Mercer research: Cost of providing health benefits increases

The cost of providing healthcare and health-related benefits to employees in Europe rose by 3.3% in 2010, a sharper increase in many economies than was seen in salaries and general inflation.

According to Mercer’s 2010 pan-European survey on employer health benefits, which received responses from 556 employers, companies in the UK and Ireland experienced a higher-than-average increase of 4.9%. By comparison, in the U.S. the average health benefit cost per employee rose 6.9% in 2010.

Employers operating under government health systems reported slightly higher increases, averaging 3.7%, in the per-employee cost of all health-related benefits, compared to those operating under social insurance models, with an average of 2.9%.

Respondents from the UK and Ireland reported the highest increase (4.9% for each) followed by Portugal (4.1%) and the Netherlands (3.7%). Germany and the Czech Republic reported the lowest cost increases of 1.7% and 1.8%, respectively.

The survey showed private medical insurance (PMI) plans, which include both mandated and voluntary supplemental plans, are offered by nearly all respondents (93%) from countries with government model health systems, including Ireland, UK, Portugal, Spain and Italy.

In contrast, private medical coverage is offered by just under three-quarters (74%) of respondents in social insurance model countries, such as Austria, Czech Republic, France, Germany, Poland, Switzerland and the Netherlands. Some of these countries have generous and efficient national health systems, which lessens the value of providing a private-sponsored benefit.

The majority of respondents (72%) do not require employees to contribute to the cost of private medical plan coverage, however, this varies by country.

Meanwhile, 80% of respondents from France require employees to contribute to the cost of employee-only coverage, compared to only 8% of respondents in the UK. Requiring contributions for dependents cover is much more common. In the UK, for example, 47% of respondents require a contribution for dependants cover.

Managing employee health risks was rated a very important or important objective in the provision of health benefits by nearly two-thirds of respondents (63%). More than half (53%) cited improving productivity as an important or very important objective.

Respondents from countries with stronger national health systems, such as Germany and the Netherlands, were more likely to place improved productivity above retention. Health benefits, however, were regarded as a valuable attraction tool by respondents from the UK, Ireland and Spain, where public programmes already show some quality gaps. Two-thirds of respondents felt future social welfare reforms will increase the pressure on employers to provide private health benefits.

Steve Clements, a partner at Mercer, said: “Governments are shifting the cost of healthcare to employers and individuals in the form of tighter tax deductions, reduced scope of public healthcare services, privatisations, higher cost sharing and eligibility restrictions or opting-out schemes. From the other direction, employers are also under pressure from employees and trade unions to improve health benefits.”

For more on how to manage the cost of healthcare benefits