Mercer on Health Benefit Costs: They’ve Gone Up 6.9% in 2010

Photo illustration by Dreamstime.
Photo illustration by Dreamstime.

The year 2010 may be rapidly winding down, but the accounting of health care costs continues.

This is especially true in the wake of the passage of health care reform (more commonly known as Obamacare). In fact, the well-respected Mercer National Survey of Employer-Sponsored Health Plans was just released this week, and it makes one thing very clear: “2010 is Year Zero for health reform — the year against which the effects of the new Patient Protection and Affordable Care Act (PPACA) will be measured.”

Having said that, here are the highlights of the Mercer health plan survey as we get to the end of Year Zero:

  • Total health benefit costs rose 6.9 percent in 2010, up from 5.5 percent in 2009.
  • With reform requirements adding 1-2 percent to costs in 2011, employers say costs would rise by 10 percent next year if they made no changes, but they hope to hold the overall increase to 6.4 percent on average.
  • Large employers added consumer-directed health plans in 2010, helping to push up enrollment in these high-deductible plans to 11 percent of all covered employees.
  • Taking a cue from the PPACA, more employers are giving employees financial incentives to participate in wellness or health management programs.
  • The prevalence of retiree medical plans fell this year to its lowest level in almost 20 years; nearly one in 10 large employers instead provides retirees with a subsidy to purchase individual coverage.

In real dollar costs, the growth in the average total health benefit cost per employee, which had slowed last year to 5.5 percent, is now at 6.9 percent in 2010, or $9,562 per person. This is the biggest increase since 2004, according to the annual Mercer Health Plans survey, and it also shows that health benefit costs rose three times faster than the CPI in 2010.

High cost increases expected next year

The survey also found that employers expect high cost increases again in 2011. That’s not a big surprise, of course, because health care costs have been steadily rising for several years.

Employers who responded to the Mercer survey say that their costs would rise by about 10 percent next year if they made no health program changes, with roughly two percentage points of this increase coming solely from changes mandated by the PPACA for 2011. However, employers also day that they expect to hold their actual cost increase down to 6.4 percent by making changes to their plan design, or, by changing health plan vendors.

“Employers did a little bit of everything to hold down cost increases in 2010,” said Beth Umland, Mercer’s director of health and benefits research, in a press release about the survey. “The average individual PPO deductible rose by about $100. Employers dropped HMOs, which were more costly than PPOs this year. Large employers added low-cost consumer-directed health plans and found ways to encourage more employees to enroll in them – even sometimes dropping all other plan options. And more employers provided employees with financial incentives to take better care of their health.”

Large employers were hit harder

One other thing that also shouldn’t be a shock: Large employers experienced a much sharper health care cost increase than smaller employers this year. Costs rose by 8.5 percent among employers with 500 or more employees in 2010, but by just 4.4 percent among those with 10-499 employees.

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“Large employers may have been taken by surprise by the uptick in the cost increase this year,” said Susan Connolly, a Partner in Mercer’s Boston office. “In last year’s survey, they predicted cost would rise by less than 6 percent. Higher prices for health care services seem to be part of the equation, but if the recession caused a slowdown in utilization last year, we may also be seeing the effect of employees getting care they’ve been putting off.”

Large employers most often are self-insured, which means they pay the actual cost of claims as they are incurred. If health benefit use is higher than expected, or the price of health care services rises, the actual cost could exceed the predicted cost. Small employers typically offer fully insured plans, in which premium cost is fixed in advance.

Mercer’s National Survey of Employer-Sponsored Health Plans includes public and private organizations with 10 or more employees; 2,836 employers responded in 2010, and the results represent about 800,000 employers and more than 104 million full and part-time employees. The survey has a margin of error of plus/minus 3 percent.

There is more detail on the highlights of the National Survey of Employer-Sponsored Health Plans here, but if you want to dive deep into the details and get the full survey and report it will cost you $600 ($1,200 if you want the report and all the tables that go with it). If that’s your thing, you can get it from Mercer here.

The bottom line here is that none of what is detailed in the Mercer survey should come as any great shock to anyone in HR, benefits, or finance in your organization. Health care costs have been rising for a number of years, and frankly, that continued growth rate is unsustainable for most organizations. If you haven’t gotten the wake up call about this before, perhaps this survey will finally do the trick.

John Hollon is Editor-at-Large at ERE Media and was the founding Editor of A longtime newspaper, magazine, and business journal editor, John has deep roots in the talent management space. He's the former Editor of Workforce Management magazine and, served as Editor of RecruitingDaily, and was Vice President for Content at HR technology firm Checkster. An award-winning journalist, John has written extensively about HR, talent management, leadership, and smart business practices, including for the popular Fistful of Talent blog. Contact him at, connect with him on LinkedIn, or follow him on Twitter @johnhollon.


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