After a Three-year Lull, Health Benefit Cost Growth to Pick Up a Little Speed in 2008

October 23, 2007

The good news, according to preliminary survey findings released today by Mercer Health & Benefits, is that health benefit cost growth will increase only slightly in 2008. But three years of flat growth – around 6 percent each year – had raised hopes that the health benefit cost trend would begin to drop down toward average wage and CPI trends. The bad news is that it remains about twice as high.

Mercer's complete survey results won't be released until later in the year, but for the 1,557 employer health plan sponsors that have responded so far, the total cost to renew their current health plans – if they were to make no changes – would grow by nearly 9 percent on average. However, the majority of respondents expect to achieve a lower increase by changing plans, by adding lower-cost options or by altering benefit design. Taking into account these changes, the actual increase expected for 2008 is just 6.7 percent.

Last year, Mercer's annual survey found that average health benefit cost per employee rose 6.1 percent in 2006.

"It's only a slight uptick, but of course we'd rather see cost growth trending down," said David Foster, a principal with Mercer Health & Benefits in Atlanta. "Organizations will find innovative ways to hold down cost growth through gains in health care quality and efficiency, or else pay for these outsize increases each year by shifting cost to employees or investing less in other opportunities."

Survey results suggest that, as in the past few years, a major source of savings for employers taking steps to lower their 2008 cost increase will be shifting cost to employees. Over half of the employers surveyed – 56 percent – say that they will require employees to pay a bigger share of health plan costs in 2008 through a higher premium contribution (36 percent) or higher deductibles, co-pays or out-of-pocket maximums (29 percent).

"Employer thinking on what constitutes a ‛fair share' for employees has definitely changed over the past few years," Foster said. "But in many cases we're seeing employers providing more choice rather than just shifting cost, so that employees have the opportunity to save money by selecting lower levels of coverage."

Some cost savings will be accomplished through growing enrollment in consumer-directed health plans, which have high deductibles and an associated employee-controlled spending account. These plans are significantly less expensive than traditional PPOs or HMOs. Last year, 16 percent of all employers, and 19 percent of employers with 500 or more employees, said they were "very likely" to implement a CDHP in 2008. In most cases, these plans are offered alongside a more traditional health plan. In addition, employers will continue to promote greater consumer engagement through incentives for lifestyle improvement and participation in care management.

These are preliminary findings from Mercer's National Survey of Employer-Sponsored Health Plans 2007. The survey is still in the field and complete results, including the actual cost increase for 2007, will be released by the end of the year. The preliminary results discussed above are based on employers who responded by Aug. 24; these results are not weighted and represent only the 1,557 early responders. Ultimately, around 3,000 employers will participate in the survey, and the final results will be weighted to be nationally projectable.

About Mercer Health & Benefits
Mercer Health & Benefits is a business of Mercer Human Resource Consulting, a global leader for HR and related financial advice and services, with more than 15,000 employees serving clients from more than 180 cities and 40 countries and territories worldwide. The company is a wholly-owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges. For more information, visit mercerHR.com.
The Atlanta office of Mercer Human Resource Consulting was founded in 1975 and today employs a staff of more than 200 who serve clients in the areas of communication, employee and executive compensation, HR administrative services, health and benefits, human capital, investment consulting, retirement, and workforce strategies.