Employer- Sponsored Health Insurance A Survey of Small Employers in California. William M. Mercer, Inc. August, Report

Transcription

1 Employer- Sponsored Health Insurance A Survey of Small Employers in California William M. Mercer, Inc. August, 1999 Report

2 The California HealthCare Foundation, located in Oakland, California, is a private independent philanthropy established in 1996 as a result of the conversion of Blue Cross of California from a nonprofit health plan to WellPoint Health Networks, a for-profit corporation. The foundation focuses on critical issues confronting a changing health care marketplace: managed care, California s uninsured, California health policy, health care quality, and public health. Grants focus on areas where the foundation s resources can initiate meaningful policy recommendations, innovative research, and the development of model programs. William M. Mercer is a global consulting firm that helps organizations use the power of their people to enhance business success. Mercer works in partnership with clients in all aspects of strategic and operational human resource consulting and implementation. Special areas of emphasis include employee benefits, compensation, communication, and actuarial services, as well as risk management and investment issues. With some 12,500 employees in offices in more than 125 cities in 34 countries and territories, Mercer develops business solutions and delivers them to clients anywhere in the world.

3 CONTENTS 3 Key Findings 5 Section 1 About the Survey 7 Section 2 Prevalence of Health Plan Coverage Among Small Employers in California and the Nation 9 Section 3 Exploring the Issues Behind the Decision to Offer Health Coverage Among California s Small Firms 17 Section 4 Employer-Sponsored Health Plans in California and the Nation 25 Section 5 Appendixes

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5 Key Findings Small California employers (defined for the purposes of this survey as those with employees) lag behind the national average, with only 48 percent offering coverage in 1998, compared to 53 percent nationally. Most small California employers who offer coverage do not make it available to part-time employees. Nearly two-thirds of plan sponsors have one or more part-time employees; among this group, only 29 percent offer coverage to part-timers. The industry group profiles of sponsors and non-sponsors are significantly different. Among the group of sponsors, employers in service industries are the most highly represented (39 percent); among the non-sponsors, wholesale/retail employers make up the largest segment (also 39 percent). Sponsors have more than twice as many full-time employees, on average, as non-sponsors and have been in business somewhat longer. Pay levels are significantly higher among sponsors. When asked for their top two reasons for not offering coverage, 60 percent of non-sponsors cited cost considerations. Other reasons included our employees get coverage elsewhere (41 percent) and employee turnover is too high (26 percent). Survey results suggest that the majority of nonsponsors are receptive to the idea of offering coverage. A fifth have offered it in the past, and 29 percent got a quote within the year preceding the survey. Only 38 percent have never offered it and never considered offering it. Competitive issues appear to play a part in an employer s decision to offer coverage. More than half of plan sponsors say most of their competitors offer coverage, compared to only 9 percent of non-sponsors. Sponsors are better informed than non-sponsors about health plan purchasing coalitions. Forty percent have heard of the Health Insurance Plan of California (now Pacific Health Advantage), and 26 percent have heard of CaliforniaChoice (though only 2 percent purchased coverage through one of these coalitions). On the other hand, only 17 percent of non-sponsors have heard of the HIPC, and only 13 percent have heard of CaliforniaChoice. The great majority of sponsors (80 percent) purchased coverage through a broker. Among companies not sponsoring an employee health plan, 85 percent of company owners or presidents are covered by health insurance. Among small California plan sponsors, the average cost of health benefit coverage for active employees in 1998 was $2,865, up 3.6 percent. This is significantly lower than the national average cost for small employers ($3,321). The majority of employees are enrolled in HMOs (61 percent), followed by PPOs (24 percent) and point-of-service plans (13 percent). Only 2 percent of employees remain in traditional indemnity plans. HMOs remain the least costly type of plan, averaging $2,283 per active employee in Average PPO cost was $3,225, while POS plan cost fell in the middle, at $2,663. Employer-Sponsored Health Insurance 3

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7 About the Survey 1Section Project Description Only about half of the nation s small employers (those with employees) offer a health insurance plan. With one-fifth of all workers employed in establishments of this size, finding a way to encourage small employers to offer coverage could reduce the large and growing number of uninsured, a number that reached 43 million nationally and 7 million in California in To create a reliable information resource on health insurance programs among small employers in California, the California HealthCare Foundation (CHCF) engaged the benefits consulting firm William M. Mercer and commissioned a supplement to its annual national survey. First established in 1986 by Foster Higgins (which merged with Mercer in 1996), the Mercer/Foster Higgins National Survey of Employer-sponsored Health Plans has been conducted using a stratified random sample since More than 4,100 employers participated in the study in Mercer expanded the sample of small private employers (10-49 employees) surveyed in the state of California to create projectable data for this population for the state as a whole and for four geographic divisions within the state. Respondents from this expanded sample completed Mercer s standard survey instrument, which asked detailed questions about the type of plan(s) offered, the cost of the plan, employee contribution levels, and plan provisions. Mercer s annual survey is administered only to employers offering health coverage. CHCF and Mercer developed a set of questions to be administered to employers not offering coverage, and a set of largely parallel questions for those offering coverage, which were asked in addition to the standard Mercer questions. These additional questions were designed to explore such areas as: reasons for offering or not offering coverage awareness of the Health Insurance Plan of California, CaliforniaChoice, and regulations governing the health insurance market for small employers use of brokers or coalitions other sources of coverage for employees characteristics of the business, including size, stability, and pay levels the effect of offering coverage on recruitment and retention, workers compensation, and absenteeism The additional questions permit the creation and comparison of detailed profiles of employers that offer coverage and of those that don t. Mercer s standard survey questions provide indepth information about the plans being offered by small employers in California, and the ability to compare them to national norms for small and large employers. Employer-Sponsored Health Insurance 5

