Towers Perrin says its data puts to rest speculation by some that high performers hold costs down by shifting the burden to employees. Not only are per-employee costs $1,464 lower on average at high-performing companies, but the percentage increase in the employee portion is significantly lower at high-performing companies than at low-performing companies (7% versus 10%).
High performers also show success in holding down costs across all plan types. Notably, high performers offering account-based health plans (ABHPs) with a health savings account (HSA) feature are keeping the total per-employee cost under $6,700 – a figure well below the low-performer cost ($7,584), as well as overall costs for other plans, according to a press release.
The difference between high- and low-performing companies can be boiled down to a few key elements:
- 78% of high performers — versus 38% of low performers — say their company plays a major role in identifying and managing health risks/conditions in the employee population.
- 76% (versus 31%) say they’re committed to building a culture of health in their organizations.
- 87% (versus 63%) say their company views employee health as a critical component of superior business performance.
Looking at actions that lead to success, the survey shows that high performers:
- Clearly articulate their strategies. Fully 84% of high performers say they use results measures to build action plans for performance improvement, versus 43% of low performers.
- Engage leaders. The vast majority of high performers (86%) say that they have secured senior management involvement and that management involvement is a critical performance factor (compared to 57% of low performers).
- Understand their employee populations. Three-quarters of high performers measure employee health status and risks by population segment (compared to 46% of low performers).
- Engage employees. Most high performers (65%) provide health care communications, employee education and access to health information year-round (compared to only 34% of low performers).
- Optimize investments. Fully 80% of high performers say they take steps to align subsidies and resources with employees’ most significant needs (compared to only 29% of low performers). Support employee health. 74% of high performers say they actively help employees understand and manage their health and health risks (compared to only 22% of low performers).
- Measure for success. The majority of high performers say they measure critical success factors such as employees’ understanding and use of resources and tools (81% of high performers vs. 47% of low performers) as well as employee attitudes and understanding of their benefit programs (82% versus 53%).
Employee response to health-focused employer initiatives also plays a role in cost savings:
- 89% of high performers say employees accept the role and responsibilities required of them by their health plan (versus 58% of low performers).
- 86% of high performers say employees are comfortable with the level of financial risk they must take on in their plans (versus 65% of low performers).
- 69% of high performers say their employees are engaged (versus only 36% of low performers).
According to Towers Perrin's annual Health Care Cost Survey, the average corporate health benefit expenditure in 2009 will be $9,660 per employee - an increase of 6% over 2008 figures. While, the 6% growth rate will make 2009 the fifth consecutive year of single-digit percentage increases, many companies and their employees will still face record-high dollar costs in 2009 - increasing the affordability gap particularly for lower-wage workers and pre-65 retirees.
The survey database shows that total health care costs have increased by 33% since 2004, with the employee share increasing by 42% during the same period, according to the press release.
The survey also reveals dramatic variations in per-employee costs among Fortune 1000 companies, demonstrating that some companies have found ways to effectively control ongoing cost increases. Today 42% of high performers have managed to hold their costs at 3% or less, and employees at high-performing companies share in this success, paying on average $350 less than employees at low-performing counterparts.
However, the survey indicates that employers will shoulder the lion's share of the 2009 cost burden, subsidizing, on average, 78% of next year's premium costs and asking employees to cover the remaining 22%, plus usage-based copays, deductibles and coinsurance. However, while the employee percentage share has held steady in the last few years, the actual dollar burden has grown due to the ever-increasing cost base and the added impact of benefit design-related increases in out-of-pocket costs, Towers Perrin said.
Meanwhile, total costs for retirees (both pre- and post-65) will increase 5% in 2009 -- well above core economic inflation.
The total annual cost for pre-65 retirees is the highest in the Towers Perrin survey, at $13,308. These retirees are expected to pick up $6,960, or 52%, of this amount, which is 66% more than they paid just five years ago. Total costs for pre-65 retirees have increased 24% over the past five years, and Towers Perrin predicts that, within five years, pre-65 retirees could be paying as much as 80% of the cost of health care coverage.
The survey data gives evidence of continued cost shifting to retirees, as employers are forced to rethink their financial commitment to retiree medical benefits, explore alternatives to traditional company-sponsored coverage, and add resources to assist employees in retirement planning.
The majority of survey respondents (63%) say they believe it's important to the company that employees are financially prepared to retire. Just under half (48%) say they provide tools to help employees model wealth accumulation needs, and only 44% of respondents are confident that their programs give employees opportunities to prepare themselves financially for retirement.
A significant number of firms (over 40%) are considering offering Medicare Advantage options, such as Medicare Advantage HMOs, PPOs or private fee-for-service plans (with or without an employer subsidy) to retirees. About 40% are considering eliminating their employer-sponsored drug coverage for post-65 retirees and replacing it with Medicare Part D plans.
Account-based health plans (ABHPs) are emerging as a solution that employers are embracing to maintain affordability for employees and retirees, Towers Perrin says.
The survey shows over half of respondents are offering or will offer ABHPs in 2009 versus 46% last year (including plans with either health reimbursement accounts [HRAs] or health savings accounts [HSAs]). Most ABHPs set for implementation in 2009 will have an HSA feature (rather than an HRA feature), indicating employers' interest in providing wealth accumulation vehicles for retiree medical benefits.
More than half (58%) of high performers say their ABHPs are meeting objectives for controlling employee costs (versus 14% of low performers). However, enrollment in ABHPs is still relatively low (about 20% of a company's eligible population, on average), and only half of employees participating in HSA-based plans, on average, actually contribute to the account.
New strategies to support employees in managing their health being explored by companies include lifestyle coaching, on-site biometric screening, and electronic personal health records. In addition, leading companies are exploring newer and more innovative approaches to pharmacy program management, such as opening on-site pharmacies or implementing value-based designs for drug benefits.
Joe Conway (914-745-4175) can be contacted for more information on the survey and a special report accompanying the survey that looks at key health care trends over the past 20 years.