Trends in Large Employer Health PlansBy Health Insurance , MBA, MT, OnlineAdviser for Freedom Benefits Association
updated September 26, 2006
Large employer health plans are significantly different from those of smaller firms and the health plans purchased by individuals. This difference is primarily the result of state laws that require group health plans to offer benefits collectively known as "mandated coverage". Most large employers require employees to contribute a minor portion of the cost of their health benefits but employees are increasing opting out of these health plans in favor of going uninsured or being covered by less expensive individual health insurance plans that offer benefits that appeal to the workers. This data supports the use of a defined benefit HRA plan design (as opposed to HSA design) and the continued evolution of limited benefit health plans that are available at a cost that is acceptable to both employers and employees.
This article summarizes the trends directly observed by OnlineAdviser service as well as those reported in the media from a number of sources that monitor trends in the health insurance industry as of August 2006. Because the trends reported are assimilated and averaged from a consensus of reports, specific citations are abbreviated or omitted as is the custom for OnlineAdviser trend reports. Primary third party data sources include the Agency for Healthcare Research and Quality, the Kaiser Foundation and other research reported by The Wall Street Journal. Large employers are generally defined as those with more than 1,000 employees in the US. This data is used by OnlineAdviser to help both large and small employers manage their employee health plans with maximum efficiency.
98% of large employers offer health benefit plans, unchanged in recent years. This compares to about 60% of smaller companies that offer health benefits.
The average cost of employer-provided health coverage is just under $1000 per month for a family plan. The cost varies by much as 30% between employers.
Health care prices have doubled since 2000, rising a record 14% in 2003, 7.7% in 2005 and are expected to increase 6% in 2006.
Most large employer health plans now combine the use of health insurance with uninsured defined benefit Health Reimbursement Arrangements (HRA) and almost all plans utilize some type of Preferred Provider Organization to help manage costs.
Almost all large employer health plans now require some elective employee contribution.
New health plans introduced for lower-income employees are primarily limited benefit health plans (also known as "mini-med plans"). Some firms, including Target, have plans to eliminate traditional health plans for lower-paid employees.
Employee contributions average about 1/4 of the total employees' coverage cost and about 1/3 of the total cost of the health benefits (including family coverage). This proportion appears to be stable and has not changed over the past five years.
The average dollar amount of employee contribution to health plan costs was $226 per month per family in 2004, but is reported as high as $300 in 2006. The dollar amount of expected employee contribution increases each year.
The year-to-year increase in the past five years is primarily the result of overall health plan costs rather than an increase in the percentage of cost that is passed on to the employee.
Employee contributions to health plan costs make up an increasing percentage of take-home pay. This is primarily caused by health care inflation that exceeds the growth in wages.
Health Savings Accounts
The number of employers who converted to large deductible health insurance, primarily to accommodate a Health Savings Account (HSA) plan has increased in the past two years, although little statistical data is available yet.
Health Savings Accounts are not working well for large employer health plans. Overall savings to the employer are minimal, HSA savings account balances are minimal, and employees are increasingly unhappy with the change from the former health plan design.
The percentage of employees of large employers covered by the employer-sponsored health plan has decreased from about 90% a decade ago to about 80% today. This is primarily the result of employee opt-out.
Employee opt-out if health plans is attributed to: 1) coverage available through a spouse, 2) required employee contributions viewed as too expensive, 3) employees do not see up-front value in the chosen health plan design.
Employees who opt out of coverage tend to be lower income in relatively good health.
Opt out of healthy employees from more expensive health plans is contributing to rising prices for the remaining les healthy in the group health plan, causing a spiral effect.
The number of employees who purchase health insurance on their own outside of the employer has increased dramatically to about 3% of employees from practically 0% a few years ago.
In the past, employee opt-out was viewed primarily as a way to weed out overlapping coverage. Opt-out was not directly linked to the income level of the employee.
Employee opt-out today is linked to the income level of the employee. It is more likely the result of a lower-paid employee making an economic decision about allocation of household funds and choosing to pay rent or other costs of living rather than health costs.
Employees want up-front benefits and tend to discount the value of high deductible health plans.
The most requested health plan benefit is routine doctor visits that are not subject to a deductible.
Employees are increasingly willing to accept health plans with less than catastrophic benefits (also known as "mini-med plans").
A majority of younger employees are very much willing to trade off catastrophic coverage for a reduction of premiums and out-of-pocket health care costs.
Total cost of a traditional health plans that were the norm a decade ago would now cost an employer more than $1200 per month in 2006 for family coverage. However, few of these plans remain in existence and those that remain are primarily used for executive benefits. Most health plans have been modified to include cost-saving features.
By incorporating cost-saving measures, the average employer cost is about $860 per month for an employee's family coverage. The most common cost-saving measures include cost-sharing with employees, increasing deductibles, adoption of HSAs, replacing prescription drug insurance in favor of discount plans, and conversion to defined benefit (HRA) type health plans.
The cost of individual health insurance purchased by employees who opt-out of employer plans or choose to supplement high deductible employer health plans is about $240 per month for family coverage. These are usually limited benefit plans.