Mercer: Jump in Deductible for Employer Coverage

The median individual deductible for health insurance coverage required by employers offering PPOs jumped to $1,000 in 2008, up from $500 last year, according to Mercer's National Survey of Employer-Sponsored Health Plans.

In 2000, only about half of employers imposed a health insurance deductible for PPO coverage (compared to about four-fifths today), and the median amount was just $250. PPOs are the most popular health plan, enrolling 69 percent of all covered employees (CDHPs enroll 7 percent).

Mercer's survey includes private/public employer health plan sponsors with 10+ employees. Nearly 2,900 employers participated in 2008.

What makes this finding more startling is that it refers to traditional PPOs - not the high-deductible plans where a health insurance deductible of at least $1,100 is required in order to deposit tax-free money in a Health Savings Account, or HSA. The HSA is the type of health insurance coverage that is spreading most rapidly.

The PPO health insurance deductible is lower among larger employers. In organizations with 500+ employees, the median health insurance deductible for individual and family health insurance coverage is $300 and $800, respectively. But large employers have been moving quickly to add HSA options to their health insurance coverage.

Health insurance coverage spending in an economic downturn

The Mercer survey found the average cost per employee for health insurance coverage rose 6.3 percent in 2008. Annual cost increases leveled off at about 6 percent in 2005 and have remained there. Employers expect a similar increase for 2009 - 6.4 percent. That projection reflects changes that employers plan to make in the level of benefits, the type of plan offered or the plan vendor. (If employers made no changes, the cost of their largest medical plan would rise by about 8 percent, they predict.)

A big question for employers is whether their cost projections, provided in late summer, will hold in the face of the current economic downturn. Utilization tends to increase during a recession. When job security is in jeopardy and insurance is tied to employment, consumers rush to get care they might otherwise delay. In addition, laid-off employees paying for coverage under COBRA provisions typically have far higher utilization than active employees. More employees are at risk for stress-related behavioral-health and medical conditions as they deal with investment losses, job insecurity and declining housing values.

Prices may also rise, as health plans and providers search for ways to recoup their investment losses; high unemployment leads to more uncompensated care; and public safety nets such as Medicaid respond to higher enrollments by freezing increases in provider compensation.

Consumer-directed health plans may prove a refuge

Rumors of the demise of the consumer-directed health plan are not borne out by Mercer's 2008 survey.

There was a sharp increase in the number of large employers offering CDHPs (a health plan coupled with either a Health Savings Account or a Health Reimbursement Arrangement) in 2008, from 14 percent to 20 percent of employers with 500 or more employees. The plans are most common among largest employers (20,000 or more employees), where they are offered by 45 percent, up from 41 percent in 2007. However, growth has been slower among small employers: Mercer found that 9 percent of employers with 10-499 employees offer a CDHP, up from 7 percent in 2007. These employers are more likely to offer a high-deductible PPO without an account feature.

Enrollment in CDHPs reached 7 percent of all covered employees in 2008, up from 5 percent last year. As employees shift from more expensive plans into less expensive ones, employers' overall cost per employee drops. This migration into lower-cost CDHPs is one factor helping to hold down benefit cost increases.

The new plan model's appeal to employers seems clear: CDHPs delivered substantially lower cost per employee than PPOs or HMOs in 2008. CDHP cost averaged $6,207 per employee, compared to $7,815 for PPOs and $7,768 for HMOs. Of the two types of CDHPs, HSA-based plans were less expensive than HRA-based plans ($6,027 compared to $6,420).

The most obvious explanation for the difference in cost between CDHPs and the other medical plan types is the higher deductible. But even compared to the average cost of PPOs with deductibles of $1,000 or higher ($6,661 per employee), CDHPs still cost less by over $400, even though CDHP enrollees are not significantly younger than enrollees in PPOs with a high-deductible and are more likely to elect dependent coverage (which drives up cost per employee). The 2008 cost increase for CDHPs was 4.0 percent, compared to 6.3 percent for PPOs and 9.1 percent for HMOs.

Most of the CDHPs added in 2008 were based on HSAs, which don't require an employer contribution. Employer account contributions are a standard feature of HRAs but not of HSAs: over a fourth of large HSA sponsors (29 percent) do not contribute. Among those that do, the average contribution is $694.

The flip side of consumerism - employee health management

Employers are looking to put more teeth into employee health management programs, in hopes that encouraging better health habits will lead to lower health spending and a more productive workforce. While the majority of employers offer one or more health management programs, large employers, in particular, are now adding incentives to encourage employees to use the programs or improve health habits. Of large employers offering a health management program, 26 percent use incentives, up from 23 percent in 2007.

The full report on the Mercer survey, including a separate appendix of tables of responses broken out by employer size, region and industry, will be published in late March 2009. The report costs $600 and the report and tables cost $1,200. For more information, visit www.Mercer.com/ushealthplansurvey or call Tara Lewis at 212-345-2451.