Mercer Survey: Health Care Increase in 2012 Likely to be Lowest in 15 Years

An increase is an increase, but when it comes to increases in health care costs, some increases are better than others.

That’s why the early responses from this new survey from giant HR consultant Mercer qualifies as good news.

According to Mercer, “Early responses from a Mercer survey still in the field suggest that the average growth in health benefit cost will slow to 5.4 percent in 2012, the smallest increase since 1997. Still, cost growth remains well above both general inflation and growth in workers’ earnings.”

Increase would be 7.1% with no employer changes

They add that while this increase “reflects cost-cutting changes employers will make to their current health benefit programs, such as raising deductibles or moving employees into lower-cost health plans, the preliminary survey findings released today by Mercer suggest that the underlying trend has slowed as well. Asked how much cost would rise if they made no changes to their current plans, employers reported an average increase of 7.1 percent. Over the past five years, this underlying health benefit cost trend has been running at about 9 percent.”

It’s a little bit unusual for preliminary survey results to be released, but given that health care costs have been ratcheting up by close to 10 percent per year, a drop like this is pretty big news indeed.

There’s more to come, however. These preliminary survey results are from Mercer’s National Survey of Employer-Sponsored Health Plans 2011. The survey is still in the field and complete results, including the actual cost increase for 2011, will be released by the end of the year. According to Mercer, “The preliminary results are based on employers who responded by September 8; these results are not weighted and represent only the 1,592 early responders. Ultimately, around 2,800 employers will participate in the survey and the final results will be weighted to be nationally projectable.”

Why are cost increases finally slowing down?

A big question in all of this is why — why is the rise in health care costs finally (if the Mercer numbers hold true) slowing down?

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Here’s what they say from their press release about the initial survey results:

Understanding the slower cost growth for 2012 means looking at the factors working to hold down the underlying trend along with the actions employers are taking to reduce cost next year. Use of health services, which slowed this year, is one such factor. Some analysts believe the tough economy, combined with generally higher deductibles and other forms of cost-sharing, is affecting utilization – that because employees have less disposable income and are working longer hours, they are less likely to seek non-urgent care.

On the other hand, Susan Connolly, a partner in Mercer’s Boston office, believes that slowing utilization may also be a sign that programs targeted at improving employee health – now the rule rather than the exception in employer benefit programs – are having a positive impact.

“Earlier risk identification and health education, along with improvements in drug therapies and medical technology, are keeping people with health risks and chronic conditions away from the emergency room,” Connolly said. “And consumers are more aware that overuse and misuse of health care services will directly impact their wallets as well as their employer’s budget.”

Usage is also slowing down

In other words, people aren’t using as much health care this year — probably due to the economy and higher deductibles — and they probably aren’t getting as much non-urgent care because they’re working more and have less to spend. Plus, the wellness push may be finally starting to show results, and overall, that means a slowdown in the increase in costs heading into 2012.

And, as Mercer also points out, a slowing in the rate of increase for health care costs also means that employers will react in kind:

The slower trend is good news for workers, because an employer’s first line of defense against a high initial renewal rate typically is to change plan provisions so that employees pay more out of pocket for health care. If the underlying trend is lower to begin with, employers will be likely to shift less cost. For the past several years, employers have reduced their initial renewal rate by about 3 percentage points on average; in 2012, they are planning to reduce it by about 2 points.”

Will these numbers hold when the complete Mercer survey comes in? We can only hope so, because both employers and workers need a break from the huge increases in health care costs we have seen over the past few years.

John Hollon is Editor-at-Large at ERE Media and was the founding Editor of TLNT.com. 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 workforce.com, 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 johnhollon@ere.net, connect with him on LinkedIn, or follow him on Twitter @johnhollon.

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