LANSING — Alterations that employers have made to their employee health benefits, shifting a greater share of the cost burden to employees, combined with emerging consumer-driven health plans and long-term cost-management strategies, are beginning to stem rising health premiums, according to new survey data.
After adjusting benefit packages or switching carriers to mitigate cost increases, employers in Michigan are expecting average premium increases of 6.4 percent for 2005 — far lower than the double-digit increases of the last several years, including an average 11.7 percent rise statewide for 2004 health plan renewals, according to the annual survey of employer-sponsored health plans by Mercer Human Resources Consulting.
The survey results provide early data that easing premium increases are the result of rising out-of-pocket costs for employees as employers shift the costs of health coverage through higher premiums, co-pays and deductibles.
Taking on a greater share of the cost burden has people becoming better consumers of health care by seeking out lower-cost treatment options, accessing the health system more wisely and taking better care of their health — all of which results in helping to control the cost of health care, said Ed Murphy, a consultant in Mercer’s Detroit office.
“The early information suggests people are getting it. They’re beginning to understand that they have a financial responsibility and they have alternatives open to them in how they manage their care, and therefore how they manage their cost,” Murphy said. “When you start the year with a $1,000 deductible and are unsure of what additional health expenses you may have for the remainder of the year, you may think twice about rushing off to the doctor because of a cold.”
Nationally, employer health premiums rose 7.5 percent in 2004 after plan alterations, down from the 10.1 percent average increase in the prior year and the lowest annual increase in five years, according to the Mercer survey of more than 3,000 employers. Smaller employers generally saw smaller increases than large employers, reflecting aggressive cost shifting by small businesses and increased price competition by insurers, the survey stated.
In western Michigan, market leader Priority Health’s 2005 premiums are averaging 7.5 percent more than 2004 across all products, spokeswoman Amy Miller said. The average increase last year was nearly twice that for 2005 renewals for Priority Health clients.
An easing of the medical inflation trend stemming from health prevention and disease-management initiatives and a push toward the greater use of lower-cost generic prescriptions has helped to ease pressure on premiums, Miller said. Cost shifting and a push by employers for new plan designs as they alter their benefits to mitigate rising costs also contribute to stemming premium increases, she said.
“There’s just more options out there for employers to control costs and offer employees benefits,” Miller said. “It’s helping to bring (premium) increases down.”
Murphy anticipates cost-shifting will continue for the foreseeable future, as employers seek to further mitigate rising premiums.
“Employers are still strapped by very constrained budgets and as a result they are looking for every potential nickel and dime to cut out of their health plans,” he said.
For large employers, that means taking a harder look at consumer-driven health plans that come with high deductibles, are often coupled with an employee health savings account, and are designed to get people more engaged in their health care and better manage chronic medical conditions.
Nearly half of the employers responding to the 2004 Mercer survey indicated that promoting consumerism is now a part of their current strategy and another 38 percent said they were interested in it.
Fourteen percent of respondents said they would likely offer a consumer-driven health plan in 2005 and another 26 percent are likely to do so by 2006, according to results of the Mercer survey.
The new-style health plans have the potential to begin getting runaway health-care costs under control for employers, Murphy said. Consumer-driven plans can work because they create price transparency in health care by unmasking the real costs of care and, in turn, getting people more engaged in their options, he said.
“It all comes down to the almighty dollar. When you get price transparency, people pay attention,” Murphy said. “Those are the types of things that are going to change the landscape in the future.”