U.S. Employers Expect Health Care Costs to Rise 4% in 2015
20 August 2014 - 11:05PM
Business Wire
Companies plan to continue subsidizing and managing benefits
while taking aggressive action to keep costs down
U.S. employers expect a 4% increase in 2015 health care costs
for active employees after plan design changes, according to global
professional services company Towers Watson (NYSE, NASDAQ: TW). If
no adjustments are made, employers project a 5.2% growth rate,
putting absolute cost per person for health care benefits at an
all-time high. Despite this cost trend, most (83%) employers
consider health benefits an important element of their employee
value proposition, and plan to continue subsidizing and managing
them for both full-time and part-time active employees, according
to the 2014 Towers Watson Health Care Changes Ahead Survey. They
are, however, continuing to rethink company subsidies for spouses
and dependents.
Of particular concern on the cost front is the Patient
Protection and Affordable Care Act’s excise tax,* which goes into
effect in 2018. Nearly three-quarters (73%) of employers said they
are somewhat or very concerned they will trigger the tax based on
their current plans and cost trajectory. More than four in 10 (43%)
said avoiding the tax is the top priority for their health care
strategies in 2015. As a result of the excise tax and other
provisions of the health care reform law, CEOs and CFOs are more
actively engaged in strategy discussions.
“In the current economic climate, affordability and
sustainability remain dominant influences on employers’ overall
health care strategies,” said Randall Abbott, senior consultant at
Towers Watson. “Expense management and worker productivity are
equally critical to business results. While employers are committed
to providing health care benefits for their active employees for
the foreseeable future, persistent concerns about cost escalation,
the excise tax and workforce health have led to comprehensive
strategies focused on both year-over-year results and long-term
viability for health care benefits and workforce health
improvement.”
“The emphasis is on achieving or maintaining a high-performance
health plan,” continued Abbott. “And CFOs are now focused on a new
gold standard: managing health cost increases to the Consumer Price
Index. This requires acute attention to improving program
performance.”
Combatting the High Cost of Health Care
In response to short- and long-term cost concerns, a growing
percentage (81%) of employers plan moderate to significant changes
to their health care plans over the next three years, up from 72% a
year ago. One tactic employers will use to curb spending in 2015 is
specialty pharmacy management. Companies project that pharmacy-only
cost trend will be 5.3% after plan changes (6% before changes).
Employers will also embrace telemedicine for virtual physician
office visits to improve access and efficiency of care delivery.
Another key tactic is new payment approaches that hold providers
accountable for the cost of an episode of care and outcomes.
Longer term, for 2016 and 2017, nearly half (48%) of employers
are considering tying incentives to reaching a specified health
outcome such as biometric targets, compared with just 10% that
intend to adopt it in 2015; 37% are considering offering plans with
a higher level of benefit based on the use of high-performance or
narrow networks of medical providers, compared with just 7% in
2015. One-third (34%) of employers are considering telemedicine,
compared with 15% in 2015, further accelerating technology as a way
to improve engagement and medical care access, and manage
costs.
Another cost-mitigation tactic being considered for 2016 and
2017 are changes in how employers subsidize health care for spouses
and dependents. A third (33%) of employers are considering
significantly reducing company subsidies for spouses and
dependents; 10% have already implemented such reductions, and 9%
intend to do so in 2015. In addition, 26% said they are considering
spouse exclusions or surcharges if coverage is available elsewhere;
30% have that tactic in place now, and another 7% expect to add it
in 2015.
Employers are also examining caps on health care coverage
subsidies for active employees, using defined contribution
approaches, with 30% of employers considering them for 2016 and
2017, 13% having them in place today and another 3% planning them
for 2015.
Private Health Exchange Interest Is Growing
With regard to private health insurance exchanges for active
workers, 28% of employers said they have extensively evaluated the
viability of private exchanges. Nearly one in four (24%) said
private exchanges could provide a viable alternative for their
active full-time employees in 2016. The top three factors that
would cause employers to consider a private exchange for full-time
active employees are evidence they can deliver greater value than
their current self-managed model (64%), adoption of private
exchanges by other large companies in their industry (34%) and an
inability to stay below the excise tax ceiling as 2018 approaches
(26%).
Despite the challenge of managing the high cost of health
benefits, nearly all employers (99.5%) said they have no plan to
exit health benefits for active employees and direct them and their
families to public exchanges, with or without a financial subsidy.
Three out of four employers (77%) said they are not at all
confident public exchanges will provide a viable alternative for
their active full-time employees in 2015 or 2016.
“The most effective employers are continually evaluating new
strategies for improving health plan performance,” Abbott noted.
“Examples include a steady migration to account-based health plans
(ABHPs), action-based incentives, adoption of value-based payment
methods with health plan partners and plan designs that drive
efficiencies. Other options are technology-based solutions such as
telemedicine, fitness devices or trackers, and social media to
encourage employees to take a more active role in both their
personal health status and how they use health care goods and
services.”
Other Notable Findings
- Two-thirds of CEOs and CFOs are more
directly involved in developing their company’s health benefit
strategies.
- The importance of data and metrics to
evaluate health care benefit program performance is growing, with
60% of respondents planning to emphasize data as a gauge of
performance.
- Three out of four employers (76%) are
exploring the use of personalized digital technologies, including
mobile health applications and fitness wearables, as well as social
media to encourage greater activity among their employees.
- Full-replacement ABHPs (making ABHPs
the only plan option) could be in place at 50% of companies by
2017: 17% offer only an ABHP today; 4% intend to do so for 2015,
and another 28% are considering it for 2016 or 2017.
*According to the Patient Protection and Affordable Care Act, in
2018, the federal government will impose a non-deductible excise
tax on the value of employer-sponsored health programs that exceed
an aggregate value of $10,200 for individual coverage and $27,500
for family coverage. The tax equals 40% of the value that exceeds
these thresholds.
About the Survey
The 2014 Towers Watson Health Care Changes Ahead Survey offers
insights into the focus and timing of U.S. employers’ plans and
perspectives related to their health benefits, and their efforts to
better manage costs and employee engagement as well as their
planned responses to the business risks associated with the 2018
excise tax. The survey was completed during July 2014 by 379
employee benefit professionals from midsize to large companies
across a variety of industries and reflects respondents’ 2014 –
2017 health care benefit decisions. The responding companies
comprise a broad range of industries and business sizes, and
collectively employ 8.7 million employees.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global
professional services company that helps organizations improve
performance through effective people, risk and financial
management. The company offers consulting, technology and solutions
in the areas of benefits, talent management, rewards, and risk and
capital management. Towers Watson has more than 14,000 associates
around the world and is located on the web at towerswatson.com.
Towers WatsonRob Wyse, +1
212-920-1470rob@capital-content.com
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