NATIONAL SURVEY OF EMPLOYER-SPONSORED HEALTH PLANS...

NATIONAL SURVEY OF EMPLOYER-SPONSORED HEALTH PLANS 2011

2MERCER’S NATIONAL SURVEY OF EMPLOYER-SPONSORED HEALTH PLANS 2011

About the survey

• Now in its 26th year, the survey was established in 1986

• A national probability sample has been used since 1993. This means that survey results are representative of all employer health plan sponsors in the US with 10 or more employees

• 2,844 employers participated in 2011

• In this presentation, we refer to:- small employers – 10-499 employees - large employers – 500+ employees- jumbo employers – 20,000+ employees

Top Stories


Our headline stories!

• Health care reform is sharpening employers' focus on cost management and providing the business case for bold strategies

• CDHPs are poised to become a mainstream strategy by creating more cost-conscious consumers

• The big challenge in workforce health management is building employee engagement. Incentives clearly work to drive participation, and employers are starting to test their ability to improve health outcomes as well

• Employers that follow best practices -- such as data warehousing, value-based designs and collective purchasing -- report significantly lower costs and trends


*ProjectedSource: Mercer’s National Survey of Employer-Sponsored Health Plans

Growth in total health benefit cost per employee slowed to 6.1% in 2011 with a 5.7% increase expected for 2012

17.1%

12.1%

10.1%

8.0%

-1.1%

2.5%

0.2%

6.1%

8.1%

11.2%

14.7%

10.1%

7.5%

5.5%5.7%*

6.1%6.9%

6.3%6.1%6.1%6.1%7.3%

2.1%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Annual change in total health benefit cost per employee The good news: Growth in the average total

health plan cost per employee

slowed in 2011


*ProjectedSource: Mercer’s National Survey of Employer-Sponsored Health Plans; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April) 1990-2011; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April) 1990-2011.

Growth in total health benefit cost per employee slowed to 6.1% in 2011 with a 5.7% increase expected for 2012

17.1%

12.1%

10.1%

8.0%

-1.1%

2.5%

0.2%

6.1%

8.1%

11.2%

14.7%

10.1%

7.5%

5.5%5.7%*

6.1%6.9%

6.3%6.1%6.1%6.1%7.3%

2.1%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Workers' earningsAnnual change in total health benefit cost per employeeOverall inflation The bad news:

Cost is still rising far faster than

inflation or wages


Total health benefit cost per employee in 2011

$9,702$10,438$10,146

All employers Small employers(10-499

employees)

Large employers(500 or moreemployees)

+ 6.1% + 3.6%

Average total health benefit cost

per employee

tops $10,000

+ 9.9%


22%27%28%

48%

Employers that consider these PPACA provisions to be a “significant concern” for their organizations

Plans must pay 60% of covered

services

New full-time employees must be

auto-enrolled

High-cost plans may be subject to

40% excise tax

All employees working avg. 30+ hrs/wk in a

month must be eligible for coverage

Data based on employers with 50+ employees.

Employers will face additional cost pressure in 2014 as more PPACA provisions kick in – but their biggest worry is the excise tax in 2018


Against the backdrop of health reform, employers are taking bolder steps to manage costLarge employers

They’re planning to add low-cost plans like CDHPs...…as the default plan for auto-enrollment 53%

…for newly eligible PTEs 17%*

They’re planning to narrow the scope of their benefit spending…

…by transitioning some employer-paid benefits to voluntary 38%

…by reducing spending on dependent coverage 32%

And they’re determined to create a healthier workforce!

. …by adding or improving health management programs 87%

*Among those not currently providing coverage to all employees working 30+ hours per week.


