Mercer survey: Companies predict higher health-benefit cost per employee

Early responses from Mercer’s National Survey of Employer-Sponsored Health Plans, 2017 indicate participating employers predicting that health-benefit cost per employee will rise, on average, 4.3 percent in 2018 after they make planned changes such as raising deductibles or switching carriers.

Over the past five years, Mercer’s surveys have found that the average annual increase has been about 3 percent; an increase of 4.3 percent would be the highest since 2011, when the health-benefit cost rose 6.1 percent.

That’s according to a news release that Mercer issued Sept. 18.

CNYBJ asked if Mercer had a breakdown of numbers specific to New York, but a spokesman indicated that information wasn’t yet available.

Mercer is a wholly owned subsidiary of New York City–based Marsh & McLennan Companies (NYSE: MMC), a global professional-services firm in the areas of risk, strategy, and people. Mercer has an office in Rochester.

The projected underlying cost growth from 2017 to 2018 is 6 percent. That is the increase employers would expect if they made no changes to their medical plans. However, the survey found that 46 percent of employers will take steps to reduce cost growth in 2018.

Handling higher cost

Offering lower-cost, high-deductible health plans has been an “important strategy” for holding down cost over the past decade, and the need to minimize exposure to the Affordable Care Act’s (ACA) excise tax on high-cost plans has “accelerated this trend.”

“Employers find the challenge of juggling cost-management objectives and affordability issues for employees gets harder every year,” Tracy Watts, senior partner and Mercer’s leader for health reform, said in the news release. “Consumerism has a role in addressing rising costs, but there are many factors that drive costs, separate and distinct from relative generosity of the plan design.”

Employers must contend with cost increases that occur with medical advances … like the introduction of new medications used to treat complex conditions like cancer, multiple sclerosis, and hepatitis C, Mercer said.

Respondents to Mercer’s survey reported that spending on these specialty drugs rose by about 15 percent at their last renewal, pushing up growth in the overall cost of prescription drugs to more than 7 percent.

“With so many new specialty drugs in the pipeline and few well-known brand-name drugs going off-patent in the near future, the spiraling drug cost problem will certainly get worse before it gets better,” said Watts.

Upcoming excise tax

But with the ACA’s excise tax still on the books and slated to go into effect in 2020, employers may have to pick up the pace of change to try to stay ahead of cost increases. Mercer estimates that 31 percent of large employers (500 or more employees) would be liable to pay the excise tax in 2020.

And with the tax threshold indexed to inflation and rising at about half the rate of health-benefit cost, more employers would pass the threshold each year.

“The excise tax creates pressure to generate immediate cost savings though cost-shifting or other short-term fixes. But employers are also making good progress with longer-term strategies that address the root causes of high cost and cost growth,” Beth Umland, Mercer’s director of research for health and benefits, said.

Strategies that employers are adopting to manage medical costs without raising employee out-of-pocket spending include providing care coordination and support for high-cost claimants.

Employers are also addressing quality by using incentives to direct employees to Centers of Excellence and other high-performance provider networks. And they are shifting away from traditional fee-for-service provider reimbursement toward new payment models that reflect the value of the services provided rather than just the quantity.

Survey methodology

The results discussed here are preliminary findings from Mercer’s National Survey of Employer-Sponsored Health Plans 2017. Mercer will release the complete results, including the actual cost increase for 2017, later this year.

The organization based the preliminary results on about 1,500 employers who responded by August 15. These results are not weighted and represent only the early responders. Ultimately, about 2,400 employers will participate in the survey and the final results will be weighted to be nationally projectable.

Contact Reinhardt at ereinhardt@cnybj.com