8 Section 1 About the Survey Survey Methodology Mercer s survey includes all employers, public and private, with 10 or more employees. Employers with fewer than 10 employees are excluded because information on the universe of employers with fewer than 10 employees is unreliable. For the small-employer study, California was segmented into four geographic areas: Los Angeles consolidated metropolitan statistical area (CMSA), which includes Los Angeles, Orange, San Bernardino/Riverside, and Ventura counties San Francisco CMSA, the nine-county area including Oakland and San Jose Southern California, excluding the Los Angeles CMSA Northern California, excluding the San Francisco CMSA. It should be noted that the Southern and Northern California segments have certain limitations as units of analyses. These regions each incorporate a broad mix of urban and rural areas, and cannot be considered a discrete health care market as can the Los Angeles and San Francisco CMSAs. Therefore, tables that break out data include columns for Los Angeles and San Francisco but not for Northern and Southern California. Our sample consisted of 3,637 firms. Of these, 1,493 responded to the initial question of whether they offer a health plan, for a response rate of 41 percent. Complete interviews were obtained from 1,197. The sample was designed with the goal of obtaining 150 interviews in each of the four regions with employers who offer health insurance and 150 interviews with employers who currently do not offer insurance, for a total of 1,200 interviews. This goal was nearly achieved. The overall response rate of 41 percent is somewhat lower than the response rate Mercer typically achieves for the national survey (around 50 percent). There was considerable variation in response rate around the state, ranging from a low in Los Angeles of 24 percent to a high in San Francisco of 66 percent (in Northern California, the response rate was 57 percent; in Southern California, 43 percent). It is not clear why employers in Los Angeles were less willing to complete the survey than were employers in other parts of the state. Employers were contacted by phone. Interviews were offered in either English or Spanish; however, very few employers chose to conduct the interview in Spanish. The survey was fielded from June through September, Respondents with health insurance were asked to describe their plans as of July 1, About The Report Section 2 provides a brief overview of the prevalence of health benefits among small employers, both nationally and in California. Section 3 presents the results of the supplemental survey of California small employers, with a focus on differentiating sponsors and non-sponsors. Section 4 looks only at sponsors, presenting information on the characteristics of health benefits offered by small employers nationally and in California. Section 5, the Appendix an extensive set of tables presents the data in detail. 6 California HealthCare Foundation

9 2 Prevalence of Health Plan Coverage Among Section Small Employers in California and the Nation The Mercer/Foster Higgins survey provides national estimates of the rate of health insurance among employers in several size categories (beginning with 10 employees) from 1994 through California-specific data on insurance rates among small employers are available for 1998 only. National Trends: Large vs. Small Employers Nationally, coverage among employers with employees has declined during this timeframe (if in a somewhat bumpy line), from 57 percent in 1994 to 53 percent in Data from EBRI s analysis of the 1998 Current Population Study supports this finding, showing an increase in the percentage of working Americans without insurance from 17.3 percent in 1994 to 18.2 percent in % 60% 50% 40% 30% Percentage of small employers offering health benefits, National employers with employees 57% 60% 57% 52% 53% Offer health benefits in 1998, by employer size National employers 100% 80% 60% 40% 20% 0% 53% employees 80% employees The prevalence of employer-sponsored health coverage rises rapidly with employer size. Among employers with employees, 80 percent offer a health plan; among those with employees, 93 percent do. Virtually all employers with more than 500 employees offer a health plan. There has been no decrease in coverage in any size category among employers with 50 or more employees since Insurance Rates Among Small California Employers 93% employees 98% 500 or more Small California employers lag behind the national average for health plan offerings, at 48 percent. Within the state, insurance rates range from 49 percent in Los Angeles and Southern California to 46 percent in San Francisco and Northern California. 80% Small California employers offering health benefits in 1998, by region 60% 40% 48% 49% 46% 20% 0% California Los Angeles San Francisco Employer-Sponsored Health Insurance 7

10 Section 2 Prevalence of Health Plan Coverage Among Small Employers in California and the Nation Coverage for part-time employees Nearly two-thirds of the small California employers who provide health coverage have one or more part-time employees (on average, 7). However, in most of these organizations (71 percent), part-time employees are not eligible for coverage. Sponsors that do offer coverage to part-timers nearly always require that the employee work a certain number of hours per week to be eligible (the median requirement is 30 hours). In addition, about a fifth (22 percent) require parttime employees to pay a higher contribution than full-time employees. Eligibility requirements Most plan sponsors in the California study require a newly hired employee to work for a specified period of time before becoming eligible for coverage. Among these sponsors, the average eligibility requirement is 3.1 months. 8 California HealthCare Foundation