With reform adding administrative complexity, the trend toward outsourcing benefits administration is likely to accelerate

11%

18%

29%

2005* 2011 Likely to outsource asa response to reform

(including thosecurrently outsourcing)

* Outsourced annual enrollment at a minimum


Will employers terminate medical coverage in response to PPACA?Large employers

49%41%

2%7%

Likely to terminate

Not very likely to terminateNot at all likely

to terminate

Very likely to terminate health

coverage

No! Employers remain committed to offering coverage, so cost management will be a priority for years to come


Biggest year-over-year increase in CDHP offerings and enrollment in 2011Large employers

14%

20% 20%23%

32%

6% 7% 8%10%

13%

2007 2008 2009 2010 2011

Percent of employers offering CDHPs

Percent of covered employees enrolled in CDHPs

At the tipping point? Employers drive enrollment into lower-cost CDHPs


Medical plan cost per employeeLarge employers

$10,020

$7,541

$9,511

PPO HMO HSA plan (includesemployer account

contribution)

The appeal of HSAsis clear – they cost

about 20% less than other medical plan

types


Full replacement CDHPs becoming more common – and survey results suggest that cost savings remain when entire population is enrolled Large employers

• Full replacement HSA-based plan: $7,744

• All HSA-based plans: $7,541

• All PPO plans: $9,511

• High-deductible* PPO plans: $7,901

*In-network individual deductible of $1,000+

7%9% 10%

14%

21%

17%

2009 2010 2011

HSA-eligible CDHP

HRA-based CDHP

Percent of CDHP sponsors offering no other plan

Cost is higher for full-replacement, but not by much – and still lower than even high-deductible PPOs


18%21%

24%24%

29%25%

2009 2010 2011

HSA-eligible CDHP

HRA-based CDHP35%

14%

Employercontribution to HSA

>$750

Employer does notcontribute to HSA

Employees becoming more comfortable with CDHPsLarge employers

About a fourth of employees now select a CDHP when they have a choice of another plan

Employers that offer substantial account contributions to the HSA

see higher enrollment


65%52%41% Health portal (w/activity or incentive tracking)

47%

52%

55%

82%

70%

80%

83%

Large employers (500+)

22%

30%

33%

42%

34%

53%

35%

Small employers (10-499

employees)

89%Health risk assessment

47%

61%

77%

86%

89%

96%

Jumbo employers (20,000+)

Lifestyle / behavior modification

End-of-life case management

Case management

Nurse advice line

Disease management

Health advocate services

Health management -- the leading long-term cost containment strategy – is migrating from the biggest organizations to the smallest


Investment in health management programs varies widely – which makes it harder to compare results

66%

24%18%

6%

42%36%

31%

13%

Throughhealth plan –

standardservices only

Throughhealth plan –

some optionalservices

Contract withone specialty

vendor

Contract with2+ specialty

vendors

Large employersJumbo employers

Although more employers are using specialty vendors for health management, many still offer only their health plans’standard services


Employers that invest more in health management are more likely to be satisfied with ROIAmong large employers that have attempted to measure ROI

Offer HM through health plan —standard services only

Offer HM through specialty vendor or purchase optional services from health plan

11%

36% 53%

Don’t know

Satisfied with ROI

71%

22%

7%

Not satisfied

Don’t know

Satisfied with ROI

Not satisfied


Use incentives or penalties in health management programs

21%

40%

27%

43%

33%

52%

All large employers Employers with 10,000 ormore employees

2009

2010

2011 Employers are adding incentives and penalties to health management programs to boost participation – and some have made them contingent on outcomes


42%

18% 19%

54%

23% 24%

14% 12%

30%

Health risk assessment Disease management program* Lifestyle coaching*

All employers offering programEmployers offering incentivesEmployers not offering incentives

Average participation rates for health management programsLarge employers

*Percentage of identified persons actively engaged in program

Employers that offer incentives see higher participation rates


5% 5% 5%

Body massindex

Cholesterol Bloodpressure

9%10%

12%

2009 2010 2011

Employers are beginning to use incentives to reward outcomesrather than just participation

Offering lower premium contributions to non-tobacco users is growing among all large employers…

…and jumbo employers are beginning to provide incentives for achieving or maintaining health status targets


