Surveys Find Health Care Premiums Have Substantially Increased in 2011, But that the Rate of Increase will Decelerate in 2012

The findings of two recent surveys on employer-provided health care indicate that while premiums have risen by 8-9% in 2011, the rate of cost increases will likely decrease the following year. The Employer Health Benefits 2011 Annual Survey (pdf) conducted by Kaiser Family Foundation (Kaiser) and the Health Research & Educational Trust (HRET) reports that the average annual premiums for employer-sponsored health insurance in 2011 are $5,429 for single coverage and $15,073 for family coverage, representing premium increases of 8% for single coverage and 9% for family coverage over the previous year. According to the survey of 2,088 public and private employers with at least three workers, the larger the firm, the higher the cost increase. The survey notes that the amount in average annual premiums and employee contribution rates vary significantly depending on the size of the firm, types of benefits offered, and geographic costs differences, among other factors. Overall, the survey finds that workers have contributed 18% of the premium costs for single coverage (approximately $921) and 28% ($4,129) for family coverage in 2011, amounts substantially comparable to those paid in 2010.

Despite the reported premium increases for 2011, the preliminary results of an annual national survey of employer-sponsored health plans conducted by the Mercer consulting firm show that the cost of employer-provided health care is projected to rise by 5.4% in 2012, the lowest increase in 15 years. These early findings are based on 1,592 employer responses submitted through September 8 of this year. Mercer anticipates the receipt of about 1,200 more responses before the final survey results are analyzed. The survey takes into consideration cost-cutting measures employers plan to make to their current plans, and reports that without such efforts, costs would instead increase an average of 7.1% next year, versus a cost trend of approximately 9% over the last few years. Mercer cautions, however, that this projected cost growth remains “well above both general inflation (3.2%) and growth in workers’ earnings (2.1%).” According to the Mercer survey, some employers plan to shift cost to employees by raising premium contributions in 2012. They are somewhat more likely to increase contributions for dependent coverage (36%) than for employee-only coverage (33%). The difference is greater among the largest employers, 42% of whom will raise dependent contributions and 36% will raise employee-only contributions.

According to Mercer, the cost increase slowdown may be attributed to an overall decrease in the use of health services by employees. Mercer reports that some analysts believe the economic downturn in conjunction with generally higher deductibles and other forms of cost-sharing lead to less disposable income to use for non-urgent health services.

Alternatively, the decrease in health care utilization may be the result of programs and services aimed at improving health. Susan Connolly, a partner in Mercer’s Boston office, stated in a press release that: “Earlier risk identification and health education, along with improvements in drug therapies and medical technology, are keeping people with health risks and chronic conditions away from the emergency room,” adding, “consumers are more aware that overuse and misuse of health care services will directly impact their wallets as well as their employer's budget.”

Both studies found that to lower costs, many employers have begun and will continue to offer consumer-directed health plans (CDHPs), which are high-deductible plans with an employee-controlled spending account, such as a health saving account (HSA) or health reimbursement arrangement (HRA). As reported in the Kaiser/HRET survey, 23% of firms offering health benefits offer a high-deductible health plan with savings options, up from 15% in 2010. According to Mercer, such plans “give employees an incentive to take cost into consideration when seeking health care services by allowing them to save, on a tax-advantaged basis, account dollars they don’t spend in a given year for future needs. Preventive care is covered in full.”

Beth Umland, Mercer’s director of research for health and benefits, claims that CDHPs offer cost savings to employers, as they are “significantly less expensive than traditional PPOs or HMOs – by about 15%, on average.” Both surveys suggest that the larger the firm, the more likely it will offer such plans now and in the future.

Other notable findings from the Kaiser/HRET survey include the following:

• Approximately 60% of firms offer health benefits to their employees in 2011, a number that is down from 2010 but comparable to earlier years, suggesting the findings from 2010 may be an aberration.
• Twenty-six percent of firms with 200 or more employees offer retiree benefits in 2011, the same percentage of firms that offered such benefits in 2010.
• Fifty-six percent of covered workers are covered by “grandfathered” health plans.
• Twenty-three percent of covered workers participate in health plans with altered cost-sharing requirements for preventive services in response to the Affordable Care Act.

More information on the Kaiser/HRET survey can be found here. Preliminary findings from the Mercer survey can be found here.

Photo credit: Andriy Solovyov