Welcome! Mercer s National Survey of Employer-Sponsored Health Plans March 3, Benefits & Healthcare Conference Joan Smyth New York NY

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1 Welcome! March 3, 2008 s National Survey of Employer-Sponsored Health Plans Benefits & Healthcare Conference Joan Smyth New York NY 1

2 About s National Survey of Employer-sponsored Health Plans Oldest Marking 22 years of measuring health plan trends Largest Nearly 3,000 employers participated in 2007 Most comprehensive 44-page questionnaire covers a full range of health benefit issues Statistically valid Only and Kaiser Family Foundation survey this way Covers the country Results project to what all US employers (with 10 or more ) are doing Strategic Tracks trends and measures what employers are looking at next 2 Today s Agenda Top stories More on cost More on Consumerism/CDHPs and Care Management PPOs, HMOs & Rx plan design Other items retirees, state and federal initiatives 3 2

3 Top Stories Annual health benefit cost increase levels at 6.1% for third straight year Total cost trend after plan design changes National results for all employers (10+ ) 17.1% The Impact of Managed Care Learning the Managed Care System Enter Consumerism and Care Management 14.7% 12.1% 10.1% 11.2% 10.1% 8.0% 6.1% 7.3% 8.1% 7.5% 6.1% 6.1% 6.1% 2.1% 2.5% 0.2% % Survey CPI-U All Total cost includes medical, pharmacy, dental, vision 5 3

4 Total health spend per employee nears $8,000 across all employers Total health spending for large employers including medical, pharmacy, dental and vision is now over $8,000 per employee % $4, % + 8.1% $4,430 $4, % % $6,215 $5, % $6, % $7, % $7, % $7, % $8, National results for all employers (10+ ) National results for large employers (500+ ) Large Employers Only 6 More moderate increases for large employers Average total health benefit cost per employee +6.1% $7,983 $7, % $7,608 $7, % $8,229 $7, All employers

5 Employer use of health management programs growing Percent of employers offering program Health risk assessment Disease management Nurse advice lines Case management 500-4,999 Health risk assessment Disease management Nurse advice lines Case management % 29% 35% 34% 54% 58% % 37% 44% 26% 54% 65% 65% 75% 8 Cost-shifting helped hold down cost in Require in-network PPO deductible Average PPO deductible amount Require PPO deductible of $1,000 or more Average HMO physician office copay 500-4,999 Require in-network PPO deductible Average PPO deductible amount Require PPO deductible of $1,000 or more Average HMO physician office copay % $872 43% $ % $484 14% $ % $859 39% $ % $434 9% $16 9 5

6 Employers will continue to shift cost in % ,999 28% 39% 31% 36% 40% Will raise employee contribution percentage Will raise deductibles, copays, or other cost - sharing features Will not shift cost 10 CDHP enrollment reaches 5% of all covered Percent of covered % 8% 23% 5% % 9% 24% % 10% 25% % 58% 10% 27% % 54% 14% 27% Traditional indemnity plan PPO POS HMO CDHP 11 6

7 Employers favor HSA-based CDHPs over HRA-based plans ,999 5,000 or more Offer CDHP in 2007 HSAbased CDHP 6% 7% 19% HRAbased CDHP 1% 5% 14% Very likely to offer CDHP in 2008 HSAbased CDHP 9% 11% 23% HRAbased CDHP 6% 8% 16% 12 Employees more likely to enroll in HRA-based plans Percent of eligible enrolled*, among large CDHP sponsors 25% HRA-based plans HSA-based plans 16% 15% 6% Average enrollment Median enrollment * When CDHP is offered as an option alongside other medical plan choice 13 7

8 Comparing HSA, HRA and PPO plan design Employers with 500 or more HSA HRA PPO Average in-network deductible $1,769 $1,457 $473 % employers contributing to account 65% 100% Average employer account contribution $626* $621 Average gap $1,143 $836 $473 Average cost per employee $5,479 $6,110 $7,429 Average monthly employee premium contribution $69 $65 $89 *Based on employers making an HSA contribution. Including zeros, the average employer HSA contribution is $ Employers save money with CDHPs Average cost per employee 2006 $5,770 $5,970 $7,120 $6,616 $7,352 $6,932 $6,937 $7, CDHP/+3.5% HMO/+7.6% PPO/+6.1% POS/+11.2% 15 8

9 Health coverage eroding among small employers Percent of employers with that offer coverage 75% 70% 65% 69% 66% 66% 64% 62% 63% 61% 60% 55% 50% 45% 40% Surprise uptick in retiree medical offerings in 2007 among smaller employers Percent of employers offering coverage to any retirees 25% 33% 30% 30% 40% 39% % 8% ,000-4,999 5,000 or more 17 9