11 3 SUPPLEMENTAL SURVEY RESULTS Exploring the Issues Behind the Decision to Section Offer Coverage Among California s Small Firms Sponsors and Non-sponsors: Employer Profiles A primary objective of the small-employer survey was to probe for the motivations for and barriers to offering coverage. Simply asking employers the question, Why do you (don t you) offer coverage? is not enough. If the reason given for not offering coverage is I can t afford to, as it is most often, we re still left to wonder why one small employer believes health coverage is affordable and another does not. To address this issue, the survey included a number of questions that generate profiles of sponsors and non-sponsors. There are sharp differences between the two groups. Industry The industry profiles of sponsors and non-sponsors are significantly different. When non-sponsors are broken down into the seven major industrial classifications (a list of the specific types of employers in each group is given at the end of this report), the highest percentage by far are wholesale/retail employers (39 percent), followed by services (25 percent) and manufacturing (18 percent). The profile of plan sponsors looks very different: the highest percentage of sponsors are services employers (39 percent), followed by manufacturing (23 percent) and wholesale/retail (17 percent). Health care employers are more than twice as common among the sponsors as the nonsponsors (10 percent, compared to 4 percent). Industry breakdown, sponsors and non-sponsors Sponsors 10% Health Care 17% Wholesale/ Retail Trade 7% Finance Non-sponsors 5% Trans/ Comm/Util 5% Finance 18% Manufacturing 3% Trans/ Comm/Util 4% Health Care 1% Other 4% Other 25% Services 39% Services 23% Manufacturing 39% Wholesale/ Retail Trade The differences in industry remain fairly consistent across the geographic divisions, although they are affected by employer demographics. In San Francisco, which has a high concentration of small services employers (many of them in Silicon Valley), the largest percentage of both sponsors and non-sponsors are in services, 52 and 35 percent, respectively. However, in general, the relationships hold. Employer-Sponsored Health Insurance 9

12 Section 3 Exploring the Issues Behind the Decision to Offer Coverage Among California s Small Firms Staff Size The number of full-time employees differs significantly between the two groups. Plan sponsors have more than twice as many FTEs, on average, as do non-sponsors: 24 compared to only 11. The majority of non-sponsors (63 percent) have fewer than 10 FTEs, compared to only a fifth of sponsors. Relatively few non-sponsors (15 percent) have 20 or more FTEs, and only a handful (6 percent) has 30 or more. Average Staff Size Sponsors Non-sponsors Average number of: Full-time Employees Part-time Employees 7 10 Total Employees While the use of part-time employees is common among both sponsors and non-sponsors (64 and 68 percent, respectively, have one or more PTE), non-sponsors rely on them more heavily. Nonsponsors employ an average of 10 PTEs, while sponsors employ an average of 7. More than a third of non-sponsors (37 percent) have 5 or more PTEs, compared to only 21 percent of sponsors. Counting full-time and part-time employees together, sponsors are still significantly larger, with an average of 28 employees. Non-sponsors have an average of 17 employees. There is essentially no difference in the use of seasonal workers between the two groups: 25 percent of sponsors and 24 percent of non-sponsors say they hire seasonal workers every year. Among those that use seasonal workers, sponsors hire an average of 18, while non-sponsors hire an average of 14. Number Of Years In Business Sponsors tend to have been in business longer than non-sponsors, though the difference is not as great as one might expect. On average, plan sponsors have been in business 20 years, while non-sponsors have been in business 17 years. 50% 40% 30% 20% 10% 0% Number of Years in Business 35% 30% Less than 10 years Sponsors 34% 29% years Non-sponsors are more likely to have been in business less than 10 years (17 percent, compared to 13 percent of sponsors) and less likely to have been in business more than 20 years (32 percent, compared to 41 percent of sponsors). Employee Demographics years Non-sponsors 21% 17% 20% 14% 30 or more Age of Workforce Sponsors have a slightly older workforce: The average age is 35, compared to 32 among nonsponsors. The difference is greater when you look at medians: 35 for sponsors, 30 for non-sponsors. Because health coverage generally becomes a higher priority as a person ages, employers that don t offer coverage may find it more difficult to retain mature employees. 10 California HealthCare Foundation

13 Female Workers Although industries with higher proportions of female workers have traditionally been less likely to offer coverage (on the grounds that women can get coverage through their husbands employer), there is essentially no difference in the ratio of female to male workers between the two groups. At organizations with health coverage, 41 percent of employees are female; at those without health coverage, 42 percent. Collective Bargaining Agreements Unionization is rare among employers with fewer than 50 employees, whether or not they sponsor a health plan. Only 4 percent of plan sponsors of this size, and 2 percent of non-sponsors, have any employees in unions. Average Employee Pay Sponsors Non-sponsors Full-Time: All California $36,000 $23,000 Los Angeles $38,000 $22,000 San Francisco $41,000 $26,000 Part-Time: All California $11,000 $9,000 Los Angeles $12,000 $9,000 San Francisco $11,000 $9,000 The relationship holds for part-time employees. Part-time employees earn an average of $9,000 among non-sponsors but an average of $11,000 among sponsors. Pay Levels Full-time employees at organizations without health coverage earn significantly less: $23,000 compared to $36,000 at organizations with health coverage. Non-sponsors report that the majority of their employees (55 percent) earn less than $20,000. Only 8 percent earn $40,000 or more. By contrast, only 23 percent of employees in organizations offering health coverage earn less than $20,000 and 26 percent earn $40,000 or more. There is considerable variation in pay levels by geographic area: in San Francisco, the average employee earns $41,000 at an organization with coverage and $26,000 at one without; in Los Angeles, $38,000 and $22,000, respectively. Turnover Non-sponsors report a higher turnover rate than sponsors. In the 12 months prior to the survey interview, non-sponsors experienced a turnover rate (number of employees leaving the firm divided by the total number of employees) of 34 percent, while sponsors experienced a turnover rate of only 23 percent. Of course, these data don t reveal causality; in other words, whether a high turnover rate is the reason some small employers don t offer coverage or is the result of not offering coverage. But it is interesting to note that in the characteristically high-turnover wholesale/retail industry, sponsors report less than half the turnover rate that non-sponsors do (19 percent compared to 42 percent). In fact, wholesale/retail employers that sponsor a health plan have lower turnover rates than financial service employers or manufacturers that also sponsor a health plan. Employer-Sponsored Health Insurance 11