$8,855

$10,622

PPO/POS cost per employee

5.5%

7.3%

PPO/POS cost per employeeAnnual PPO cost per employee in 2011

Change in cost from 2010

New analysis shows employers are successfully controlling cost through use of best practicesEmployers with 5,000+ employees

Employers that use the greatest number of best practices have lower costs and lower cost increases

Employers using most best practices Employers using fewest best practices


Respondents’ costs were analyzed based on their use of more than 20 cost-management best practices

Offer optional HM services through plan or specialty vendor

Use incentives for HM programs

Use incentives for achieving or maintaining health status targets

Offer EAP

Voluntary benefits integrated with core benefits

Contribution for family coverage in primary plan is at least 20% of premium

PPO in-network deductible is $300+

PPO plan has higher cost-sharing for specialists

Offer CDHP

HSA sponsor makes a contribution to employees’ accounts

Rx mail-order copay is at least 2.5x retail copay

Spousal surcharge

Smoker surcharge

Plan design and health management

High-performance networks

Data warehousing

Collective purchasing

Value-based design

On-site clinic

One or more Rx strategies (i.e. mandatory generics)

One or more specialty drug provisions (i.e., step therapy)

One or more health plan innovations:

–Surgical centers of excellence–Retail clinics–Telemediated care–Medical homes

More advanced cost-management strategies


Best practice trends to watch: Value-based design

• Waive/reduce cost-sharing for maintenance drugs

• Waive/reduce cost-sharing for specific drug therapies shown to reduce overall cost

• Waive/reduce cost-sharing for non-drug treatments based on effectiveness

25%

17%

31%

14%

All large employers(500+ employees)

Employers with20,000+ employees

20102011

The largest employers are rapidly adopting value-based design

Most common value-based design provisions:


Best practice trends to watch: More efficient delivery systemsEmployers with 5,000 or more employees

Not available14%Not availableHigh-performance networks

51%18%Not availableSurgical centers of excellence

56%6%3%Medical homes

11%

In place in 2011

38%5%Telemedicine

Interested in pursuingIn place in 2010

Employers are looking beyond plan design to how and where care is delivered

More on Health Management


More large employers able to measure health management return on investment (ROI) Employers offering health management programs

4%3%• Internal staff

59%64%

Of those measuring ROI, percent that are satisfied with their return on investment in health management programs

16%9%• Consultant or other third-party vendor (other than health management vendor)

33%14%• Health plan or health management vendor

Have measured ROI using...

Jumbo employers

Large employers


ID$226Median annual amount of premium reduction

54%24%Provide incentive for participating in lifestyle coaching

27%22%Provide incentive for participating in biometric screening

ID$300Median annual amount of premium reduction

$240$240Median annual amount of premium reduction

57%37%Provide incentive for completion of health risk assessment

Jumbo employers

Large employers

Health management incentivesBased on large employers offering the program

ID = Insufficient data


7%

10%

40%

43%

Cash

Lower premium contributions

Contribution to HRA, HSA, FSA

Type of incentive used with health risk assessmentAmong large employers providing health risk assessment incentive

Lower deductible, copay or other cost sharing


9%

9%

37%

42%

Cash


Type of incentive used with biometric screeningAmong large employers providing biometric screening incentive




9%

9%

36%

37%

Cash



Type of incentive used with behavior modification programAmong large employers providing behavior modification incentive


Eligibility and Coverage Provisions


• Make coverage available to PTEs: 65%

• Average number of hours required for eligibility: 23/week

• Of the employers covering PTEs:– 8% offer different plans to PTEs and FTEs

• Average PTE contribution, as a % of premium – 35% for employee-only coverage– 41% for family coverage

