Paul Shaheen, my associate from The Horton Group, an employer benefits brokerage and consultancy, sent me their latest LegalEase newsletter today. It’s worth posting because it’s an in-depth and fascinating article concerning projected employer health care costs for 2008.

2008 Per-Employee Health Care Costs To Exceed $9,300; Wide Disparities Foreseen

By Stephen Miller, October 2007

[From SHRM Online's Compensation & Benefits Focus Area]

The average corporate health benefit expenditure in 2008 will be $9,312 per employee “an increase of 7 percent over 2007″ with annual per-employee contributions exceeding $2,000, according to Towers Perrin’s 2008 Health Care Cost Survey.

But while the cost trend is broadly holding steady, there are significant cost differences for companies that are actively and effectively managing program performance. Those “high-performing companies” will see annual per-employee costs of about $1,500 less than low performers in 2008, or nearly a 20 percent differential, according to the firm’s analysis.

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‘High-performers’ will see per-employee health costs
nearly 20 percent lower than ‘low-performers.’
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The survey database includes information on the health benefit programs provided by more than 300 of the nation’s largest employers, covering nearly 6 million U.S. employees, retirees and dependents.

“The good news is that, for the first time in over a decade, we are seeing a number of companies keeping cost growth near the Consumer Price Index for medical services (medical CPI), which currently stands at about 4 percent,” said Dave Guilmette, managing director of the Towers Perrin health and welfare practice.

In flat dollar terms, 2008 gross health care expenditures are expected to rise by an average of $577 per employee, to an average total cost of $9,312. Employers are expecting to subsidize 78 percent of next year’s premium costs, and employees will have to cover the remaining 22 percent, plus usage-based co-pays, deductibles and co-insurance.

While Towers Perrin foresees the employer-employee premium cost share remaining the same as the 2007 split, the accelerated increase in the actual employee contribution “combined with decreasing benefit values” means that the 22 percent employee share actually buys less coverage than in past years. For example, the incremental out-of-pocket cost employees will assume in 2008 because of plan design changes is approximately $200.

Employee contributions, on average, will jump by $156 per employee per year to $2,040, an 8 percent increase that is roughly twice that of annual employee merit increases. The combined effect is that over the past five years, out-of-pocket costs for employees have essentially doubled, a clear indication of how pronounced the affordability issue remains, particularly for low-wage workers.

Coverage Levels Breakdown

Analyzing the data by coverage level, the average reported 2008 cost of medical coverage will be:

• For active-employee-only coverage: $4,704 per year ($392 monthly).

• For employee-plus-one-dependent coverage: $9,660 per year ($805 monthly).

• For family coverage: $13,704 per year ($1,142 monthly).

The total cost for retirees under age 65 is the highest in the survey, at $569 per month for retiree-only coverage ($6,828 annually), and more for coverage that includes dependents.

Employers continue to shoulder most of the burden. Of the total 2008 premium increase of $577:

• Employers will pay, on average, $421 more per employee.

• Employees will pay, on average, $156 more.

In addition to premiums, active employees and their dependents can expect a co-pay of about $20 for regular doctor office visits and a $30 co-pay for specialist visits.

Under plans with co-insurance, employees will pay about 35 percent of the cost of an office visit. Active employees and their dependents will pay, on average, $10 for generic prescriptions and $25 for brand-name prescriptions in 2008.

Active Management Matters

Among positive news for employers and employees, the survey shows that, for 2008, a number of companies have succeeded in keeping a tight rein on the cost of their own programs and, as such, are helping to keep the overall rate of increase dramatically lower than the double-digit jumps experienced four to eight years ago.

Many companies, however, remain unclear on how to balance health care cost pressures with workforce goals and continue to experience cost increases more characteristic of the late 1990s. The result is wide variation in employer and employee cost burdens among similarly sized companies. For example, the 2008 data show that nearly a quarter of companies (22 percent) are still experiencing increases of 11 percent or more.

To better understand the factors that contribute to cost variation for the past three years, Towers Perrin divided respondents in its annual health care cost database into three categories: low-performing, average-performing and high-performing companies. Performance designations are based on relative costs and cost increases, as well as whether an organization is meeting its health benefit objectives in such areas as efficient purchasing, employee engagement and managing health risks in the employee population.

The Art of the Possible

While nearly a quarter of the survey respondents continue to struggle with double-digit cost increases, nearly half of the high performers are managing to get their increases much closer to the medical CPI of about 4 percent.

Among high performers, 45 percent have cost increases of 5 percent or less evidence, in Towers Perrin’s view, that active management of program performance is an exercise in the “art of the possible,” and an increasingly urgent mandate for companies still experiencing double-digit growth rates.

