Employers Plan Strategic Changes to Health Benefits

Affordability concerns intensify as excise tax looms

By Stephen H. Miller, CEBS March 10, 2015

The majority of midsize and large U.S. employers (84 percent) expect to make changes to their employee health benefits programs over the next three years, according to new research from consultancy Towers Watson.

“The rate of growth for health benefit costs has slowed, and that’s good news. But health costs are still increasing at double the rate of inflation,” noted Julie Stone, Towers Watson’s North American health and group benefits leader, who presented an overview of the survey results at the National Business Group on Health’s Business Health Agenda 2015 conference, held March 5 in Washington, D.C.

The consultancy’s 2015 Emerging Trends in Health Care Survey report, based on a survey of midsize to large U.S. employers representing 7.2 million employees in January 2015, revealed that:

Employers project health care costs to increase 4 percent in 2015 after plan changes, compared to the 4.5 percent employers predicted for 2014.

Without plan changes, projections are for an increase of 5.2 percent.

These cost increases, while modest compared to past years, are still more than double the current rate of U.S. inflation. Increasing costs are driving employers’ concerns in light of the approaching 2018 excise tax on excess benefits provided to employees by plans deemed to be “high cost” under the Affordable Care Act. Two in five employers that have done modeling of their plans say they will trigger the 40 percent excise tax in 2018 unless they make benefit changes to rein in costs.

“Historically, employers have strived to keep their cost increases at the market average, but increasingly, this just isn’t enough,” said Randall Abbott, a senior consulting leader at Towers Watson. “The new focus is on reducing cost trends to the overall [consumer price index] or below. This means driving cost growth to roughly 2 percent or less, which requires an acute focus on all aspects of health plan performance.”

Scaling Back Spouse and Dependent Coverage

Among the actions gaining traction are changes to benefits for spouses and dependents. For example, the percentage of employers using spousal surcharges (when coverage is available elsewhere) is expected to nearly double, from 32 percent now to 61 percent in three years. Half (53 percent) of respondents plan to significantly reduce subsidies for spouses and dependents by 2018. In addition, 4 in 10 employers (41 percent) say they may adopt a defined contribution health care arrangement (capping employer contributions at a flat dollar amount) by 2018.

Seeking Measurable Added value

Employers reported greater resolve to improve health outcomes per dollar spent. Over the next three years:

Two-thirds are planning to use claims and other data to evaluate plan performance and employee behavior changes in lifestyle and health management.

The use of designated centers of excellence (either within health plans or via a separate network) and narrow networks are expected to triple.

“Centers of excellence” are hospitals or clinics rated as offering high-quality, cost-effective care. Employers and insurers may cover a greater share of costs if employees have surgery performed at a designated center of excellence, for example.

The trend toward establishing high-performance “narrow networks” stems from the realization that a given health plan has access to vital data—from claims, prescriptions and clinical settings—that can be used to identify and exclude from in-network coverage those physicians who tend to overcharge for routine services, order unnecessary tests or prescribe expensive brand-name drugs, for instance.

The use of telemedicine services in place of in-person physician visits, when appropriate, will continue to be rapidly adopted, already expanding by more than one-third in 2015 over 2014. Over 80 percent of employers say they could offer telemedicine services by 2018.

More than 80 percent of employers will carefully evaluate specialty drug benefits embedded in their medical plans. Over half (61 percent) of employers report including coverage and utilization restrictions in their specialty pharmacy strategy.

Promoting a Consumer Mindset

Employers recognize the business value of a healthy workforce and are encouraging employees to take control of their health. Two of the top five areas employers say will be the focus of their health care activities in 2016 link to employee engagement and accountability: developing or enhancing a workplace culture where employees are responsible for their health (66 percent), and adopting or expanding the use of financial incentives in wellness programs to encourage healthy behaviors (51 percent).

Among employers surveyed, the most popular tactics for boosting employee engagement in health care are:

Education and tools for better decision-making. Nearly half of employers (48 percent) will place more emphasis on educating employees about how to select providers based on quality and cost information over the next two years. In 2016, 43 percent of employers will provide price and quality transparency tools to help employees make better consumer choices.

Mobile apps to deliver health messages. Today, 60 percent of employers deliver health and wellness messages through mobile apps and portals. That percentage will increase to 95 percent by 2018.

Consumer-directed health plans (CDHPs) as the only plan option. While 17 percent of employers currently offer only full-replacement account-based CDHPs—high-deductible plans tied to tax-advantaged health savings accounts or health reimbursement arrangements—those that offer CDHPs as the sole option may increase to nearly 50 percent by 2018.

Exploring Private Exchanges

Employer confidence in private exchanges is increasing: 17 percent view private exchanges as a viable alternative for active full-time workers in 2016. Confidence more than doubles to 37 percent for 2018.

In addition, a quarter (26 percent) of employers have extensively analyzed private exchanges, and 20 percent say they are more interested in adopting a private exchange today than they were a year ago.

Companies that have completed an extensive analysis of private exchanges (vs. companies that have not) are twice as likely to find private exchanges a viable alternative in 2016.

Employers report that cost savings and administrative simplicity are key factors in prompting use of private exchanges. Finance will play a role in shifting to a private exchange model: More than half (53 percent) of respondents report that finance will influence the decision to move to a private exchange or continue to maintain traditional employer-managed health plans.

“Employers are using and actively considering various options to manage cost, change employee behaviors and optimize program performance,” Stone said. “And the real business risk of the 2018 excise tax creates a sense of urgency for them to take decisive action. While future-proofing health care strategy is impossible, employers can exceed average performance by making changes that meet business needs and fit with the total rewards strategy.”

Health Care Plan Changes Ahead (Infographic)

Organizations expect to make the changes shown in this infographic to their health care plans in 2015, based on results from the recent SHRM/EBRI Health Benefits Survey report.

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