Employer Health Costs Lower, but Still Above Inflation

Four out of five employers now identify changes to health and pharmacy plan designs as their most important strategic priority.

Employers expect a 4.1% rate of increase in the cost of employer-sponsored health care benefits in 2015—the lowest in 15 years but still well above inflation, according to an annual survey by Towers Watson and the National Business Group on Health (NBGH).

The survey of 487 large U.S. employers also found that while employers remain concerned about the cost and effectiveness of their programs, they are more committed to providing some form of health care coverage to employees over the next 10 years than they have been in recent years. Employer confidence in offering health care coverage 10 years from now has nearly doubled to 44% today, from 25% in 2014.

The findings of the 20th annual Towers Watson/NBGH Best Practices in Health Care Employer Survey point to a growing affordability challenge for employees, especially for lower-wage workers. Health care costs for 2015 are expected to average $12,041 per employee, up from $11,567 in 2014. On average, employees will pay 22.2% of total premium costs in 2015, which in payroll deductions translates into an average employee contribution of $2,676, or $223 a month.

“Against the backdrop of sluggish economic growth and low inflation, which limit the degree to which companies can raise prices on goods and services, employers continue to aggressively manage their health benefit plans to rein in costs,” says Randall K. Abbott, a North American leader and senior strategist in Towers Watson’s Health and Group Benefits practice. “By and large, employers have done a good job managing costs in recent years. Despite this success, the Affordable Care Act’s excise tax looms ahead in 2018, and four out of five employers now identify changes to health and pharmacy plan designs as their most important strategic priority.”

NEXT: Actions to address health benefit costs

“While we have experienced several years of slower growth in health care trends, health care cost increases are still multiples of CPI,” says Brian Marcotte, president and CEO of the NBGH. “Employers are trying to balance offering valuable benefits that meet employees’ needs with the looming excise tax, which makes it imperative that they focus on areas where there are opportunities to make changes while preserving quality and effectiveness.”

According to the survey, employer actions taken and planned include:

  • Curbing the high cost of specialty pharmacy through new coverage/utilization restrictions: 53% of employers have done so already; another 32% are likely to by 2018;
  • Adopting spousal surcharges: 27% of employers have implemented; could rise to nearly 60% in three years;
  • Using a defined contribution strategy instead of defined benefit: 20% today; expected to double by 2018; and
  • Offering more customization by adding voluntary benefits: 34% today; could reach 70% by 2018.

Eighty-two percent of companies offered an account-based health plan (ABHP) in 2015, and another 4% expect to add an ABHP for the first time in 2016. Health savings accounts (HSAs) are the dominant model, with more than 70% of companies offering an ABHP with an HSA. In addition, more than 70% of employers identify reimbursement methodologies that are based on cost, quality, improved efficiency and better outcomes as important to consider in selecting health plan vendor partners.

Employer concerns about employee well-being are prompting them to consider further changes to their health benefit plans and workforce health strategies. These concerns include health risks arising from lifestyle choices, lack of employee engagement in their own well-being and participation in wellness programs; and concerns about employee financial health.