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Health costs could rise 7 percent in 2011; account-based plans projected to jump
For plan year 2011, employers focused their efforts on compliance with the new health care reform coverage requirements. But looking ahead to 2012 and beyond, many are pursuing bolder actions to manage costs and improve worker health, according to findings from the 16th Annual
Towers Watson/National Business Group on Health Employer Survey on Purchasing value in Health Care.
U.S. employers expect average costs for active health care benefits to increase by 7 percent in 2011, up from a 6 percent increase in 2010. While increases have stabilized over the past few years, they considerably outpace wage increases year over year, continuing to place significant financial pressure on employees and their families.
“We cannot continue to think that the rise in health care costs is sustainable. Health care costs have experienced dramatic cost inflation over the past two decades, and employers continue to subsidize the majority of plan costs,” said Helen Darling, president of the National Business Group on Health. “But these costs are cutting into employers’ profitability and the total rewards they are able to offer employees. Plus, concerns about the future 'Cadillac' tax add a new level of urgency to their challenges.”
Adopting Account-Based Plans
The report revealed cost variations in the different plan types, particularly with regard to consumer-directed health plans linked to health savings accounts (HSAs) and health reimbursement arrangements (HRAs)—termed "account-based health plans" in the report—and traditional health plans.
HSAs in the Lead
In 2002, just 2 percent of all U.S. employers offered consumer-directed, account-based health plans but by 2011 that number had exploded, according to the Towers Watson/National Business Group on Health study. Here's the breakdown and outlook:
In 2011, 8 percent of U.S. employers offered a "total replacement" account-based health plan as the sole coverage option to at least a portion of their workforce (typically salaried non-union but increasingly hourly non-union as well). That rate could reach almost 13 percent by 2012 if companies follow through with their current health plan strategies.
U.S. employers are encouraging account-based plan adoption by offering employees significant reductions in premium contributions, according to the report, in order to help control the employer's cost:
In addition to lowering employer health care cost trends and helping delay costs related to the 2018 excise tax on high-value health coverage, HSAs provide employees with the option to pay for current costs out of pocket and thereby use the account as a wealth-accumulation vehicle for retirement, according to the report. (HSAs are portable when employees terminate employement, unlike HRAs which generally are forfeited to the employer.)
Wide-Ranging Design Changes
“Health care benefit managers have historically been focused on making incremental plan design changes,” said Randall Abbott, a senior health care consultant with Towers Watson. “When confronted with the post-reform health care landscape, employers are now considering sweeping changes to their health benefit and workforce health improvement strategies. Increasingly, this is a focus of the executive suite, which is accelerating the discussion.”
Among the notable planned benefit design changes are:
Cost-Sharing Strategies and value-Based DesignsAfter taking a breather to focus on coverage changes required by the 2010 health care reform law, U.S. employers again are focusing on plan revisions that aim to control escalating costs.
In use in 2010
Added in 2011
Planned for 2012 or later
Structure most prevalent plan so that deductible for single coverage is $1,000 or more.
Increase employee contributions in tiers with dependent coverage (e.g., employee +1, +2, +3 or +4).
Use spousal waivers or surcharges (when other coverage is available).
Reduce cost sharing for use of high-performance networks or centers of excellence.
Offer incentives (or penalties) to providers for coordination of care, use of emerging technologies or use of evidence-based treatments.
Use value-based benefit designs (e.g., provide different levels of coverage based on value or cost of services).
Use reference-based pricing in medical plan (e.g., offer a limited level of coverage for a procedure).
Source: Towers Watson and National Business Group on Health
The survey was completed by U.S. employers from November 2010 through January 2011. Respondents employ 9.2 million full-time employees and have 7.8 million employees enrolled in their health care programs, equating to a collective $81 billion in total health care expenditures.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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