High-performing companies aren’t simply shifting costs to their employees to keep their costs low but rather are employing a broad range of tactics and strategies to hold the line on costs for both the company and employees. In fact, employees at high-performing companies will pay significantly less than employees at low-performing companies “approximately $1,836 per year (on average) vs. the $2,256 employees at low-performing companies will pay in 2008, according to the survey report.

Retiree Health Trends

The survey data indicate that organizations are taking a different view and exhibiting different commitment levels to programs for retirees. Less than half of the companies Towers Perrin surveyed (47 percent) currently subsidize retiree medical coverage for current or future retirees. (SHRM’s 2007 Benefit Survey Report showed that 35 percent of SHRM members provide retiree health benefits, although 53 percent of large employers did so.)

Of those that are continuing a subsidy, the share they are asking retirees to provide is rapidly increasing, Towers Perrin found, particularly for retirees under age 65. In 2008:

• Retirees under age 65 will pay, on average, $3,324, an 8 percent increase.

• Retirees over 65 will pay, on average, $1,500, a 5 percent increase.

The long-term effect of cost shifting to retirees could be to encourage older workers who want to leave the workforce to stay in their jobs primarily to receive company-subsidized health care, the report predicts.

Paul Shaheen, Vice President of The Horton Group (an insurance broker that provides risk management and employee benefits to businesses of all sizes), provided me with a copy of their employer benefits survey. It provides an interesting overview concerning what businesses should consider when choosing benefits plans.

The following is a selection of topics from the survey which a business should examine prior to choosing an employee benefits plan.

If you’d like a copy of the complete survey in PDF format, please don’t hesitate to contact me.

Assessment & Review

• Do you have a formal process to survey employees annually for feedback and rate their satisfaction with the plan?
• Is your plan aligned with your company’s business plan?
• Have you implemented or reviewed alternate funding options, such as transplants or specialty pharmacy?
• Have you forecasted the current cost over the next five years?
• Have you defined your benefit philosophy?
• Have you benchmarked your cost sharing with employees against industry averages?
• Does your plan maintain 75% or greater employee participation after valid waivers?
• Have you benchmarked your plan rates against industry averages?

Your Plan Design

• Do you offer more than one plan design?
• Is at least one plan consumer directed?
• Do you allow for employee pre-tax premium contributions?
• Do you have a separate program for retirees?
• Do you have a voluntary Medicare migration strategy?
• Does your plan include affordable options for low-wage earners?
• Have you had more than 2 carriers in the last 5 years?
• Do you provide an EAP with work/Family Program?

Shopping Your Plan

• Are you aware of the carrier markets for your size and type of plan?
• Have you shopped both brokers and direct benefits vendors?
• Have you reviewed network alternatives, access, disruption and utilization?
• Does your contract include network discount guarantees?
• Does your plan include a proactive out-reach disease management program?
• Has your pharmacy benefit manager shown you all fees and rebates for your plan?

Is Your Plan Legal?

• Have you sent out Medicare Part D certificates to eligible participants and dependents?
• Have you audited your 5500 process?
• Do you outsource or have a tool to manage COBRA?
• Do you outsource or have a tool to manage FMLA?
• Do you receive legislative/Compliance updates monthly?
• Have you contained Personal Health Information to a Privacy Officer?

Communication/Administration Tools

• Do you track hits on your benefit website for employee/spouse?
• Do you annually update employee beneficiary elections?
• Do you provide a HIPAA compliant resource for escalated claim assistance?
• Do you provide tools for new hire and spouse to review options with guidance on how to make best use of the program?
• Does your HR unit operate in a paperless environment for open enrollment, life events, monthly adds and terms?

Proactive Wellness

• Does your plan cover an annual adult physical?
• Do you use incentives to drive participation in wellness activities?
• Do you hold an Annual Benefits and Wellness Fair?
• Do you use a Health Risk Appraisal and aggregate the data?
• Does senior management play a role in your wellness activities?
• Do you have a wellness committee working from a written business plan?
• Do you offer professional coaching assistance to employees at risk and/or wanting to improve?

Employee Education

• Do you use benefit statements to share the full benefit cost?
• Do you conduct annual open enrollment meetings?
• Do you offer lunch-and-team sessions on relevant topics?
• Do the employees / dependents know all the resources offered by your carriers and how and when to use them?
• Does your communication campaign reach spouses?

Claims Review

• Do you know the loss ratio for your plan?
• Do you annually benchmark utilization?
• Do you perform a claims audit on your carrier or third party administrator?
• Do you drill down into your claims to determine root causes?
• Do you review prognosis, diagnosis, and cost of large claims?
• Does your group use 90% in-network providers?
• Do you track the number of inpatient admissions with cost and average stay?