How Health Care Costs Affect Employers, Employees

“There are many market drivers occurring: health care costs are increasing, more regulatory changes are being enacted to contain health care costs; employees require more communications about public and private exchanges; and more technology solutions are being developed to address regulatory changes and to improve self-service capabilities for employees,” said Heather Andrews, vice president of Enterprise Partner Development for Evolution1, during its recent “Health Plan Essentials for Private Exchange and Defined Contribution Strategies” webinar.

“There are also a number of emerging trends relating to health care, which include widespread interest in private exchanges and employers remaining committed to keeping health plans in place for their employees,” Andrews added. She cited additional trends that include: health care costs growing in 2013 by 6.3% and the cost being shifted to employees’ responsibility; health care reforms doing little to decrease costs or reduce spending; consumer-drive health plan (CDHP) enrollment growing, matching enrollment in health maintenance organizations (HMOs); and health management programs stressing innovation and engagement to impact the cost of chronic conditions, which represent the bulk of spending.

Andrews noted that “health care is a major expense and is getting larger.” She said research finds that, according to Milliman, for a family of four:

• The total annual health costs (about $22,030) are the equivalent of tuition for an in-state public college;
• Annual employee premium and out-of-pocket costs (about $9,150) are the equivalent of groceries for that family for a year; and
• Annual employee out-of-pocket costs only (about $3,600) are the equivalent of gas for a year for that family.

When it comes to private exchanges, some 40 million consumers are projected to be enrolled in a private exchange over the next five years, said Nitra LaGrander, vice president of Strategic Markets for Evolution1.

“The defined contribution approach is becoming a popular alternative for employees who want to continue health care coverage,” added LaGrander, noting that a 2014 study by Oliver Wyman finds that 66% of employers strongly interested in a defined contribution (DC) private-exchange benefit model, and 55% of employees want the DC model because they like control and transparency (see “More Employers Moving to DC Benefits Model”).

LaGrander said with the DC group plan approach, more decisions about coverage are made by employees. She sees this as where consumer-centric solutions are moving. With the DC individual plan approach, LaGrander noted retirees and employees will be doing their own elections for coverage.

“The size of the employer and the status of employees, such as being full time or part time, can dictate what type of health care coverage works best,” added LaGrander. “The employer’s benefit model needs to account for a number of different variables.”

She also noted, “As employees become more responsible for health care costs, it is important that the employer’s benefit offering incorporates and helps employees understand the value of the tax advantaged accounts, like HSA and FSA, that will help employees pay for the higher out-of-pocket expenses that might result from choosing lower cost, higher deductible health plans.”

In terms of consumer-driven health plans (CDHPs), their adoption is likely to accelerate, with up to 64% of employers expecting to offer a CDHP by 2016, compared with 39% in 2013, as reported by Mercer, said Matt Dallahan, senior vice president for Strategy and Product Development for Evolution1.

Dallahan explained that exchanges have already had an impact when it comes to CDHPs. Research by Aon Hewitt shows in 2012, only 12% of employees were enrolled in a CDHP. However, once they began using exchanges, the number of employees enrolled in CDHPs jumped to 39%.

He added that higher health care costs are projected to lead to greater adoption of account-based health plans such as CDHPs. Dallahan also pointed to factors such as the employer mandate from the ACA (or Patient Protection and Affordable Care Act), as well as the Cadillac tax, an excise tax will be imposed on the value of health insurance benefits exceeding a certain threshold beginning in 2018. Another factor that may boost adoption of account-based plans, he said, is employee engagement, with technology-based features such as “debit cards, online expense tracking and mobile accounts all becoming big differentiation points.”

As for mobile accounts in particular, Dallahan said, “It is more critical than ever for employers to have mobile-related strategies for their health plans, with features for employees like filing claims and uploading receipts via their smartphones. Mobile technology is everywhere and with an estimated 133 million smartphone users in the U.S. alone, it would be foolish to ignore it.”

For more information about the topics discussed in the webinar, or about Evolution1, contact Jim Egan at jegan@evolution1.com or 508-747-8207, or email sales@evolution1.com.