10 Employer cost management activities helping to slow increases Large employers Use strategy Believe it has been very/ somewhat successful* Too soon to tell Health management 80% 63% 33% Consumerism 52% 62% 29% Data warehousing 24% 59% 39% Collective purchasing 21% 84% 13% Evidence-based plan design 20% 57% 39% Performance transparency 12% 28% 63% High-performance networks 11% 54% 44% * in efforts to control health benefit cost or improve workforce health and productivity 18 More on Cost 10

11 Factors that affect average cost per employee Industry $7,593 $7,994 $8,303 $8,453 $8,539 $8,837 $6,729 Wholesale/ Retail Services Manufacturing Financial services Health care Government Trans/ Communic/ Utility 20 Factors that affect average cost per employee Region $8,294 $8,299 $8,409 $7,187 South Midwest West Northeast 21 11

12 Factors that affect average cost per employee Employer size $7,608 $7,614 $8,097 $8,540 $8,726 $8, ,000-4,999 5,000-9,999 10,000-19,999 Number of 20,000 or more 22 Factors that affect average cost per employee Employer/employee demographics $7,983 $8,831 $9,284 $9,841 All employers Average employee age 43 or higher Dependent coverage election 65% or higher 75% or more in unions 23 12

13 Survey Results Vary survey tools can be used to best match your specific benchmarking needs Financial Manufacturing Health Care Trans/Comm/Util Company Size <20,000 5,000 19,999 5,000 9,999 1,000 4,999 Geography Northeast Midwest Northeast Midwest Average 2007 Benefit Cost $9,471 $8,903 $8,617 $8,911 Increase from % 4.7% 7.1% 3.7% 24 More on Consumerism and CDHPs 13

14 What is health care consumerism? Healthy behavior Personal responsibility for the cost and quality of the services that an individual purchases Strategies for encouraging consumerism range from employee communication and information to innovative plan design Consumerism is more than a consumer-directed health plan 26 Type of health information provided Employers with 500 or more Information on health conditions 61% Tool to help select most appropriate plan 30% Individual provider quality 22% Individual provider cost 21% 27 14

15 Employers see increased utilization of health information Among large employers* that provide health information Don't know 20% Increased significantly 9% Decreased 1% Stayed about the same 21% Increased somewhat 49% * Employers with 500 or more 28 What is a consumer-directed health plan? A plan under which spend money from Health Reimbursement Accounts (HRAs) or Health Savings Accounts (HSAs) to purchase routine services directly. Non-routine expenses are covered by traditional insurance after members meet a generally high deductible. Online health and financial tools are typically provided

16 Majority of large employers expect to offer an account-based plan near-term, but not as the only plan ,999 5, % 59% 50% 44% 33% 29% 9% 6% 8% Will offer only accountbased plan within the next 5 years Will offer along with other medical plan option(s) Will not offer accountbased plan 30 CDHP offerings continue to grow, but at slower pace Percent of employers offering/likely to offer CDHP, by employer size Employer size % % % Very likely to offer in % % 7% 9% 13% % 7% 6% 12% % 6% 9% 11% 1,000-4,999 4% 12% 16% 21% 5,000-9,999 10% 18% 22% 28% 10,000-19,999 19% 21% 36% 40% 20,000 or more 22% 37% 41% 43% 31 16

17 More on Consumerism: HRA-based CDHPs Employee monthly dollar contributions for HRA-based CDHP coverage lower than for PPO and HMO coverage Employers with 500-4,999 HRA-based CDHP Employee-only Family No contribution required 8% 2% Average monthly dollar amount $67 $285 Average contribution as a % of premium 23% 35% PPO Employee-only Family 17% 6% $90 $338 23% 35% HMO Employee-only Family 17% 5% $87 $345 23% 36% 33 17

18 HRA-based CDHP plan design HRA sponsors with 500-4,999 Employer contribution (median) Deductible (median) Out-of-pocket maximum (median) Employee-only $500 $1,250 $2,200 Family $1,000 $2,500 $4,500 33% of sponsors set a maximum on amount that may be rolled over 31% of sponsors allow HRA funds to carried forward to purchase retiree medical coverage 34 Objectives for HRA-based CDHPs Percent of large HRA sponsors* rating objective very important Promote health care consumerism 63% Lower organization s benefit cost 51% Improve package of benefit offerings 37% Provide funding vehicle for retiree medical 6% * Employers with 500-4,

19 Employer reaction to HRA-based plan: Most important objectives have been met HRA sponsors with 500-4,999 Too soon to tell, 30% Strongly agree, 9% Strongly disagree, 7% Agree, 40% Disagree, 4% Neither agree nor disagree 10% 36 Employee reaction to HRA-based CDHP Large HRA sponsors* characterize the response of enrolled in the plan Evenly mixed between positive and negative 23% More negative than positive 7% Strongly positive 24% * Employers with 500-4,999 More positive than negative 45% 37 19

