Study Shows Employer Actions Fostered Employee Consumerism, Mitigating 2004 Health Plan Cost Increase

BOSTON, March 17, 2004 - While many large employers expected a 13 percent average increase in health plan premiums this year, a new report from Fidelity Investments shows that increases were held to 7.4 percent thanks to cost containment strategies, such as changes in plan design and employee contributions, which affected how employees selected health plan coverage for the year.

In the report, "Changing Benefits, Critical Decisions: The Health Benefits and Behavior Study," Fidelity breaks out the health benefit costs that both employers and employees face in 2004. Based on the mitigated premium increase of 7.4 percent, this year's total premium cost to employers and employees combined, will average $7,281 per employee, up from $6,779 in 2003.

Of the 2004 premium, employees will pay an average of $1,233, up from $1,107 last year. Combining both the employee share of the premium and expected out-of-pocket costs, the total amount employees will pay for their health care in 2004 rises to $2,450, an increase from last year's total of $2,042. The total health care cost per employee for 2004, including premium and expected out-of-pocket costs, will average $8,498, up from $7,713 in 2003. Overall, employees will pay more for their health care this year, covering nearly 29 percent of the total cost, compared to more than 26 percent last year. However, employers are still paying the majority of health care expenses, absorbing more than 71 percent of the total cost.

"Our 2003 annual enrollment data suggest that both plan adjustments made by employers and changes in employee behavior positively contributed to an overall mitigation of health plan cost increases in 2004," said Brad Kimler, senior vice president, Fidelity Health and Welfare Consulting. "Eighty-four percent of employees faced 2004 contribution increases to their current plans and 66 percent faced plan design changes. These plan adjustments may have encouraged employees to consider their enrollment elections more carefully, resulting in a number of them migrating from higher-cost to lower-cost health plans. This movement is a good indicator that employees are beginning to think more like consumers in terms of their health benefits."

Plan changes drive enrollment behavior

Enrollment patterns confirm that employees were motivated to change plans for 2004 based on increases or decreases in employee contributions or health plan benefits. Data revealed that contribution increases of 10-20 percent appeared to be the point at which employee behavior was impacted, causing five percent of enrollees to leave their 2003 plan. On the flip side, small declines in contributions had little influence on employee behavior.

Plan design changes also impacted enrollment behavior, driving employees to make more informed decisions in the face of rising out-of-pocket costs. This trend is illustrated by the fact that more employees are using health care flexible spending accounts (FSAs), a trend continued from 2003. In 2004, participation in FSAs rose to 20 percent, up from 16 percent last year. Not only are more employees using FSAs, but they are diverting more money into them as well. The overall average deferral increased by seven percent for 2004; while over one third (39%) of returning FSA users increased their 2004 contributions by an average of 70 percent to $1,461.

Employees are evolving from users to consumers

Employees' willingness to use the Web for health benefits decisions is clear, given that 87 percent of employees submitting new enrollments for 2004 chose to do so online. That rate increase is up from 71 percent in 2002 and more than double the Web enrollment rate for 1999. Online decision support tools also grew in popularity during last year's annual enrollment. In fact, in a post-enrollment survey, 90 percent of those who enrolled online indicated they were satisfied with the annual enrollment process, and the majority of those surveyed cited online decision support tools as important in making overall annual enrollment decisions.

"It appears to be a combination of forces in the marketplace that is driving the behavioral shift toward consumerism among employees, including the increased education efforts by employers, rising out-of-pocket benefits costs and new self-service decision support tools," said Kimler. "It's becoming more apparent that employees are increasingly engaging and taking more responsibility when it comes to their health care benefits."

About Fidelity Workplace Services^®

Through Fidelity Workplace Services^®, Fidelity Investments provides benefits and human resources administration, workforce effectiveness, payroll solutions and stock plan services to 16.7 million employees in the U.S. as of January 31, 2004. Additionally, through its HR Access acquisition, Fidelity provides HR and payroll applications for about 12 million employees in Europe.

About Fidelity

Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $1.8 trillion, including managed assets of $1,004.7 billion as of January 31, 2004. Fidelity offers investment management, retirement planning, brokerage, human resources and benefits outsourcing services to 18 million individuals and institutions as well as through 5,500 financial intermediaries. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.Fidelity.com.

¹ The Fidelity Investments report, "Changing Benefits, Critical Decisions: The Health Benefits and Behavior Study," was conducted over the winter of 2003 among 488,652 employees in the 2003 data and 480,151 in the 2004 data. Study sample is a subset of employees recordkept by Fidelity's Health and Welfare business. Additional methodology and terminology available in full report.

# # #

Fidelity Employer Services Company LLC, 82 Devonshire Street, Boston, MA 02109.
Defined contribution products and services are offered by Fidelity Investments Institutional Services Company, Inc.