United States
New York , 4 September 2008, Mercer

After three years of double-digit growth in the first half of the decade, annual health benefit cost increases slowed to about 6 percent in 2005 and have stayed there ever since. Preliminary survey findings released today by Mercer indicate that cost growth is likely to slow a little further in 2009, to 5.7 percent – which would be the lowest increase in more than 10 years. Last year, Mercer’s annual survey found that average health benefit cost per employee rose 6.1 percent in 2007.

Mercer’s complete survey results won’t be released until later in the year, but for the 1,317 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 8 percent on average. Small employers (those with 10–499 employees) would see an even higher increase, of about 10 percent. However, the majority of respondents say they will take action to lower their actual cost increases.

“It’s a relief to see cost growth trending down, even slightly,” said Blaine Bos, a senior Mercer health and benefits consultant based in Minneapolis. “But this is not an unqualified success story. While some employers are holding down cost growth with innovative methods of improving health care quality and efficiency, more typically employers struggling with increases they can’t handle resort to the tried and true method of shifting cost to employees.”

Well over half (59 percent) of employers taking action to reduce their 2009 cost increase will raise deductibles, copayments, coinsurance or employee out-of-pocket spending limits. Employee cost-sharing has risen sharply over the past five years:  Between 2003 and 2007, the median family deductible for in-network services in a PPO (the type of plan offered by the most employers) rose from $1,000 to $1,500.

A smaller number of the employers – 19 percent – say they will lower their 2009 costs by adding a consumer-directed health plan (CDHP), which is a high-deductible plan with an employee-controlled spending account (a health saving account (HSA) or health reimbursement arrangement). Many of these 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. While it’s too early to make a final assessment of how well this new plan model works, among the survey respondents that currently offer a CDHP the predicted 2009 cost increase averaged 4.5 percent, compared to 6.4 percent for respondents not offering a CDHP.

CDHPs are significantly less expensive than traditional PPOs or HMOs. Last year, 12 percent of all employers – and 20 percent of those with 500 or more employees – said they were “very likely” to implement a CDHP by 2009.

“This opportunity for saving is good news for employers committed to offering health coverage. But even though CDHPs cost about 20 percent less than a typical medical plan, the percentage of very small employers providing employee coverage keeps shrinking,” said Mr. Bos. “This is one of the leading causes of the increase in the number of uninsured over the past few years, and a troublesome finding for policymakers who were counting on these plans – specifically HSAs – to reverse the trend.”

These are preliminary findings from Mercer’s National Survey of Employer-Sponsored Health Plans 2008. The survey is still in the field and complete results, including the actual cost increase for 2008, will be released by the end of the year. The preliminary results discussed above are based on employers who responded by August 25; these results are not weighted and represent only the 1,317 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

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 18,000 employees are based in more than 40 countries. 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, visitwww.mercer.com.

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