20 More on Consumerism: HSA-based CDHPs Employee monthly dollar contributions for HSA-based CDHP coverage lower than for PPO and HMO coverage Employers with 500-4,999 HSA-based CDHP Employee-only Family No contribution required 14% 6% Average monthly dollar amount $76 $301 Average contribution as a % of premium 29% 35% PPO Employee-only Family 17% 6% $90 $338 23% 35% HMO Employee-only Family 17% 5% $87 $345 23% 36% 39 20

21 CDHP plan design HSA HSA sponsors with 500-4,999 * Zeros not included No employer contribution (percent of sponsors) Employer contribution amount* (median) Deductible (median) Out-of-pocket maximum (median) Employee-only 36% $535 $1,500 $2,650 Family 37% $1,000 $3,000 $5,000 89% of sponsors selected the HSA for to use with their HDHP Of those,72% of sponsors allow to make payroll deductions to fund their account 71% provide a debit (swipe) card that members use at the point of service to access HSA funds 40 Objectives for HSA-based CDHPs Percent of large sponsors* rating objective very important Lower organization s benefit cost Promote health care consumerism Improve package of benefit offerings 42% Provide funding vehicle for retiree medical 27% Provide tax-effective savings vehicle 22% 57% 63% * Employers with 500-4,

22 Employer reaction to HSA-based plan: Most important objectives have been met HSA sponsors with 500-4,999 Too soon to tell 30% Strongly agree 8% Agree 43% Disagree 9% Neither agree nor disagree 10% 42 Employee reaction to HSA-based CDHP Large HSA sponsors* characterize the response of enrolled in the plan More negative than positive 6% Strongly negative 1% Strongly positive 9% Evenly mixed between positive and negative 31% More positive than negative 52% * Employers with 500-4,

23 More on Care Management Use of specific health management programs Health website Case management Nurse advice line Health risk assessment End-of-life case management Health advocate services Targeted behavior modification % 26% 44% 20% 15% 21% 16% 500-4,999 77% 75% 65% 54% 41% 37% 29% 45 23

24 Use of specific disease management programs Offered to enrolled in primary medical plan Diabetes Heart disease/hypertension Asthma Cancer Depression Renal disease Obesity Low back pain Rare diseases Any disease management program % 25% 22% 27% 27% 16% 17% 16% 15% 37% 500-4,999 61% 53% 46% 42% 34% 31% 31% 28% 23% 65% 46 How health management programs are offered 65% 56% ,999 33% 7% 13% 5% 13% 1% 4% 14% Through health plan standard services only Through health plan some optional services Contract with one specialty vendor Contract with 2+ specialty vendors Don't offer any 47 24

25 Use incentives to encourage participation in care management programs offered Completing a Health Risk Assessment Participation in a disease management program Participation in a behavior modification program Completing a behavior modification program Any health management programs % 4% 9% 7% 7% 500-4,999 27% 10% 21% 16% 22% 48 Consumerism initiatives for large employers (over 500 ) Large employers Largest employers Replaced copays with coinsurance* 16% 36% Vary premium contribution based on 5% 16% health status Use evidence-based design 20% 24% Reduce cost-sharing for maintenance drugs 10% 11% Waive/reduce copays for specific, effective drug therapies 5% 6% Waive/reduce copays for specific, effective treatment modalities 3% 4% * Change made in the last two years 49 25

26 Care management programs becoming the norm for large employers Percent of large employers offering program in 2006 & % 63% 67% 67% 67% 65% 56% 53% 42% 40% 38% 35% 30% 30% Half of All Large Employers Catastrophic case management REACTIVE End-of-life case management One or more Nurse advice disease line management programs Health advocate Targeted behavior modification Health risk assessment PROACTIVE 50 Preferred Provider Organizations 26

27 PPO cost per employee, ,999 $6,395 $5,987 $6,795 $6,428 $7,213 $7,241 $7,254 $6, Offer PPO; percent of enrolled Percent of employers offering PPO Percent of enrolled in PPO % 64% 500-4,999 85% 68% 53 27