14 Section 3 Exploring the Issues Behind the Decision to Offer Coverage Among California s Small Firms Employer Attitudes Toward Health Coverage We asked employers to select their top two reasons for offering health insurance from a list of six possible reasons (including other ). Interestingly, the two responses picked by the most respondents both suggest that sponsors are motivated by altruism and a sense of responsibility rather than by purely practical business reasons. Sixty-one percent say one of their top two reasons for offering coverage is to keep our workers healthy and 54 percent say we believe it is an employer s responsibility to provide health insurance. Less than half (44 percent) selected in order to attract and retain the right employees, and only a fifth selected our competitors offer it. 100% 80% 60% 40% 20% 0% Top two reasons for offering coverage 61% Turnover Rates, By Industry Sponsors To keep our workers healthy 61% Believe it is employers responsibility 54% Attract and retain employees 44% Competitors offer coverage 20% Satisfy employees 04% 54% Other 05% 44% 20% Non-sponsors All California Employers 23% 34% Manufacturing 27% 32% Wholesale/Retail Trade 19% 42% Services 21% 24% Health Care 20% 34% Financial Services 32% 22% 4% 5% Reasons For Not Offering Predictably, cost considerations emerge as a major reason for not offering coverage. But it is not as dominant a response as we might have expected. Only 60 percent selected we can t afford it as one of their top two reasons. About two-fifths (41 percent) say most of our employees get coverage elsewhere. This response is more common in Los Angeles and San Francisco (44 and 45 percent, respectively) than in the less purely urban areas of Northern and Southern California (33 percent each). About a fourth cited high employee turnover, and 15 percent say they believe employees would rather receive cash compensation. No other response was selected by more than 5 percent of employers. 100% 80% 60% 40% 20% 0% Top two reasons for not offering coverage 60% 41% Can t afford it 60% Employees get coverage elsewhere 41% Employee turnover is too high 26% Employees prefer cash compensation 15% No full-time employees 05% Not employer s responsibility 05% Our business is too small 04% 26% Other 07% 15% 5% 5% 4% 7% Responses varied by industry. Employers in health care and financial services were far more likely to select most of our employees get coverage elsewhere as a reason for not offering coverage (74 and 73 percent, respectively) than to select we can t afford to (27 and 39 percent, respectively). Employers in wholesale/retail were the most likely to cite high employee turnover (33 percent). 12 California HealthCare Foundation

15 Gauging Non-sponsors Interest In Offering Coverage It is interesting to note that 21 percent of nonsponsors say they have offered coverage in the past. An additional 41 percent say they have considered offering it. Further, 29 percent of all non-sponsors say they actually obtained a quote from a health insurance plan within the past year (about two-fifths of those who have offered coverage in the past, and about half of those who have not offered it but have considered it). Non-sponsors receptivity to offering coverage Offered in past 21% Never offered, never considered 38% Never offered, but have considered 41% Clearly, the majority of non-sponsors are receptive to the idea of offering coverage. Only 38 percent of employers currently not offering coverage have never offered it and never considered offering it. Looked at by industry, non-sponsors in financial services are the most recalcitrant (63 percent have never considered offering coverage), followed by wholesale/retail employers (41 percent). Competitive Issues Sponsors and non-sponsors have significantly different answers to the question Do your competitors offer health insurance? Among nonsponsors, only 9 percent say that most of their competitors offer coverage. This varies by region from a high of 20 percent in San Francisco to a low of 10 percent in Los Angeles. Statewide, an additional 25 percent say that at least some of their competitors offer coverage. About a third (32 percent) say none of their competitors do, and 34 percent don t know. Employers in health care are the most likely to say that some or most of their competitors offer coverage (74 percent). Among plan sponsors, however, 54 percent of sponsors say most of their competitors offer coverage, and an additional 18 percent say that at least some competitors do. Only 9 percent say none of their competitors offer coverage, and 18 percent say they don t know. Employees Have Health Insurance From Another Source After cost, the reason most often given for not offering coverage is that employees receive coverage from another source. About the same percentage of non-sponsors and sponsors say that at least some employees are covered by a spouse s plan (78 and 74 percent, respectively). However, nonsponsors are much more likely to have employees covered through individual plans (52 percent) or Medi-Cal (25 percent). Only 15 percent of sponsors say that any of their employees are covered through an individual plan, and only 11 percent have employees covered through Medi-Cal. Employer-Sponsored Health Insurance 13

