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Employers’ benefits costs have risen 24% since 2001
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(An earlier version of this article was posted on July 27, 2017, under the title "Employers’ Benefits Costs Have Risen 24% Since 2001.")
While employers have responded to rising health care costs by adopting high-deductible health plans and shifting a greater share of plan premiums to employees, among other strategies, health benefit expenses are a continuing challenge—and one that doesn't look likely to recede anytime soon.
A small respite in the rate of escalation for medical costs may be coming to an end, a new study reveals. U.S. employers expect their health care costs to increase by 5.5 percent in 2018, up from a 4.6 percent increase in 2017.
The finding is from Willis Towers Watson's
Best Practices in Health Care Employer Survey of 678 U.S. employers polled in June and July (555 of the respondents have at least 1,000 employees).
“Cost management of health benefit programs remains the top priority for employers in 2017 and 2018, said Julie Stone, a national health care practice leader at Willis Towers Watson. “While employers made significant progress over the last few years refining their subsidy and vendor/carrier strategies, many are now looking to other aspects of their health benefit programs in order to improve health and dampen future cost increases," she explained.
These efforts include encouraging patients to use preferred providers that emphasize better outcomes and cost savings in high-priority clinical conditions, such as diabetes, musculoskeletal health and mental health, Stone noted. Over the next three years, employers also are expected to seek to improve patient engagement, expand the use of analytics and efficiently manage pharmacy costs and utilization. "Yet, with rising concerns about affordability, employers are challenged to keep costs low without overburdening employees financially,” she said.
In another survey, consultancy PwC
projects that 2018 medical costs will increase 6.5 percent, up from the 6 percent rise employers saw this year and the first uptick in growth in three years.
From 2006 to 2007, annual medical costs saw an increase of 11.9 percent, a per-year figure that has declined steadily except for a small tick up from 6.5 percent in 2014 to 6.8 percent in 2015.
Medical Cost Increase Trend
Medical Cost Trend: Behind the Numbers.(Click on graphic to view an extended cost trend line in a separate window.)
The rise in employers' costs may be less than overall health care inflation due to plan design changes, such as the shift to high-deductible plans with lower premiums, and other cost-mitigating steps.
"Businesses will have to tackle the price of services as well as the rate of utilization to reduce the medical cost trend in the future," the PwC analysis noted.
Largest Employers Project Health Costs to Surpass $14,000 per Employee in 2018
Faced with another 5 percent increase in health care benefit costs, a growing number of large U.S. employers plan to focus more on how health care is delivered and paid for, according to an annual survey by the National Business Group on Health in Washington, D.C.
Large Employers' 2018 Health Care Strategy and Plan Design Survey, conducted between May and June 2017 with responses mostly from Fortune 500 companies, found:
For the second consecutive year, large employers ranked specialty pharmacy as the top cost driver. Specialty pharmacy costs are likely to remain a top concern as new high-priced drugs come on the market.
Nearly 40 percent of large employers have incorporated some type of value-based benefit design in which employees receive reduced cost sharing or premium reductions when they take steps to manage chronic conditions or obtain higher-quality or more efficient care. There has been some increase in the use of value-based benefit design to steer employees toward telehealth (18 percent in 2018 vs. 16 percent in 2017).
Among other survey findings:
"One of the most interesting findings from the survey is that employers are focused on enhancing the employee experience," said Brian Marcotte, president and CEO of the National Business Group on Health. "For example, there is a big increase in the number of employers offering decision support, concierge services and tools to help employees navigate the health care system."
According to the survey, 66 percent of large companies will offer medical decision support and second opinion services in 2018, an increase of 47 percent from this year. Additionally, the number of companies offering high-touch concierge services will jump from 28 percent this year to 36 percent in 2018.
Balancing Benefit Costs
The cost of providing employee benefits in the U.S. increased 24 percent between 2001 and 2015, fueled largely by a doubling in health care benefit costs, another study shows.
Rising health care costs have driven employers to shift how they allocate benefit dollars, and prompts the question whether they are delivering the benefits their employees want, Willis Towers Watson reported in
Shifts in Benefit Allocations Among U.S. Employers.