Coverage for part-time employeesLarge employers with at least some PTEs


Same-sex domestic partner coverage varies by regionLarge employers

27%

79%

34%

55%

26%

64%

39%

49%

28%

46%

All largeemployers

West Midwest Northeast South

2010

2011


Special provisions addressing spouses with other coverage available

7%7%

2%

13%

Spouses with other coverage are noteligible

Spouses with other coverage must paysurcharge

Large employers

Jumbo employers


Slim majority of employers cover bariatric surgeryLarge employers

28%24%

48%46%

30%24%

Covered, but member mustcomply with behavior

modificationprogram/standards

Covered the same as anymedically necessary

procedure

Not covered

Large employersJumbo employers

Preferred Provider Organizations


PPO* cost per employee, 2002-2011Large PPO sponsors

$5,220$5,730

$6,181 $6,518$7,029

$7,429$7,861

$8,334$9,033

$9,511

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Note: Some of the survey respondents that carve out prescription drug benefits to a freestanding pharmacy benefit manager did not include prescription drug cost in their PPO cost. If all cost for freestanding Rx benefits were included, we estimate the average PPO cost per employee would be 2.5% higher.

* Results for 2002 - 2007 include PPO plans only. Results beginning in 2008 include PPO and POS plans


PPO* cost per employee, by regionLarge PPO sponsors

$9,019$7,988

$9,989$9,816$10,388

$8,575

$10,247$9,459

West Midwest Northeast South

20102011

+ 4.4%+ 4.9%

+ 4.0%

+ 7.3%

* Includes POS plans.


Individual Family

Average contribution as a % of premium

Average monthly contribution

Employers requiring contribution

Employee contribution requirements for PPOLarge PPO sponsors

92% 96%

23% 31%

$111 $366


Employee cost-sharing requirements for PPOLarge PPO sponsors

Specialist’s office visit--48%Require higher copay for specialist visit

--$35Copay amount, when higher (median)

40%20%Coinsurance amount (median)91%59%Require coinsurance5%17%Require copay

Lab tests / X-rays

40%20%Coinsurance amount (median)89%23%Require coinsurance$25$20Copay amount (median)12%81%Require copay

Primary care physician’s office visit

$1,800$1,000Family amount (median)$750$500Individual amount (median)93%83%Require deductible

Out-of-networkIn-networkDeductible


Employee cost-sharing requirements for PPO, continuedLarge PPO sponsors

86%86%Plan includes maximum$4,000$2,000Individual OOP max (median)

Hospitalization

Out-of-pocket maximum

--$100Copay amount (median)--80%Require separate copay

Emergency room visits

40%20%Coinsurance amount (median)93%72%Require coinsurance$250$250Copay amount (median)12%19%Require per-admission copay

Out-of-networkIn-network


Employee contribution requirements for PPOSmaller Employers

500-4,999 employees

50-499 employees

Family coverage96%95%Employers requiring contribution32%45%Average contribution as a % of premium$367$524Average monthly contribution

$112$124Average monthly contribution23%27%Average contribution as a % of premium92%79%Employers requiring contribution

Employee-only coverage


Employee cost-sharing requirements for PPOEmployers with 50-499 employees

Deductible

Specialist’s office visit--40%Require higher copay for specialist visit--$40Copay amount, when higher (median)

30%20%Coinsurance amount (median)80%37%Require coinsurance9%25%Require copay

Lab tests / X-rays

30%20%Coinsurance amount (median)76%12%Require coinsurance$30$20Copay amount (median)26%89%Require copay

Primary care physician’s office visit

$2,500$1,500Family amount (median)$1,000$1,000Individual amount (median)90%85%Require deductible



Employee cost-sharing requirements for PPO, continuedEmployers with 50-499 employees

77%77%Plan includes maximum$4,000$2,500Individual OOP max (median)

Hospitalization

Out-of-pocket maximum

--$100Copay amount (median)--76%Require separate copay

Emergency room visits

40%20%Coinsurance amount (median)

ID = Insufficient Data

85%58%Require coinsuranceID$250Copay amount (median)9%15%Require per-admission copay


Prescription Drug Benefits


16.9%16.1%

14.3%

11.5%9.9% 9.3%

7.6% 7.6%6.3%

5.1%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Prescription drug benefit cost is now growing more slowly than overall medical plan cost Cost increase in primary medical plan for large employers