16 Section 3 Exploring the Issues Behind the Decision to Offer Coverage Among California s Small Firms Percentage Of Employers That Say Their Competitors Offer Coverage Still, many non-sponsors acknowledge that some of their employees have no coverage. Using their estimates, 37 percent of all employees working for a non-sponsor are completely uninsured. Among those employers that said that one of the top two reasons for not offering coverage was that employees get it elsewhere, an average of 19 percent of employees do not have coverage. While more than a third of plan sponsors say that at least some of their employees have no coverage, only 8 percent of all employees working for an organization that provides coverage are completely uninsured. President/Owner Covered? Sponsors Coverage Through Other Sources Non-sponsors Most Competitors Offer 54% 9% Some Competitors Offer 18% 25% No Competitors Offer 9% 32% Don t Know 18% 34% Sponsors Non-sponsors Percent of employers with one or more employees covered through: Spouse s Plan 74% 78% Individual Plan 15% 52% Medi-Cal 11% 25% Union Plan 5% 6% Other 3% 8% The great majority of non-sponsors 85 percent and essentially all sponsors report that the president or owner of the organization has coverage. This suggests that few employers are philosophically opposed to the idea of health insurance. However, it also indicates that one of the potential reasons for a firm to offer coverage namely, the sponsor s interest in obtaining insurance may not be a significant factor. Employers Knowledge Of The Health Insurance Market The survey included a number of questions to help assess whether employers have the facts to let them make an informed decision about whether or not to offer coverage. Small-Employer Protections The California state government passed legislation in 1992 to regulate the health insurance market for small firms. The survey asked if the respondent was aware that by law an employer with 2-50 employees cannot be turned down for coverage and that the premiums can only be a little higher than average even if some of the employees have health problems. Only about a fourth of non-sponsors said they were aware of this law, compared to 57 percent of sponsors. Awareness Of Tax Implications The ability to deduct 100 percent of the employer health plan contribution for tax purposes can make offering a health plan far more palatable to an employer concerned about cost. More than two-fifths of non-sponsors (42 percent) did not know that premiums are tax-deductible. On the other hand, 20 percent of sponsors claimed to be unaware of this fact (one hopes their accountants are better informed). 14 California HealthCare Foundation

17 Awareness Of the HIPC and CaliforniaChoice Sponsors are also better informed about health plan purchasing coalitions. Forty percent have heard of the Health Insurance Plan of California (HIPC), and 26 percent have heard of CaliforniaChoice. Among non-sponsors, only 17 percent have heard of the HIPC, and only 13 percent have heard of CaliforniaChoice. These results round out earlier findings from the UCLA-KPMG 1997 study, which reported that 32 percent of small firms (2-50 employees) were aware of the HIPC, and 21 percent were aware of CaliforniaChoice. Level of Awareness of Small Employer Protections, Tax Advantages, and Coalitions Sponsors Non-sponsors Aware of (Legislation) 57% 24% Aware of Tax Deductibility 80% 58% Aware of the HIPC 40% 17% Aware of Cal/Choice 26% 13% 50% 40% 30% 20% 10% 0% Non-sponsors estimates of the annual cost to cover an employee 30% Less than $1,000 46% $1,000 $1,999 13% $2,000 $2,999 10% $3,000 or more In 1998, small California plan sponsors spent an average of about $1,700 for employee-only coverage in an HMO and about $2,200 for employee-only coverage in a PPO. Nearly half (46 percent) of non-sponsors thought it would cost more than $1,000 but less than $2,000; and 13 percent thought it would cost more than $2,000 but less than $3,000. However, 30 percent thought it would cost less than $1,000, and only 10 percent thought it would cost $3,000 or more. Guessing At The Cost Of Coverage To test the theory that employers may think health coverage costs more than it actually does, nonsponsors were asked what they thought it would cost to cover an individual employee for a year. In fact, the majority of non-sponsors had a realistic idea of the cost; and those that guessed wrong were more likely to guess low than high. Most Common Access Point Sponsors were asked how they purchased their health plan. The great majority 80 percent purchased coverage through a broker. About twothirds said they contacted the broker; about a third said the broker contacted them. Fourteen percent purchased insurance directly from a health plan, and in almost all cases initiated the contact. Only 2 percent obtained insurance through a purchasing alliance, and another 2 percent through a group or professional association. Sponsors in San Francisco were more likely to call a health plan directly (21 percent). Employer-Sponsored Health Insurance 15

18 Section 3 Exploring the Issues Behind the Decision to Offer Coverage Among California s Small Firms Non-sponsors that had obtained a quote in the past year (about 29 percent of all non-sponsors) were asked how they had gotten the quote. About half said it was through a broker. Unlike with sponsors, in half of these instances, the broker had contacted them. About a fourth (28 percent) got a quote directly from a plan and 5 percent got a quote from a purchasing alliance. Measuring The Impact Of Offering Coverage Do employers believe offering an employee health plan provides a tangible return on investment to their organization? Most say they have seen no change in turnover, no change in absenteeism, and no change in workers compensation claims. However, 25 percent say offering coverage has made it easier to hire the employees they want. Among employers who began offering coverage after 1990 (slightly more than half of all sponsors), 31 percent say hiring is easier. 16 California HealthCare Foundation

