Mercer: CDHPs Still Seen As Curbing Costs

By Kathleen Koster
May 5, 2009

Employers who based their 2009 health plans on the assumption that benefit cost increases would stay steady at 6% are now saying they will most likely make big changes for 2010, Mercer reports.

Many are turning to consumer-directed health plans in 2010 to lower their average cost increase to 5.2% next year. If they realize this goal, it would be the lowest annual increase in health benefits costs since 1997, according to Mercer research.

With the previously forecasted annual increase of health benefit costs no longer a sure thing, many are revising their estimates in favor of a 7.4% increase due to the economic deluge, cites Mercer. The forecasted increase has confirmed fears that the recession would accelerate health cost increases.

Almost half of the 428 employer respondents (46%) report that they will make more cost-saving changes to their health plans because of the economic downturn, according to the survey, conducted last month. In fact, 22% of respondents plan to adopt a CDHP to help curb cost increases.

Currently, 14% of small employers, those who have between 10 and 499 employees, offer a CDHP and one-quarter of large employers, 500 or more workers, provide this type of plan, Mercer reports. Survey results further suggest that the percentage of employers offering CDHPs could double in 2010.

“In past recessions, we’ve seen an initial cost spike driven by stress-related illnesses, laid-off workers using benefits before their coverage ends and employees who anticipate changes in benefits. Knowing that coverage could end or be significantly changed is an incentive to ‘store up’ procedures and medications that could be unaffordable to an unemployed person,” explains Linda Havlin, global intellectual capital leader for Mercer’s health and benefits business.

“At the same time, employers are trying to reduce operating expense to cope with a tough business climate. So the spike is usually followed by a steady decline as employers take aggressive action to lower cost. In the early ‘90s, the decline was generated by managed care and point-of-service plans. And after 2001 employers began shifting more cost to employees,” she adds.

Additionally, many employers are also turning their attention to vendors by auditing plans for appropriate payments and accurate dependent eligibility management (49%), going out to bid (46%), and renegotiating administrative-services only fees (39%).