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Employees, Spouses to Shoulder More Health Costs
Employer health care costs are expected to reach $9,560 per worker in 2014

By Stephen Miller, CEBS  3/12/2014
 

In 2014 the cost of providing employer-sponsored health benefits is expected to increase 4.4 percent for large U.S. organizations (up slightly from 4.1 percent in 2013), taking into account health-plan design changes that shift more costs to employees. The projected cost increase for this year, before plan changes are taken into account, is 7 percent, according to Towers Watson and the nonprofit National Business Group on Health (NBGH).

Rising health costs have been mitigated by a tepid U.S. economic recovery and low overall inflation, clocking in at 1.6 percent for the 12 months ending in January 2014, according to government data, with a similarly low inflation rate expected throughout the year.

The latest Towers Watson/NBGH Employer Survey on Purchasing Value in Health Care summary report reveals that the vast majority of large U.S. employers remain committed to providing benefits to active workers, but they expect to continue making moderate to significant changes to their plans over the next few years. Taken between November 2013 and January 2014, the survey was based on the responses of 595 organizations with at least 1,000 employees.

Among key survey findings for plan year 2014:

  • Employer costs are expected to reach $9,560 per worker, up from $9,157 in 2013.

  • Employees’ share of premiums increased to $2,975, up from $2,782 in 2013.

  • The total employee cost share (including deductibles and co-pays) climbed from 34.4 percent in 2011 to 37 percent. Workers now pay more than $100 more each month for health care than they did three years ago.

  • Although 95 percent of respondents said subsidizing health care coverage for active employees is a very important part of their rewards package, almost as many (92 percent) expect to make moderate to significant changes to their programs by 2018. 

Total employee/employer health care costs:
2009 vs. 2014

 

2009 total plan cost:
$9,748

2014 total plan cost:
$12,535

Employer share

$7,486

$9,560

Employee share

$2,262

$2,975

Source: Towers Watson/National Business Group on Health

“Despite the moderation, health care costs continue to outpace inflation and remain a major concern for U.S. employers given the challenging macroeconomic environment,” said Ron Fontanetta, senior health care consultant for Towers Watson, who unveiled the survey findings at the NBGH's Business Health Agenda 2014 conference, held March 5-7 in Washington, D.C. “To find more effective ways to manage health costs, many employers are focusing on reshaping their health strategy for the next three to five years.”

Contribution Strategy for Spouses Changing

One of the many changes employers have been implementing and expect to continue making is to their contribution strategies for spouses and dependents.

  • Nearly half of employers (49 percent) have increased worker contributions for dependent tiers at higher rates than for individuals.

  • Another 19 percent expect to take this step next year.

  • About one-quarter of companies (24 percent) now impose spousal surcharges of around $100 per month when other coverage is available to the spouse.

Financial commitment to spouse is being reduced

 

In place in 2014

Planned for 2015

Increase employee contributions in tiers, with dependent coverage at a higher rate than single coverage

49%

additional 19%

Use spousal surcharges when other coverage is available

24%

additional 15%

Require spouses to purchase health insurance through their employer plan before enrolling in your plan

10%

additional 13%

Eliminate/don't offer subsidy for spousal coverage (provide access only)

2%

additional 5%

Source: Towers Watson/National Business Group on Health

Looking ahead, only 56 percent of companies believe that subsidized health care for spouses will be very important in 2015 and beyond—down from more than 70 percent today—an indication that the trend toward increased cost-sharing for spouses will continue. 

Nondiscrimination in Spousal Coverage

On March 14, 2014, the federal Centers for Medicare & Medicaid Services published a frequently asked question (FAQ) response addressing an insurer's obligation to offer coverage to same-sex spouses. According to the FAQ:

"If a health insurance issuer in the group or individual market offers coverage of an opposite-sex spouse, may the issuer refuse to offer coverage of a same-sex spouse? No.... This section does not require a group health plan (or group health insurance coverage provided in connection with such plan) to provide coverage that is inconsistent with the terms of eligibility for coverage under the plan, or otherwise interfere with the ability of a plan sponsor to define a dependent spouse for purposes of eligibility for coverage under the plan. Instead, this section prohibits an issuer from choosing to decline to offer to a plan sponsor (or individual in the individual market) the option to cover same-sex spouses under the coverage on the same terms and conditions as opposite sex-spouses."

The FAQ confirms that insurers must offer coverage to legally married same-sex spouses under the same terms and conditions that apply to opposite-sex spouses, regardless of the jurisdiction in which the policy is offered or operated, or where the policyholder resides. In effect, it prohibits an insurance issuer from declining to offer to a plan sponsor the option to cover same-sex spouses under the coverage on the same terms as opposite sex spouses, even in states that do not recognize same-sex marriages.

As for an employer's obligation to provide coverage to same-sex spouses, "In states that recognize same-sex marriage, there may be other legal reasons to treat same-sex marriage and opposite-sex marriage the same," write attorneys Daniel Schwallie and Allen Steinberg in the first quarter 2014 issue of Benefits Quarterly. "We anticipate that most employers will apply spousal coverage and subsidies uniformly to same- and opposite-sex marriages. However, such uniformity [in states that do not recognize same-sex marriage] is not required."

More Employers Embracing HSAs and HRAs

Employers consider consumer-directed account-based health plans—including health savings accounts (HSAs) and health reimbursement arrangements (HRAs)—to be effective in helping them manage costs. The Towers Watson/NBGH survey revealed that:

  • Nearly three-quarters of respondents offer these plans, with another 9 percent expecting to add one for the first time in 2015.

  • Total-replacement account-based plans, in which these are the only options offered by an employer, are also on the rise, with nearly 16 percent of respondents having adopted them (up from only 7 percent in 2012).

  • Nearly one-third of all companies could offer account-based plans as their only option by 2015 if they followed through with their current intentions.

Employers Looking at Exchange Options

Two-thirds of businesses believe that, as early as 2015, private health care exchanges will offer a viable alternative to employer-sponsored coverage for active employees.

“While private exchanges are proving to be an effective option for retiree health coverage, most employers are taking a wait-and-see approach to gauge whether these models can deliver greater value for their active employees than self-managed programs,” said Helen Darling, NBGH president and CEO, speaking at the 2014 Business Health agenda event. Additionally, employers that no longer sponsor health care benefits could send their workers to a public exchange and remain compliant with health care reform by providing access to group coverage through the exchange-based Small Business Health Options Program (SHOP)—although, Darling added, “confidence in these [federal or state-run] exchanges remains quite low.”

Other findings from the survey include:

  • Retiree health. Employer subsidies for retiree medical coverage have sharply declined over the past 20 years, especially for pre-Medicare-eligible retirees, due to costs rising significantly faster than plans for active employees. Nearly two-thirds of organizations that offered a sponsored retiree-health plan in 2014 are likely to eliminate it in the next few years, with many planning to steer their pre-Medicare-age population to public exchanges and their post-65 retirees to private Medicare exchanges.

  • Wellness incentives. Twenty-two percent of companies adopted outcomes-based wellness incentives (other than for tobacco), involving monetary rewards based on achieving health goals; that figure could reach 46 percent by 2015 if businesses follow through with their plans. Two-thirds of companies also use financial incentives to encourage participation in wellness activities, in compliance with the Affordable Care Act and other statutes, and 22 percent of those (especially best performers) frame these incentives as penalties, such as higher health care premiums for those who don’t take part in wellness initiatives.

  • Value purchasing. Driving value in health care has become increasingly crucial to employers. The best-performing respondents are addressing key drivers of performance, including pharmacy management, network delivery options and enhanced wellness strategies.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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