Aon Hewitt Analysis Shows Upward Trend in U.S. Health Care Cost Increases

2014 Cost Increases Were 4.4% after Plan Design Changes; Expected to Rise to 5.5% in 2015

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Nov 13, 2014, 08:06 ET

LINCOLNSHIRE, Ill., Nov. 13, 2014 /PRNewswire/ -- In 2014, U.S. companies and their employees saw a slight uptick in the rate of U.S. health care cost increases, according to an analysis by Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON). After plan design changes and vendor negotiations, the average health care premium rate increase for mid-size and large companies in 2014 was 4.4 percent, up from 3.3 percent in 2013. In 2015, Aon Hewitt projects average health care premium increases will be 5.5 percent after plan design changes and vendor negotiations.

Aon Hewitt's analysis showed the average health care cost per employee in 2014 was $10,717, up from $10,266 in 2013. The portion of the total health care premium that employees were asked to contribute toward this premium cost was $2,487 in 2014, compared to $2,355 in 2013. Meanwhile, average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, increased from $2,005 in 2013 to $2,295 in 2014.

For 2015, average health care costs are projected to increase to $11,304 per employee. Employees will be asked to contribute 23.6 percent of the total health care premium, which equates to $2,664 for 2015. Average employee out-of-pocket costs are expected to be $2,487. These projections mean that over the last five years, employees' share of health care costs—including employee contributions and out-of-pocket costs—will have increased more than 52 percent, from $3,389 in 2010 to $5,151 in 2015.

"Over the past few years, the overall economic situation kept consumer spending on discretionary items—including health care—down, and we observed a lower rate of premium increases," said Tim Nimmer, chief health care actuary at Aon Hewitt. "Now, with employment rates stabilizing, individuals are feeling more secure about their financial situation and have been willing to re-engage in using the health care system. As these utilization rates increase, we expect to see health care cost increases follow."

Costs by Plan Type

Year	HMO	POS	PPO	National
2015*	$11,386	$12,344	$11,141	$11,304
2014	$10,762	$11,711	$10,570	$10,717
2013	$10,356	$11,101	$10,127	$10,266
2012	$9,876	$10,621	$9,862	$9,934
2011	$9,360	$10,232	$9,420	$9,473
2010	$8,665	$9,176	$8,708	$8,729

*Projections
†Costs are plan costs (premium or budget rate) on a per employee basis. They include employee contributions, but not their out-of-pocket costs (i.e., co-payments, coinsurance).

Employer Actions to Mitigate Trend
As the health care landscape continues to evolve, recent Aon Hewitt research indicates companies are reducing costs by implementing a mix of traditional and non-traditional approaches. This includes:

Using high-deductible health plans (HDHPs) – Aon Hewitt's research shows that HDHPs are the second most popular plan choice offered by companies, surpassing HMOs. Fifteen percent of companies offer a HDHP as the only health plan option today, and another 42 percent are considering doing so in the next three-to-five years.

"Gating" health benefits - More than 60 percent of companies plan to "gate" employees to richer designs in the next three-to-five years. This strategy requires employees to complete a "task" to access richer design options. For example, companies may offer a basic high-deductible plan to their entire workforce, but make a richer PPO option available to those employees who complete a health risk questionnaire or biometric screening.

Managing dependent eligibility and subsidies – Aon Hewitt's research shows:

22 percent of companies have reduced subsidies for covered dependents, while 18 percent added a surcharge for adult dependents with access to other health coverage. An additional half of companies are exploring such approaches over the next few years.
52 percent of companies are considering using unitized pricing—where employees pay per person and not individual versus family.
58 percent of companies have completed a program audit of covered dependents to ensure only those who are eligible will remain on the plan.

Adopting pay-for-performance strategies – An increasing number of companies have adopted or plan to adopt a number of pay-for-performance strategies:

24 percent of companies currently steer participants (through plan design or lower cost) to high quality hospitals or physicians for specific procedures or conditions and another 56 percent are considering doing so in the next three-to-five years.
18 percent use integrated delivery models such as patient-centered medical homes to improve primary care effectiveness, and another 56 percent plan to do so in the next three-to-five years.
10 percent have adopted reference-based pricing—where employers set a pricing cap on benefits for certain medical services for which wide cost variation exists with no discernible differentiation in quality. Another 58 percent plan to do so in the next three-to-five years.

Exploring new ways to select and purchase health care benefits – Private health exchanges are becoming increasingly attractive to organizations that want to offer employees expanded choice of plans and insurance companies while lowering future cost trends and lessening the administrative burden associated with sponsoring a health plan. In this model, companies continue to sponsor and subsidize health insurance, but allow employees to choose from multiple group plan options and insurance carriers via a competitive, health insurance marketplace. Aon Hewitt recently announced that, across the 18 companies returning to its Aon Active Health Exchange, rates for medical coverage will increase an average of 5.3 percent for 2015 without accounting for individual decisions to buy up or buy down coverage.

"Forward-thinking companies are not only looking for near-term cost mitigation, they are using this period of somewhat dampened health care cost increases to accelerate the pace of change within the health system," said Jim Winkler, chief innovation officer of Health & Benefits at Aon Hewitt. "As costs begin to rise, companies need to be ahead of the game with a health program that encourages consumer accountability while rewarding health care providers that deliver cost effective, high-quality health outcomes."

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About the Data
Aon Hewitt's data is derived from the Aon Hewitt Health Value Initiative database, which captures health care cost and benefit data for 561 large U.S. employers representing 13 million participants, more than 1,260 plans and $64.8 billion in 2014 health care spending.

About Aon Hewitt
Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit www.aonhewitt.com.

About Aon
Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world's best broker, best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited to learn about Aon's global partnership with Manchester United.