Employers revealed, however, they are concerned about a predicted 5.2% increase in 2014 health care costs, as well as the risk of triggering an excise tax in 2018, according to Towers Watson’s “2013 Health Care Changes Ahead Survey.” A majority of employers anticipate making moderate to significant changes in their health benefit programs for all employees and retirees by the beginning of 2016.
Employers remain committed to sponsoring health care benefits, and nearly all (98%) plan to retain their active medical plans for 2014 and 2015. However, they will look to private exchanges as a potential delivery channel.
Nearly 30% of employers have confidence in public health insurance exchanges as a viable alternative to employer-sponsored coverage in 2015. In contrast, private exchanges are more appealing, with 58% having confidence in them as a viable alternative. Employers are intrigued by the potential of private exchanges to control cost increases, reduce administrative burdens and provide greater value.
Using exchanges enables them to maintain their role as plan sponsor, but outsource certain aspects of plan management to an exchange operator. Nearly three-quarters (74%) of companies reported that as they evaluate private exchanges for active full-time employees, they will want evidence that private options deliver greater value than the current self-managed model.
“The health care landscape is changing rapidly thanks to health reform, continued cost escalation, the emergence of health benefit exchanges, and new provider contracting and care delivery arrangements,” said Randall Abbott, a senior health care consultant at Towers Watson. “While employers are grappling with how to comply with health care reform right now, they are evaluating new health care designs and delivery approaches for their employee and retiree populations that will ultimately transform the look of employer-provided health plans over the next three to five years. In particular, employers recognize the impact of the excise tax requires strategic planning now to create a glide path to 2018.”
Initiatives to Avoid the Excise Tax
According to the Patient Protection and Affordable Care Act, the federal government will impose an excise tax of 40% on insurers of employer-sponsored health plans, including self-insured employers, with an aggregate value of more than $10,200 for individual coverage and $27,500 for family coverage. More than 60% of employers believe they will trigger that excise tax in 2018 if they do not make adjustments to their current benefit strategy. Nearly the same percentage believe the excise tax will have a moderate or significant influence on their strategy.
To combat the increase in employee health care costs and avoid the excise tax, nearly 40% of employers will be changing their plan designs for 2014. In addition to emphasizing employee wellness and health improvement approaches, employers are looking to increase their use of supply-side strategies and aggressive vendor management techniques. For 2015 or 2016, they are considering providing outcome-based incentives (49%), offering a benefit differential for use of high-performance networks (47%) and using value-based benefit designs (40%). Employers will also be focused on reducing coverage subsidies for spouses and dependents, as well as implementing spousal coverage exclusions or spousal premium surcharges when other health coverage is available.
“Employers are balancing many competing factors as they revisit their financial commitment to health benefits and their ability to maintain a sustainable plan in the face of annual cost increases and the excise tax. They see health care benefits as an important part of their total rewards mix. And as they weigh new options, they will be looking to keep their plans affordable and viable for the long term,” said Ron Fontanetta, a senior health care consultant at Towers Watson. “In the next two years, many employers will evaluate their strategic options for active employees, and wait to see how exchanges evolve and the broader market responds. We are likely to see a much different and faster pace of change in retiree medical plans.”
Health Care Coverage for Retirees, Part-Time Workers
With the existence of proven exchange solutions for Medicare-eligible retirees, the survey found the percentage of employers that are somewhat or very likely to discontinue their employer-sponsored plan for post-65 retirees will grow from 25% in 2014 to 44% in 2015. With the advent of public exchanges making new solutions available for pre-65 retirees, the percentage of employers that are somewhat or very likely to discontinue their plan for pre-65 retirees will jump from 10% in 2014 to 38% in 2015.
Less change is expected for part-time employees. Only 11% are considering changes to their total rewards mix or design for part-time employees. Many part-time employees are likely to seek coverage through public exchanges.
Other Notable Trends
The survey also found:
- CEOs and CFOs have become increasingly involved in health care strategy decisions (36% and 46%, respectively).
- Seven in 10 employers have a stronger commitment to improving employee health because of health care reform, while 71% have a stronger commitment to work with health care providers and suppliers to improve health care delivery and quality.
- The use of personalized digital technologies to improve employee health engagement is on the rise. Forty-three percent of companies plan to use the technologies by 2014, and another 31% are considering its use for 2015 or 2016.
- Half the companies surveyed provide employee communications that go beyond meeting compliance standards in educating employees on the law and its implications; 36% meet minimum compliance standards, and 14% go significantly beyond compliance to prepare employees for planned and potential strategic changes.
The survey was conducted among 420 mid-size and large companies during July 2013 and reflects respondents’ 2014 to 2016 health care benefit decisions. The responding companies comprise a broad range of industries and collectively employ 8.7 million employees.