Health Benefit Cost Mitigation Receives Increasing Attention

U.S. employers expect a 4% increase in 2015 health care costs for active employees after plan design changes. If no adjustments are made, employers project a 5.2% growth rate, putting absolute cost per person for health care benefits at an all-time high, Towers Watson says. Despite this cost trend, most (83%) employers consider health benefits an important element of their employee value proposition, and plan to continue subsidizing and managing them for both full-time and part-time active employees, according to the 2014 Towers Watson Health Care Changes Ahead Survey.

Two-thirds of CEOs and chief financial officers (CFOs) are more directly involved in developing their company’s health benefit strategies. This is because companies are particularly concerned about the Patient Protection and Affordable Care Act (ACA)’s excise tax, which goes into effect in 2018. Nearly three-quarters (73%) of employers said they are somewhat or very concerned they will trigger the tax based on their current plans and cost trajectory. More than four in 10 (43%) said avoiding the tax is the top priority for their health care strategies in 2015. Under the ACA, in 2018, the federal government will impose a non-deductible excise tax on the value of employer-sponsored health programs that exceed an aggregate value of $10,200 for individual coverage and $27,500 for family coverage. The tax equals 40% of the value that exceeds these thresholds.

The importance of data and metrics to evaluate health care benefit program performance is growing, with 60% of respondents planning to emphasize data as a gauge of performance.

In response to short- and long-term cost concerns, a growing percentage (81%) of employers plan moderate to significant changes to their health care plans over the next three years, up from 72% a year ago. One tactic employers will use to curb spending in 2015 is specialty pharmacy management. Companies project that pharmacy-only cost trend will be 5.3% after plan changes (6% before changes). Employers will also embrace telemedicine for virtual physician office visits to improve access and efficiency of care delivery. Another key tactic is new payment approaches that hold providers accountable for the cost of an episode of care and outcomes.

Longer term, for 2016 and 2017, nearly half (48%) of employers are considering tying incentives to reaching a specified health outcome, such as biometric targets, compared with just 10% that intend to adopt this practice in 2015. Three out of four employers (76%) are exploring the use of personalized digital technologies, including mobile health applications (apps) and fitness wearables, as well as social media to encourage greater activity among their employees.

In addition, 37% are considering offering plans with a higher level of benefit based on the use of high-performance or narrow networks of medical providers, with just 7% planning to do so in 2015. One-third (34%) of employers are considering telemedicine in the next few years, 15% in 2015, to manage costs and further accelerate technology as a way to improve engagement and medical care access.

Another cost-mitigation tactic being considered for 2016 and 2017 are changes in how employers subsidize health care for spouses and dependents. One-third (33%) of employers are considering significantly reducing company subsidies for spouses and dependents; 10% have already implemented such reductions; and 9% intend to do so in 2015. In addition, 26% said they are considering spouse exclusions or surcharges if coverage is available elsewhere; 30% have that tactic in place now; and another 7% expect to add it in 2015.

Employers are also examining caps on health care coverage subsidies for active employees, using defined contribution ( DC) approaches, with 30% of employers considering them for 2016 and 2017, 13% having them in place today and another 3% planning them for 2015.

Twenty-eight percent of employers said they have extensively evaluated the viability of private exchanges. Nearly one in four (24%) said private exchanges could provide a viable alternative for their active full-time employees in 2016. The top three factors that would cause employers to consider a private exchange for full-time active employees are evidence they can deliver greater value than their current self-managed model (64%), adoption of private exchanges by other large companies in their industry (34%) and an inability to stay below the excise tax ceiling as 2018 approaches (26%).

Full-replacement account-based health plans (ABHPs)—making ABHPs the only plan option—could be in place at 50% of companies by 2017: 17% offer only an ABHP today, 4% intend to do so for 2015, and another 28% are considering it for 2016 or 2017.

Despite the challenge of managing the high cost of health benefits, nearly all employers (99.5%) said they have no plan to exit health benefits for active employees and direct them and their families to public exchanges, with or without a financial subsidy. Three out of four employers (77%) said they are not at all confident public exchanges will provide a viable alternative for their active full-time employees in 2015 or 2016.

The survey was completed during July 2014 by 379 employee benefit professionals from midsize to large companies across a variety of industries, and reflects respondents’ 2014 to 2017 health care benefit decisions. The responding companies comprise a broad range of industries and business sizes, and collectively employ 8.7 million employees.

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