Despite Low Increases In Benefits Costs, Employers Are Rethinking Health Coverage Strategies: Towers Watson/NBGH

Although the cost of providing employer-sponsored health care benefits is expected to increase just 4.4 percent this year, employers have plans for moderate to significant changes to their employee benefit plans within the next few years, according to a recent survey by Towers Watson and the National Business Group on Health (NBGH). Due to uncertainties in health care benefits, only one-quarter of those surveyed indicated that they expect to be providing coverage ten years from now.

The 19th annual survey of 595 large U.S. employers found that employer costs are expected to reach $9,560 per employee in 2014, which is an increase from $9,157 in 2013. The 2013 number reflects a 15-year low in cost increase. Regardless of the size of the increase, though, costs are still going up, and as they rise, employers are continuing to shift costs to employees.

“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. “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.”

Shifting costs. Despite the modest 4.1 to 4.4 percent increase in what employers are paying, the employees’ share of premiums increased nearly 7 percent, to $2,975, this year, Towers Watson/NBGH found. Between 2011 and 2014, the total employee cost share has climbed from 34.4 percent to 37 percent of out-of-pocket costs, with employees currently paying an additional $100 every month for health care compared with just three years ago. Close to half of the companies surveyed indicated that they have changed their contribution strategy for spouses by increasing employee contributions for dependent tiers at higher rates than for individuals. Nearly 20 percent more plan to do the same over the next year.

Cost containment. Respondents to the survey indicated a common goal: containing costs. Many respondents indicated that they are focused on rethinking their health strategy. According to the survey, 18 percent of the employers surveyed have already updated their health strategy or developed a new one, and 57 percent are in the process of doing so. Thirty-two percent of respondent cited business performance and the economy as primary drivers of health care strategy (up from 21 percent in 2013), while 40 percent of respondents say the Patient Protection and Affordable Care Act (ACA) is the primary driver (down from 57 percent in 2013).

Health insurance exchanges. Employers who decide to discontinue offering employer-sponsored health care benefits could send their employees to a public exchange, the survey noted. Two-thirds of the companies surveyed believe that private exchanges will offer a viable alternative to employer-sponsored coverage for active employees as early as 2015. Many employers already indicated a willingness to use private exchanges to provide health benefits for Medicare-eligible 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. “Additionally, employers that no longer want to sponsor health care benefits could send their employees to a public exchange, although confidence in those remains quite low.”

Focus on employee health. While looking into ways to contain health care costs, employers have found that employee health continues to be of crucial importance. According to the report, “companies are taking steps to link employees’ health and well-being, and their broader experience in the organization, to their employee value proposition in order to get the most out of their investments in health and to sustain good health behaviors.” When looking back over their accomplishments, the best performers in this area were able to: (1) design health plans that emphasize high performance; (2) establish favorable contracts with pharmacy benefit managers and drive members to use generic drugs; (3) understand and respond to the underlying population health risks of their employees; (4) contract with highly effective partners (health plans, pharmacy benefit managers and providers) and aggressively negotiate financial terms with a growing focus on value-based arrangements; and (5) establish coverage tiers.

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