28 Employee cost-sharing requirements for PPO Employers with DEDUCTIBLE (MEDIAN) Require deductible Individual amount (median) Family amount (median) DOCTOR S OFFICE VISIT Require copay Copay amount (median) Require coinsurance Coinsurance amount (median) HOSPITALIZATION Require per-admission copay Copay amount (median) Require coinsurance Coinsurance amount (median) OUT-OF-POCKET MAXIMUM Plan includes maximum Individual OOP max (median) In-network 77% $500 $1,500 88% $20 7% 20% 24% $400 51% 20% 77% $2,000 Out-of-network 81% $1,000 $1,500 39% $25 55% 30% 17% $500 73% 30% 77% $3, Employee cost-sharing requirements for PPO Employers with 500-4,999 DEDUCTIBLE (MEDIAN) Require deductible Individual amount (median) Family amount (median) DOCTOR S OFFICE VISIT Require copay Copay amount (median) Require coinsurance Coinsurance amount (median) HOSPITALIZATION Require per-admission copay Copay amount (median) Require coinsurance Coinsurance amount (median) OUT-OF-POCKET MAXIMUM Plan includes maximum Individual OOP max (median) In-network 77% $300 $900 82% $20 19% 20% 23% $250 65% 20% 83% $2,000 Out-of-network 94% $500 $1,200 14% $20 85% 30% 16% $350 88% 30% 85% $3,

29 Health Maintenance Organizations HMO plan cost per employee, $5,528 $5, ,999 $6,676 $6,853 $7,008 $6,053 $6,202 $5,

30 Offer HMO; percent of enrolled Percent of employers offering HMO Percent of enrolled in HMO % 18% 500-4,999 36% 21% 58 Employee cost-sharing requirements for HMO ,999 MEDIAN PHYSICIAN COPAYMENT $20 $15 HOSPITAL DEDUCTIBLE Employers requiring deductible Median deductible EMERGENCY ROOM COPAYMENT Employers requiring copayment Median copayment 52% 54% $250 $250 93% 96% $75 $

31 Prescription Drug Benefits Prescription drug benefit cost increase continues to slow for midsized employers Cost increase in primary medical plan , % 17.3% 13.7% 15.8% 14.0% 9.7% 9.1% 11.5% 9.8% 8.9% 6.3% 6.8%

32 Majority of employers require 3-tier copayments in drug card plans Type of cost-sharing used in employers primary medical plan Cost-sharing structure: 1 tier 2 tiers for generic, brand drugs 3 tiers for generic, formulary brand, non-formulary brand Four or five tiers No cost-sharing required % 27% 64% 5% 1% 500-4,999 3% 18% 71% 5% Average copayment amounts in prescription drug card plan In employers primary medical plan Two-tier copayments Generic Brand-name Three-tier copayments Generic Formulary brand Non-formulary brand $13 $30 $12 $26 $ ,999 $10 $25 $10 $25 $

33 Average copayment amounts in prescription drug mail-order plan In employers primary medical plan Two-tier copayments Generic Brand-name Three-tier copayments Generic Formulary brand Non-formulary brand $17 $36 $18 $41 $ ,999 $17 $38 $19 $48 $78 64 Use of coinsurance in drug plans Percent of employers requiring coinsurance Generic drugs Formulary brand Non-formulary brand Specialty/biotech/ lifestyle Any drug category ,999 Retail card Mail-order Retail card Mail-order 3% 1% 6% 5% 4% 3% 7% 6% 5% 4% 9% 6% 2% -- 2% 2% 10% 7% 17% 14% 65 33

34 Other items Offer retiree coverage in 2007, by employer size Pre-Medicare-eligible Medicare-eligible 48% 30% 29% 33% 27% 40% 33% 39% 20% 20% 7% 6% ,000-4,999 5,000-9,999 10,000-19,999 Number of 20,000 or more 67 34

35 Average health benefit cost per retiree Based on 2007 respondents providing both 2006 and 2007 cost $9,236 $9, $3,535 $3,742 Pre-Medicare-eligible retirees Medicare-eligible retirees Large employers (500+ ) 68 Contribution strategies* for retirees Large retiree plan sponsors Pre-Medicare-eligible retirees Medicare-eligible retirees Retiree pays all 38% Employer pays all 14% Retiree pays all 39% Employer pays all 18% Cost is shared 48% Cost is shared 43% *individual coverage 69 35

36 Employer opinions on health reform initiatives or proposals Reform effort Pay or play -- requiring employers to offer a health plan or pay into a fund to provide coverage for the uninsured Individual mandates -- requiring individuals to purchase health insurance, at specified levels of coverage and cost Extending the age of children entitled to dependent coverage Making section 125 cafeteria plans a requirement to allow all (including those not eligible for coverage) to make pretax premium contributions Connector or exchange agencies that provide access to affordable insurance for individuals and small businesses Disapprove/ Strongly disapprove 50% 48% 23% 18% 15% Approve/ Strongly approve 23% 23% 48% 61% 58% 70 The trillion-dollar question increasing access for the uninsured Do employers have a role? The high number of uninsured contributes to the fact that the US ranks only 20 th out of 30 developed nations in longevity, while outspending all of them. Uncontrolled cost growth has been a key factor in the problem of the uninsured Employer and health industry initiatives have helped slow cost growth in recent years and continue to show promise Government-led reform needs to build on this progress -- this time around, employers should and will have a seat at the table 71 36

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