Other

4 or more levels

3 levels for generic, formulary brand, non-formulary brand

2 levels for generic, brand drugs

Same level of cost-sharing for all drugs

Cost-sharing structure:

4%3%

10%12%

71%72%

11%10%

5%3%

Mail-orderRetail

About one in ten employers have added a fourth cost-sharing tier in their drug plans Cost-sharing provisions in employers’ primary plan


Non-formulary brand

Formulary brand

Generic

In plans with 3 copay levels

Brand-name

Generic

In plans with 2 copay levels

$97$49

$57$30

$19$10

$50$27

$19$11

Mail-orderRetail

Average copayment amounts in prescription drug plans In large employers’ primary medical plan


Any drug categorySpecialty / biotechNon-formulary brand

Formulary brandGeneric drugs

24%27%4%5%

15%17%

13%16%9%10%

Mail-orderRetail

Use of coinsurance in drug plans Percent of large employers requiring coinsurance


Drug benefits have been carved out of primary medical plan, by employer size

57%

48%

42%

19%

10%

500-999 employees

1,000 – 4,999 employees

5,000 – 9,999 employees

10,000 – 19,999 employees

20,000 or more employees


Participates in a prescription drug purchasing coalition or collective

15%

22%

All large employers (500 or more employees)

Jumbo employers (20,000 or more employees)

MERCER’S NATIONAL SURVEY OF EMPLOYER-SPONSORED HEALTH PLANS 2011

Specialty drug cost-management strategiesBased on employers with 1,000 or more employees

12%

24%

30%

38%

42%

49%Utilization management

Formulary management

Retail lockout

Higher cost-share for specialty medications

Medical lockout

Step therapy

Dental Care Benefits


$657

$766

$736

$914

$757

$635

$809

$732

$913

$761

20102011

South / +3.5%

Northeast / -5.3%

Midwest / +0.5%

West / +0.1%

All large employers / -0.5%

Dental cost per employee, by region Large dental plan sponsors


Plan includes annual benefit maximum 93%Individual maximum (median) $1,500

Plan includes separate max for orthodontic 89%Individual ortho lifetime max (median) $1,500

Dental plan designLarge dental plan sponsors


Dental plan design (continued)Large dental plan sponsors

In-network Out-of-network

Individual deductible

% requiring deductible 81% 75%

Median deductible $50 $50

Family deductible

% requiring deductible 76% 71%

Median deductible $150 $150


Other dental services coveredLarge dental plan sponsors

19%

37%

38%

55%

81%

Sealants

Implants

Adult orthodontics

Posterior composites

TMJ treatment

Voluntary and Work-Life Benefits


Voluntary benefits are integrated with core benefit program on same administrative platformLarge employers that offer one or more voluntary benefits

62%

38%

Voluntary benefits are not

integratedVoluntary and core

benefits are integrated on same

platform


Provide voluntary insurance benefits (paid partially or fully by employee)Large employers

Supplemental employee term life 86% Disability 83%

Dependent term life 82%

Vision 76%

Accident 58%

Cancer / critical illness 38%

Whole / universal life 36%

Long-term care 32%

Travel 20%

Auto / homeowners 17%

Hospital indemnity 14%


Most important objectives for offering voluntary benefitsLarge employers

4%

46%

59%

66%

70%

To give employees the opportunity to fill gaps in employer-paid benefits

To help employees take advantage of group purchasing power

To accommodate employee requests

To offer additional benefits at no cost to the employer

Other

Retiree Health Care


While employers remain committed to providing coverage to activeemployees, offerings of retiree medical plans* are falling once againPercent of large employers

46%41%

38%35%

29% 28% 29%31%

28%25% 24%

40%

35%31%

28%23% 21% 21%21% 21%

19%16%

Offer coverage to pre-Medicare-eligible retireesOffer coverage to Medicare-eligible retirees

*Plan must be offered on an ongoing basis (i.e., new hires are eligible).

