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Mercer

A plethora of Federal, state and local leave laws and regulations has made employer compliance and leave administration increasingly complex. It’s not surprising, then, that improving FML administration is the top priority for employers’ absence and disability programs. Employers are increasingly relying on outside vendors or licensing software to administer and manage these leaves and attempt to keep up with the ever-changing leave landscape. We’re seeing the fastest growth in outsourcing leave administration among small and mid-sized employers.

 

FMLA OUTSOURCING

EMPLOYER SIZE

2007

2010

2013

2015*

All respondents

14%

25%

38%

40%

100 – 999 employees

5%

13%

13%

19%

1,000 – 4,999 employees

11%

29%

37%

48%

5,000 or more employees

25%

37%

57%

60%

 

*Co-sourcing was included as an option in the 2015 survey and results for both co-sourcing and outsourcing are included in the overall outsourcing figures

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While it’s far from clear where the incoming administration and Congress will land on the “replace” part of “repeal and replace” with regard to the Affordable Care Act, they are signaling interest in promoting the use of health savings accounts by expanding eligibility and allowing funds to be used for more purposes. High-deductible HSA-eligible plans already feature in many employer health benefit programs. In 2016, 21% of all covered employees were enrolled in an HSA-eligible plan. Enrollment has been rising over the past decade as employers -- especially large employers (500+ employees) -- have added HSA-eligible plan choices to their health programs. The threat of the excise tax was a big motivator for employers to move employees into lower-cost plans; while the excise tax may go by the wayside, there is now discussion of capping the individual tax exclusion for employer-provided health coverage, which could still drive cost pressure on employer-sponsored health plans.

 

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More employees moving into lower-cost medical plans contributed to one of the smallest increases in total health benefit cost per employee in decades: 2016’s average increase of 2.4% is the lowest since 2013 and, before that, since 1997. According to Mercer’s survey, total health benefits cost averaged $11,920 per employee in 2016. This cost includes both employer and employee contributions for medical, dental and other health coverage, for all covered employees and dependents. Small employers (10-499 employees) again reported lower cost -- $11,271 -- compared to $12,288 for large employers with 500 employees or more. 

 

While many factors contributed to the low cost increase, including general inflation hovering around 1%, one that is drawing attention is the accelerating movement of employees into high-deductible consumer-directed health plans (see this article in the New York Times). CDHP enrollment has been rising for a decade and in 2016 jumped to 29% of all covered workers, up from 25% in 2015.

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Early results from a Mercer survey made headlines this week with the news that employers are projecting that per-employee health benefit cost will rise by an average of 4% next year after they make planned changes. That’s in line with the moderate cost increases we’ve been seeing over the past few years. What was more eye-opening was finding that underlying cost growth -- the change in cost employers would see if they made no changes -- has slowed to just 5.5%. That’s a gap of just 1.5 percentage points -- the smallest we’ve seen yet.

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When employers are working on strategies to manage health benefit cost, behavioral health benefits aren’t often top of mind. After all, only about 4% of claims are related to treatment for behavioral health problems.  But what’s missing from that picture are claims for comorbid conditions – other health problems that go along with the mental illness or behavioral health issues.  According to one analysis, together these account for 22% of total medical spend. [1]

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Way up there on the list of things not to like about the U.S. healthcare system is the extreme variation in prices charged for the same service from one provider to the next – variation that is very often unrelated to quality of care. While employers are tackling this problem in a few different ways, there isn’t a ton of data to show how well any of these strategies work. So I jumped on the recent New York Times article reporting on one mega-employer’s attempt to achieve more standard pricing while still allowing members to choose their providers – reference-based pricing. The employer in question is the California Public Employee Retirement System, or Calpers for short, and the experiment included 450,000 of its members.

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This month, the International Federation of Health Plans (iFHP) released its 2015 Comparative Price Report, a look at medical prices per unit in private health plans in seven OEDC countries, including the US. While you can guess that most procedures, tests and scans cost more in the US, you might be surprised at the size of the discrepancies. Let’s take a look at the most common surgical procedure performed in the US – the appendectomy. According to the iFHP, the average cost of an appendectomy in the US is almost double the cost in the UK and quadruple the cost in Australia. While the report doesn’t explain the higher average US cost, it does offer a clue by showing how widely prices for this surgery vary within the US – from about $9,000 at the 25th percentile to about $33,000 at the 95th percentile. This degree of cost variation – when it doesn’t result in better outcomes – is why US employers have turned to transparency tools, reference-based pricing, and value-based care.

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