Employers are looking to lower their average healthcare cost increase in the face of a tough economic climate and all the associated costs that a recession brings.
The onset of the global economic crisis has changed the healthcare spending calculus for many plan sponsors. Prior to September 2008, health benefit costs had increased by roughly 6% for four consecutive years, and employers were expecting a similar trend in 2009. However, employers now foresee an increase of 7.4% in 2009 due to the recession, according to a 2008 national survey by Mercer.
The poll of 428 U.S. employers found that organizations are gearing up to bring their average cost increase down to 5.2% in 2010. If they achieve this, Mercer explains, it would be the lowest annual increase in health benefit costs since 1997.
“In past recessions, we’ve seen an initial cost spike driven by stress-related illnesses, laid-off workers using benefits before their coverage ends and employees who anticipate changes in benefits,” says Linda Havlin, global intellectual capital leader for Mercer’s health and benefits business. “Knowing that coverage could end or be significantly changed is an incentive to ‘store up’ procedures and medications that could be unaffordable to an unemployed person.”
At the same time, she explains, employers are trying to reduce operating expenses. Traditionally, the spike in spending is followed by a steady decline as employers work to lower costs. The early ‘’90s, for example, saw a cost decline generated by managed care and point-of-service plans, while post-2001 employers began shifting more cost to employees.
Nearly half of all survey respondents (46%) say they will make more cost-saving changes than usual to their health plans due to the current economic conditions, while 22% plan to adopt a consumer-directed health plan (CDHP). This is a high-deductible plan with an associated employee-controlled account, either a health savings account or a health reimbursement arrangement. CDHPs are currently offered by an estimated 14% of small employers (10 to –499 employees) and 25% of large employers (500 or more employees), according to the survey. Results from the new survey suggest that the percentage of employers offering CDHPs could double in 2010.
Employers are also looking for cost savings from vendors by auditing plans for appropriate payments and accurate dependent eligibility management (49%), going out to bid (46%), and renegotiating administrative services only fees (39%).
Respondents were asked whether they approved or disapproved of health reform proposals, and a strong majority (64%) disapproves of a Canadian-style single-payer system. “Yet the emergence of a public plan in the Obama administration’s budget proposal could potentially lead insurers to exit the market, leaving a largely government-run system,” says Havlin.
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