree-only coverage ($6,828 annually), and more for coverage that includes dependents.
Employers continue to shoulder most of the burden. Of the total 2008 premium increase of $577:
- Employers will pay, on average, $421 more per employee.
- Employees will pay, on average, $156 more.
In addition to premiums, active employees and their dependents can expect a co-pay of about $20 for regular doctor office visits and a $30 co-pay for specialist visits.
Under plans with co-insurance, employees will pay about 35 percent of the cost of an office visit. Active employees and their dependents will pay, on average, $10 for generic prescriptions and $25 for brand-name prescriptions in 2008.
Active Management Matters
Among positive news for employers and employees, the survey shows that, for 2008, a number of companies have succeeded in keeping a tight rein on the cost of their own programs and, as such, are helping to keep the overall rate of increase dramatically lower than the double-digit jumps experienced four to eight years ago.
Many companies, however, remain unclear on how to balance health care cost pressures with workforce goals and continue to experience cost increases more characteristic of the late 1990s. The result is wide variation in employer and employee cost burdens among similarly sized companies. For example, the 2008 data show that nearly a quarter of companies (22 percent) are still experiencing increases of 11 percent or more.
To better understand the factors that contribute to cost variation for the past three years, Towers Perrin divided respondents in its annual health care cost database into three categories: low-performing, average-performing and high-performing companies. Performance designations are based on relative costs and cost increases, as well as whether an organization is meeting its health benefit objectives in such areas as efficient purchasing, employee engagement and managing health risks in the employee population.
The Art of the Possible
While nearly a quarter of the survey respondents continue to struggle with double-digit cost increases, nearly half of the high performers are managing to get their increases much closer to the medical CPI of about 4 percent.
Among high performers, 45 percent have cost increases of 5 percent or less evidence, in Towers Perrin’s view, that active management of program performance is an exercise in the “art of the possible,” and an increasingly urgent mandate for companies still experiencing double-digit growth rates.
High-performing companies aren’t simply shifting costs to their employees to keep their costs low but rather are employing a broad range of tactics and strategies to hold the line on costs for both the company and employees. In fact, employees at high-performing companies will pay significantly less than employees at low-performing companies “approximately $1,836 per year (on average) vs. the $2,256 employees at low-performing companies will pay in 2008, according to the survey report.
| Best Practices Lead to Lower Costs “High performers” show a deep commitment to managing their programs in ways that benefit the company and employees, the survey report found. They’re also characterized by:
These attributes express themselves in the following practices: Commitment to employees. High-performing companies are highly committed to employees, supporting employees’ ability to make sound health care decisions, taking steps to motivate employees to manage their health care purchases responsibly, and working to manage health risks and conditions in the employee population overall. Managing by measuring. High performers are far more rigorous than low performers in developing and documenting their health care strategies. They manage by fact. For example, the vast majority of high-performing companies conduct extensive measurement of program costs vs. less than half of the low-performing group. Ensuring critical success factors are in place. While the 2008 data show that all companies are doing more than ever to ensure that critical success factors “such as senior leadership involvement, support from managers and supervisors, and disciplined execution processes” are in place, high-performing companies are much more committed to these program pillars. Increasing accountability. High-performing companies design their programs to make the true costs of care visible to employees, and hold them accountable for the decisions they make at the point of care using, for example, coinsurance rather than co-pays to share costs with employees Engaging employees. High-performing companies require employees to be more accountable for their decisions, and take steps to help employees do that by expanding communication initiatives and providing a variety of tools and resources to support employee awareness, understanding and action. Building a culture of health. High performers are much more likely to say they’re committed to building a culture of health in their organizations and to report that their employee education efforts are succeeding. For example, a strong majority of the high performers say employees accept their roles and responsibilities under their health plan, are comfortable with the level of risk under the plan, and understand and use decision support tools. “What the high performers show us is that accountability swings both ways,” said Guilmette. As companies ask their employees to become more accountable for their health care consumption and participate in cost-control initiatives, “the companies themselves must become more accountable to employees by providing the resources, support tools, education and communication initiatives that employees need to be successful consumers of health care,” he advised. |
Retiree Health Trends
The survey data indicate that organizations are taking a different view and exhibiting different commitment levels to programs for retirees. Less than half of the companies Towers Perrin surveyed (47 percent) currently subsidize retiree medical coverage for current or future retirees. (SHRM’s 2007 Benefit Survey Report showed that 35 percent of SHRM members provide retiree health benefits, although 53 percent of large employers did so.)
Of those that are continuing a subsidy, the share they are asking retirees to provide is rapidly increasing, Towers Perrin found, particularly for retirees under age 65. In 2008:
- Retirees under age 65 will pay, on average, $3,324, an 8 percent increase.
- Retirees over 65 will pay, on average, $1,500, a 5 percent increase.
The long-term effect of cost shifting to retirees could be to encourage older workers who want to leave the workforce to stay in their jobs primarily to receive company-subsidized health care, the report predicts.
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