An interview with Mercer’s Jerry Nebbia
Forget about the high deductibles associated with consumer-directed health plans for a minute: The median deductible required by employers for individual coverage in standard preferred provider organizations (PPOs) jumped to $1,000 in 2008, up from $500 the year before, according to Mercer’s annual survey of employer-sponsored health plans. (See the exhibit). And it is probably headed higher, as employers push additional cost shifting to their workers in the year ahead.
In fact, 59 percent of U.S. businesses expect to increase employee deductibles, copayments or out-of-pocket spending limits in 2009, according to Mercer’s survey of 3,000 public and private employers with at least 10 employees. A rising number of employers are also offering CDHPs (see the exhibit). The survey results represent about 600,000 employers and more than 90 million full- and part-time employees.
Jerry Nebbia, a principal at Mercer, explains why hospitals may see a surge in patient demand even though patients are paying more out of pocket than ever before.
The survey, which was conducted last summer before the economic crisis erupted, found that employers are planning to shift greater financial responsibility for healthcare costs to their workers. Did that surprise you?
Nebbia: Not really. We are seeing a continuation of employers passing along their healthcare cost increases to employees by increasing payroll deductions and increasing employee point-of-service cost sharing. There’s no question about it.
I have clients who are doing one or both of those things because, when it comes down to it, an employer has to manage to a certain budget to compete globally, and they have to keep their costs down to a certain level. The only thing that I’m aware of that will absolutely guarantee that they can keep their costs down to a certain level is cost shifting to employees.
In the last couple of years, employers seemed to focus on employee wellness initiatives more than cost shifting. Are they giving up on wellness?
Nebbia: Keeping employees healthy is one thing that employers can do to try to reign in the cost of health care, but you cannot guarantee the same ROI on wellness programs that you can get by cost shifting. So cost shifting is still in play, and we know some employers will pass along very large cost shift increases. This trend was happening even before the current economic crisis erupted.
Our survey results show that a significant portion of employers claim that they have been able to measure the ROI of the programs, but only a portion of those claim the ROI is positive and believable. The industry has not been able to prove the economic value of wellness and disease prevention and other care management programs. It’s a constant struggle, and there have been no major breakthroughs.
Most employers have to resort to a common-sense point of view in evaluating whether they are going to keep or implement these wellness programs. Is there a reason beyond the economics of it? Is improving the health of their workforce something that that employer really believes in and wants to promote?
How will the economic downturn affect employers’ behavior when it comes to healthcare benefits? And employees’ behavior?
Nebbia: We do know that employers become more cautious and will not spend as much on benefits in economic hard times.
Typically, during a recession, employees accelerate their healthcare usage for discretionary items, like knee surgeries or things that you could normally put off. If they still have coverage, but fear they’re going to lose it because they might lose their job or their coverage, they get some healthcare issues taken care of sooner than they would otherwise. We have seen some carriers asking for higher rate increases on insurance plans, anticipating this surge in usage.
Of course, when people lose their jobs, it’s a whole other thing. When unemployment goes up, demand for services drops because some people lose coverage. Then some healthcare providers watch their revenues drop and they try to recover those lost revenues by increasing fees. It’s an interesting cycle.
That said, you kind of have to throw the rulebook out on this economic cycle. I don’t know if those things that we would expect to happen are going to happen this time because this economic downturn seems to be extremely accelerated.
What other trends do you see on the horizon?
Nebbia: There is an idea that has been circulating in the marketplace around what we call “high-performing networks,” or setting up networks of providers who clearly show that they are more efficient in delivering health care and providing better healthcare outcomes. The largest employers are usually the early adopters, and a number of companies have already started experimenting with this. I wouldn’t call it mainstream yet, but this idea might catch on faster in these economic times.