From 2001 to 2015:
Much of the reduction in retirement costs since 2001 can be attributed to the widespread shift by employers away from offering traditional DB pension plans, and typically replacing them with enhancements to their 401(k) or other DC plans, said John Bremen, managing director of human capital and benefits at Willis Towers Watson.
While DC plan costs increased by 1.6 percentage points between 2001 and 2015, this wasn't enough to offset the 2.9 percentage point decline in DB benefit costs.
Vacation and other paid leave benefits are not included in the analysis, which draws on the firm's database of retirement and health care programs at over 500 U.S. employers with at least 200 employees.
"The rising cost of employee benefits remains a challenge as employers seek to get the most employee value from their pay and benefit programs," Bremen said. "Beyond the overall increase, there has been a seismic shift that can be characterized as a tale of two benefit programs: health care benefits are eating up a larger portion of dollars while the amount spent on retirement programs is on the decline."
[SHRM members-only toolkit: Designing and Managing Flexible Benefits (Cafeteria) Plans]
Employees' Cost Burden Rises
Many employees appear to have reached the limit of how much they are willing or able to pay for health care benefits, are worried about their current and future financial situations, and fear they won't have saved enough for retirement and will have to work past normal retirement age, said Alexa Nerdrum, senior retirement consultant at Willis Towers Watson.
"Employers need to balance cost with the long-term returns on providing benefit packages that will be highly valued by their workers," Nerdrum said.
With the shift from DB to DC plans well established, employers may want to reevaluate the allocation of benefit dollars to better respond to employees' needs and concerns," she noted.
Nerdrum suggested that this could involve broader use of health savings accounts and providing employees with training and tools to promote wiser health care spending.
More evidence of employees struggling with higher health plan costs is provided in
a June survey, with responses from 573 employer-sponsored health plan participants, by Securian Financial Group, a St. Paul, Minn.-based provider of group insurance products. The survey found that:
"The rising cost of health care has driven many employers to offer supplemental group insurance products, often in conjunction with a health savings account," said Elias Vogen, a director with Securian. "This combination can be cost-effective for both employer and employee."
Lack of Long-Term Planning
"As benefits are a major operating expense, HR leaders need to take a long-term view of their benefits plans to really demonstrate the value they contribute in talent acquisition, retention, attraction, productivity and ultimately company performance," said Mike Barone, president of the employee benefits practice at Chicago-based Hub International, a global benefits brokerage.
2017 Employee Benefits Barometer survey of more than 300 employee benefits professionals (at organizations with 50 to 1,000 employees) found a lack of multiyear benefits planning was common. While 4 out of 5 companies say one of their goals is to manage health benefits costs better, 40 percent don't plan to implement any new cost management programs in the next 12 to 18 months and 50 percent believe that they've done all they can reasonably do to manage costs.
"The limited commitment to planning and implementing strategies for cost management identified in the study…is troubling," said Linda Keller, Hub's national chief operating officer of employee benefits.
Help from Brokers
a recent survey, 83 percent of health insurance brokers said that employers lean on them to control health care costs, while 78 percent said they have added new products and services in the past year to help employers to control health care costs, such as tools and resources that promote employee engagement by providing price transparency for health provider services.
These services encourage employees to become more informed health benefits "shoppers" and therefore select plans and procedures that get them the care they need, without paying extra, unnecessary costs—saving money for employees and their employers, said Bart Yancey, CEO of Birmingham, Ala.-based DirectPath, an employee engagement and health care compliance firm, which sponsored the survey of more than 120 brokers.
Broker services also can help plan sponsors to more efficiently produce benefits documents and reduce their risk of noncompliance penalties, he noted.
"Brokers have a huge opportunity to be the strategic partner for helping employers keep costs down, engage employees on their benefits and maintain compliance to shifting regulations," Yancey said.
Related SHRM Articles:
Rising Health Benefit Costs Still Outpace Overall Inflation, SHRM Online Benefits, May 2017
Rising Deductibles Blur Line Between Traditional and High-Deductible Plans, SHRM Online Benefits, February 2017
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