19 4 MERCER SURVEY RESULTS Employer-Sponsored Health Plans Section in California and the Nation Because this is the first year that the Mercer survey included a projectable sample of small California employers, this report can provide only a snapshot of their health plans in However, a brief overview of key trends for all employers nationally and in the West region is given here to provide some context for the California small-employer results for National Overview Of Health Plan Trends: All Employers From 1994 to 1997, the cost of employer-sponsored health plans in the U.S. declined 1.4 percent while the medical component of the Consumer Price Index rose a cumulative 10.1 percent. In 1998, total health benefit cost per employee rose 6.2 percent, ending this period of essentially flat costs. Employers are predicting even higher increases in Nearly three-fourths of employers (72 percent) say they expect their cost to increase in 1999; the average increase predicted is about 9 percent. Nationally, total health benefit cost for active employees reached $3,817. Employers in the West region (which includes 13 states) experienced total cost of $3,626 per employee, up only 2.3 percent, the lowest increase of the four geographic regions. Note that total health benefit cost includes cost for dental and vision benefits as well as for all medical plans offered. Total health benefit cost per active employee, All employers, national $5,000 $4,000 $3,000 $2,000 $1,000 $0 $3,644 $3,653 $3,703 $3, National Enrollment Patterns $3,817 The year 1998 was also notable for bringing a halt to enrollment growth in both HMOs and their point-of-service options, at least on a national basis. From 1993 to 1997, HMO enrollment grew from 19 to 30 percent. However, in 1998 HMO enrollment dipped to 29 percent of employees. POS plan enrollment grew from 7 percent in 1993 to 20 percent in 1997, but subsided to 18 percent in PPO enrollment grew strongly, from 35 to 40 percent. While POS plan enrollment dropped in the West as well in 1998 (from 18 to 16 percent of employees), HMO enrollment showed continued slow growth, rising from 41 to 43 percent. Employee enrollment, All employers, national 50% 48% Indemnity PPO POS HMO 40% 30% 20% 10% 27% 19% 7% 37% 25% 23% 15% 29% 29% 14% 27% 31% 27% 23% 19% 35% 30% 20% 15% 40% 29% 18% 13% 0% Employer-Sponsored Health Insurance 17

20 Section 4 Employer-Sponsored Health Plans in California and the Nation Medical Plan Cost, By Plan Type Of the three major managed care plan types, point-of-service plan cost was again highest in 1998, averaging $3,573, up 2.6 percent. PPO cost rose 5.2 percent (due partly to a spike in enrollment in the high-cost Northeast region) to reach $3,494. HMO cost rose 1.6 percent the first cost increase in four years but remained the lowest of the three, at $3,215. In the West, since 1993, employers have consistently reported higher average costs for PPOs than for POS plans. In 1998, average per employee cost for PPOs was $3,494, followed by $3,402 for POS plans. Average cost for HMOs was significantly lower, at $2,930. $4,000 $3,000 $2,000 $1,000 Medical plan cost per active employee All employers, national $3,321 $3,494 $3,481 $3,573 $3,165 $3,215 Small California Employers In California, small employers are more than twice as likely to offer an HMO as small employers elsewhere in the country: 61 percent compared to 29 percent. Indemnity plans are nearly extinct in California, offered by only 4 percent of employers (compared to 18 percent nationwide). On the other hand, the prevalence of PPOs and point-ofservice (POS) plans in California is very consistent with small employers in the rest of the country. PPOs are offered by 39 percent of California employers, and POS plans are offered by 20 percent. Plan offered and employee enrollment California small employers 70% Percent of employers 60% offering plan Percent of 50% employers enrolled 40% 39% 30% 20% 10% 24% 20% 13% 65% 61% $0 PPO POS HMO 0% PPO POS HMO For a complete discussion of national and regional health benefit trends, see Mercer s National Survey of Employer-sponsored Health Plans The remainder of this section will focus on small California employers. California employers differ from small employers elsewhere in that they are more likely to offer a choice between two types of plan. Nationally, only 14 percent of employers of this size offer more than one type of plan; in California, 26 percent do. The most common combination is an HMO and a PPO, offered by 23 percent of small California employers. Still, 40 percent of small California employers offer an HMO as the only option, compared to only 19 percent of small employers nationwide. 18 California HealthCare Foundation

21 Enrollment Not surprisingly, the majority of employees working for small California employers (61 percent) are enrolled in HMOs. PPOs enroll 24 percent, followed by point-of-service plans (13 percent). Only 2 percent of employees remain in traditional indemnity plans. (Because indemnity enrollment is so low, further discussion of medical plans will be limited to PPO, POS, and HMO plans.) Regionally, Los Angeles employers report the lowest PPO enrollment (18 percent) and the highest HMO enrollment (65 percent). Northern California has the highest PPO enrollment (38 percent) and lowest HMO enrollment (49 percent). In San Francisco, PPO enrollment is also relatively high (29 percent) and HMO enrollment relatively low (56 percent). Total Health Benefit Cost Survey respondents provided both 1997 and 1998 health benefit cost. These data were used to calculate a cost increase for (Note that the cost increases reported in the national overview use cost data collected separately in 1997 and 1998, from different employer samples, each projected to the universe of employers.) Again, total health benefit cost includes cost for dental and vision $4,000 $3,000 $2,000 $1,000 Total health benefit cost per active employee California small employers $2,766 $2,865 $2,693 $2,770 $3,039 $3,244 benefits, if offered, as well as all medical plans. Dental benefits are offered by 61 percent of small California employers and vision benefits by 24 percent. Among small California employers, total health benefit cost for active employees only rose 3.6 percent from $2,766 to $2,865 in This is significantly lower than the national average cost for employers of this size, of $3,321 per employee, up 4.4 percent from Cost was highest for employers in San Francisco, who reported an increase of 6.8 percent and average cost of $3,244 per active employee. In Los Angeles, cost was significantly lower at $2,770 per employee. Statewide, employers spend an average of 7.9 percent of their total payroll on health benefits. This is somewhat below the national average of 9.8 percent of employers of this size. Medical Plan Cost, By Plan Type In this section, we examine the medical plan component of total health plan cost. This would not include cost for dental coverage (even if provided through a medical plan), or for freestanding vision benefits. $4,000 $3,000 $2,000 $1,000 Medical plan cost per active employee California small employers $3,106 $3,225 $2,505 $2,663 $2,237 $2,283 $0 California Los Angeles San Francisco $0 PPO/+3.8% POS/+6.3% HMO/+2.1% Employer-Sponsored Health Insurance 19