1993 1995 1997 1999 2001 2003 2005 2007 2009 2010 2011


7%

30%35%

45%

23%22%

4%

16%

35%

29%26%

14%

10-499 500-999 1,000-4,999 5,000-9,999 10,000-19,999 20,000 ormore

Pre-Medicare-eligible

Medicare-eligible

Number of employees

Offer retiree coverage* in 2011, by employer size

*Plan must be offered on an ongoing basis (i.e., new hires must be eligible).


58%20%

27%19%

64% 20%

Pre-Medicare-eligible retirees Medicare-eligible retirees

Have reduced or terminated benefits for employees hired or retiring after a specified dateLarge retiree plan sponsors

Reduced benefits

Terminated coverage

All retirees receive the

same benefits

Reduced benefits

Terminated coverage

All retirees receive the

same benefits


Expect to continue to offer a retiree medical plan to new hires for at least the next five yearsLarge retiree plan sponsors

65%

18%

17%

Not sure

No Yes


Key takeaways: Health reform is sharpening focus on cost management

• Cost pressures in 2011 included new PPACA provisions:

– Extending dependent eligibility to children up to age 26 (resulted in an average increase in enrollment of 2%)

– Removing lifetime and some annual benefit limitations

– Removing pre-existing condition exclusions for children under 19

• Looking ahead to the PPACA provisions still to hit, many employers are concerned about the excise tax on high-cost plans

• Still, relatively few expect to terminate health coverage -- so cost management will be a top priority in the years of change ahead

• As the 2011 survey results show, many employers have already accelerated their cost management efforts


Key takeaways: CDHPs poised to become mainstream cost management strategy

• Offerings of CDHPs grew sharply in 2011 -- from 23% to 32% of large employers, and from 16% to 20% of small employers – 65% of large employers expect to offer one within the next 5 years

• Enrollment in CDHPs rose from 11% to 13% of all covered employees; this is up from just 3% in 2006

• The average per-employee cost of an HSA-based CDHP is about 20% lower than that of a PPO -- $7,541 compared to $9,511, among large employers

• Employers adding CDHPs may be looking ahead to 2014, when many will experience an increase in enrollment due to auto-enrollment and the requirement to extend coverage eligibility to all employees working 30+ hours per week

• CDHPs may also help employers avoid hitting the threshold for the excise tax, the PPACA provisions that concerns the most employers


Key takeaways: The big challenge in health management right now is building employee engagement

• Use of health management incentives jumped from 27% to 33% of large employers. Over half of employers with 10,000+ employees now use them.

• More employers are tying the incentive to the health plan. For Health Assessments, most common incentive among large employers is now a lower premium contribution (43%) rather than cash (40%). Median value of contribution:– When cash/gift card: $75– When lower contribution: $240

• Incentives work! Average participation in lifestyle programs doubles when incentives are used, and Health Assessment completion nearly doubles.

• Outcomes-based incentives are emerging: More than a third of jumbo employers offer lower premium contributions or other incentives to nonsmokers – and 5% provide incentives for achieving healthy BMI, BP, cholesterol levels.


Key takeaways: Employers that follow cost-management best practices are experiencing success in controlling health benefit cost

• The survey asks employers about 25 strategies that could be considered cost-management best practices. Respondents were divided into four equal groups based on the number of best practices they follow.

• When the top and bottom groups were compared, the employers using 8 or fewer best practices had, on average, 13% higher total cost per-employee cost than those using 13 or more – and 20% higher PPO/POS cost.

• Average cost increases for 2011 were higher as well for the group using the fewest best practices compared to those using the most. Foremployers with PPO/POS plans, the difference was 7.3% versus 5.5%.

• While not conclusive, these results* support what many employers believe: effective strategies exist to reduce health benefit cost growth!

*This analysis was based on survey respondents with 5,000 or more employees because only employers of this size were asked to complete all of the questions concerning best practices. Results are unweighted.

Questions

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