22 Section 4 Employer-Sponsored Health Plans in California and the Nation In California, where PPOs have all but replaced traditional indemnity plans, average PPO cost was $3,225 per active employee. This is somewhat lower than the national average cost of $3,317. Point-of-service plan cost averaged $2,663 per employee (compared to $3,110 nationally), while HMOs had by far the lowest cost, at $2,283 (compared to $2,758 nationally). POS plan cost rose 6.3 percent, PPO cost rose 3.8 percent, and cost for HMOs rose 2.1 percent. The cost variation among plan types in California is relatively wide. In other parts of the country, broad networks and loosening utilization controls in the once stricter forms of managed care have narrowed the gap in cost. San Francisco employers report the highest average costs for each of the three types of medical plans examined: $3,940 for PPOs, $3,596 for POS plans, and $2,499 for HMOs. Average HMO cost was the most consistent across the four regions, varying only about $500 from the highest (San Francisco) to the lowest ($1,922 in Southern California). Employee Contributions Plan sponsors with fewer than 50 employees often provide free employee-only coverage because their health plan vendor requires a minimum level of participation (generally 75 percent of eligible employees) before they will write coverage for small-group plans. Because of this, small-employer contribution strategies differ significantly from those of large employers. While there is some variation by plan type, in general, small employers are much more likely to offer free employee-only coverage. For example, nationally, only 47 percent of small HMO sponsors require an employee contribution for employee-only coverage, compared to 73 percent of large HMO sponsors. However, among those that do require a contribution, small employers generally set the employee contribution much higher than large employers. Nationally, the average employee contribution for employee-only coverage in an HMO is $56 per month among small employers, but only $37 among large employers (500 or more employees). Employee Contributions, California Small Employers PPO POS HMO Individual Percent of employers requiring contribution 31% 35% 41% Average contribution as a percent of premium 26% 39% 36% Average monthly contribution $47 $51 $52 Family Percent of employers requiring contribution 64% 70% 78% Average contribution as a percent of premium 64% 68% 70% Average monthly contribution $161 $153 $ California HealthCare Foundation

23 Employee Cost-Sharing for POS Plan, California Small Employers In-Network Out-Of-Network Deductible Percent of employers requiring an individual deductible 37% 61% Median deductible amount $250 $300 Percent of employers requiring a family deductible 47% 51% Median deductible amount $500 $1,000 Out-of-Pocket Max Percent of POS plans that include an individual out-of-pocket max 83% 77% Median maximum amount $1,500 $2,500 Physician Visits Percentage of employers requiring a copayment 81% 35% Median copayment amount $10 $10 Percentage of employers requiring coinsurance 5% 57% Median coinsurance amount ID 20% ID = Insufficient data While small employers are also more likely to offer free family coverage than large employers, the difference is not as great. Nationally, employee contributions for family coverage in an HMO are required by 80 percent of small employers and 90 percent of large employers. Again, the average employee contribution for family coverage is higher among small employers. Nationally, the average HMO family contribution is $215 among small employers and $138 among large employers. Returning to the California results, of the three managed care plan types, HMO sponsors are the most likely to require an employee contribution for employee-only coverage (41 percent of small California HMO sponsors), and PPO sponsors the least likely (31 percent). PPO sponsors also set the lowest employee contribution 26 percent of premium, or $47 per month. As a percentage of premium, the average HMO contribution required of employees is substantially higher 36 percent of premium. However, because HMO premiums are generally less expensive, the average dollar contribution ($52 per month) is not substantially higher. For family coverage, HMO sponsors are again the most likely to require a contribution, and PPO sponsors the least likely (78 percent and 64 percent, respectively). The average monthly contribution ranges from $153 for POS plan coverage to $175 for HMO coverage. Cost-Sharing Provisions In general, employee cost-sharing is lightest in an HMO, where no deductible and only a modest copayment at the time of service is required. PPOs and POS plans typically have different cost-sharing provisions for in-network and out-of-network services, so employees have some control over their out-of-pocket expense. Employer-Sponsored Health Insurance 21

24 Section 4 Employer-Sponsored Health Plans in California and the Nation HMOs Most HMO sponsors (94 percent) require a copayment for a physician visit, on average $10. Less than half require employees to share in the cost of hospital stay 11 percent require a copayment and 28 percent have a deductible. POS plans In California, 37 percent of small employers require an in-network individual deductible, with a median deductible of $250. Out-of-network deductibles are required by 61 percent. The median out-of-network deductible is $300. Median deductibles for family coverage are quite high: $500 in-network and $1,000 out-ofnetwork. Most POS plan sponsors (83 percent) require a copayment for in-network physician visits. For out-of-network visits, 57 percent require coinsurance and 35 percent require a copayment. The median in-network copayment is $10 and the median out-of-network coinsurance amount is 20 percent of eligible charges. Most sponsors (81 percent) report that at least 80 percent of claim dollars go to network providers. Most sponsors cap the employee s out-of-pocket expenses. The median in-network cap is $1,500 and the median out-of-network cap is $2,500. PPO plans More than half of PPO sponsors (55 percent) require a deductible for in-network coverage; the median individual deductible is $250 and the median family deductible is $750 (for both in- and out-of-network services). Most sponsors (85 percent) require a copayment for in-network physician visits. Some sponsors (29 percent) also require a copayment for out-of- Employee Cost-Sharing for PPO Plan, California Small Employers In-Network Out-Of-Network Deductible Percent of employers requiring an individual deductible 55% 68% Median deductible amount $250 $250 Percent of employers requiring a family deductible 63% 72% Median deductible amount $750 $750 Out-of-Pocket Max Percent of PPOs that include an individual out-of-pocket max 83% 77% Median maximum amount $2,000 $2,500 Physician Visits Percentage of employers requiring a copayment 85% 29% Median copayment amount $15 $20 Percentage of employers requiring coinsurance 10% 65% Median coinsurance amount 20% 25% 22 California HealthCare Foundation

25 network office visits, although coinsurance is still more common (65 percent). The median in-network copayment is $15 and the median out-of-network coinsurance amount is 25 percent of eligible charges. Seventy percent of respondents report that at least 80 percent of claim dollars go to network providers. The median cap on employee out-of-pocket expenses is $2,000 for employee-only coverage and $2,500 for family coverage. Prescription Drug Coverage Prescription drug card plans and mail-order plans have become standard features of small-employer plans as well as large-employer plans. Of the three managed care plans, PPOs are the most likely to include a card plan (81 percent) and HMOs the least likely (63 percent). In both types of plan, the median copayment per prescription filled is $10 for a brand-name drug and $7 for the generic equivalent. About three-fourths of POS plans (74 percent) provide a drug card benefit, with a somewhat higher median copayment ($15 for brand-name drugs, $7 for the generic equivalent). Mail-order plans are offered by 63 percent of HMOs, 71 percent of POS plans, and 77 percent of PPOs. Among HMOs, the median copayment is again $10 for a brand-name drug, and $5 for the generic equivalent. Among PPOs, the median copayment is $15 for brand-name drugs and $7 for the generic equivalent. Funding And Administration HMOs are virtually all insured plans. Eighteen percent of small California employers offer an open-access HMO, in which participants may see a specialist without seeking a referral from a primary care physician gatekeeper. Most POS sponsors choose a fully insured plan. However, 12 percent self-fund either the in-network or the out-of-network benefits and 5 percent self-fund the entire plan. For about three-fourths of plan sponsors (73 percent), either a commercial insurance carrier or Blue Cross/Blue Shield administers the plan; 14 percent use a third-party administrator (TPA). Very few small employers self-fund a PPO (5 percent). More than two-thirds use either a commercial insurance carrier or Blue Cross/Blue Shield to administer their plan (68 percent), while 19 percent use a TPA. HMO Accreditation California employers are no more likely to require accreditation than employers elsewhere: 40 percent require NCQA accreditation and 24 percent require JCAHO accreditation, but 46 percent do not require any. Thirty-four percent have conducted a member satisfaction survey, and 35 percent conducted a quality assessment at time of plan selection. Employer-Sponsored Health Insurance 23

26 Section 4 Employer-Sponsored Health Plans in California and the Nation Other Health Care Benefits Small employers are far less likely to offer additional health benefits than are large employers. Beyond dental coverage, few small employers offer any frills, which accounts for some of the difference in total health benefit cost between large and small employer plans. Small California employers are more likely to offer dental benefits (61 percent) than small employers in the country as a whole (51 percent). The majority of dental plans (67 percent) are freestanding. Per-employee cost is also higher than average, at $509 per employee, compared to $445 nationally. The median maximum benefit is $1,500, compared to only $1,000 nationally. Only a handful of plan sponsors (9 percent) provide an employee assistance program (EAP) to their employees. A fourth offer vision coverage, slightly above the national average of 20 percent. Nine percent offer a full flexible benefits program (or cafeteria plan). Flexible spending accounts for health care expenses are offered by 8 percent of respondents, as are dependent care accounts. Retiree Medical Plans Only 7 percent of plan sponsors extend medical coverage to pre-medicare-eligible retirees, and only 8 percent to Medicare-eligible retirees. This is consistent with national results for small employers. However, it is interesting to note that large employers in Los Angeles lag well behind national averages for prevalence of retiree coverage. Only 27 percent offer coverage to pre-medicare retirees, compared to 36 percent nationally, and only 17 percent offer it to Medicare-eligible retirees, compared to 30 percent nationally. 24 California HealthCare Foundation