Study Finds Employers Plan to Make Bolder Changes to Health Plans to Curtail Rising Costs

clipboard2.JPGA recently-released survey of nearly 600 employers indicates that many businesses anticipate rising health care costs, and intend to undertake more significant changes to their health coverage in order to stem this escalation. The 16th Annual Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care (pdf) tracks employers’ 2010, 2011 and 2012 health care strategies and practices, and describes the various health coverage design changes these employers intend to make in the coming years. The survey is derived from responses from 588 employers in all industry sectors with at least 1,000 employees between November 2010 and January 2011.

With respect to employer health care costs, the study found that in 2011, employers are expected to pay approximately $8,516 per active employee in total health care costs, up from an average of $8,000 in 2010. Generally, employers currently pay 36% more for health care, and employees contribute over 45% more to their health care, than they did five years ago. In 2010, employees contributed an average of $2,379 to premium amounts. This contribution amount is projected to rise to $2,660 in 2011. Total health care costs (a sum that includes employee premium contributions) per employee are expected to reach $11,176 this year, a 7.6% increase from 2010.

Not surprisingly, employers indicated that the Affordable Care Act and its various implementing regulations have had an impact on their administrative costs. According to the survey, more than 80% of companies said that health care reform has increased the administrative burden on their HR departments. In addition, the study found that employers anticipate that the premium “Cadillac” excise tax that takes effect in 2018 will have a significant impact on their health plan design strategy. Approximately 60% of companies surveyed claimed that their plans will trigger the 40% excise tax by 2018. This tax will apply to plans that cost a total of more than $10,200 for single coverage and more than $27,500 for family coverage. According to the survey authors, the employers that take strategic measures now to avoid incurring the tax will have an advantage over other organizations with respect to managing health care reform mandates and controlling future costs.

To stem current and future health costs, the employers surveyed said they intend to make a variety of changes to their plans. Some of these modifications include the following:

  • Increased sponsorship of account-based health plans (ABHPs). According to the survey, employers plan to take more significant steps in 2012 to boost enrollment in a high-deductible health plan, such as an ABHP. The survey explains that the cost of ABHP coverage is considerably more affordable than either a PPO/POS or HMO plan. Specifically, the survey claims that ABHP employee-only coverage is about $900 lower than coverage in other plan types. ABHP rates for family coverage are $2,885 below median PPO/POS plan costs and $2,118 lower than average HMO plan costs. The survey results indicate that 27% of the responding employers that do not have an ABHP in place plan to offer one in 2012. Employers intend to encourage ABHP adoption by offering employees significant reductions in premium contributions. According to the data, “companies that added 10% or more employees to their ABHP between 2009 and 2010 achieved cost trends of almost 0%, nearly six percentage points lower than companies with less than 10% enrollment growth. Similarly, employers most successful at boosting ABHP enrollment pay more than $1,000 less in total costs per employee per year than companies with only modest take-up of their ABHP over the last year, and nearly $1,500 less per employee per year than companies that don’t offer an ABHP.”
  • Increase the use of health savings accounts (HSAs). 41% of those surveyed currently offer an HSA, with another 12% expected to add one in 2012.
  • Increase employee contributions. In addition to increasing employee contributions, 68% of employers plan to increase contributions for dependents, with 19% targeting per-dependent contributions, and 35% using or planning to implement spousal waivers or surcharges. With respect to retirees, 26% of employers plan to end employer sponsorship; 25% plan to convert a current subsidy to a retiree health account, and 23% plan to eliminate employer-managed drug coverage for post-65 retirees and rely on Medicare Part D plans.
  • Increase employee health accountability. Many employers are expanding the use of employee incentives to participate in lifestyle coaching, complete biometric screenings and take advantage of other wellness measures. Specifically, the survey found that a third of employers plan to reward or penalize their employees based on biometric outcomes (for weight and cholesterol), compared with just 7% in 2011 and 6% in 2010. A total of 58% percent are offering cash, premium credits and/or account contributions to their employees to encourage participation in healthy lifestyle activities in 2011. Among the companies that provide incentives, 46% are offering them to dependents in 2011, up from 39% in 2010.

In a press release, Helen Darling, president of the National Business Group on Health, said: “We cannot continue to think that the rise in health care costs is sustainable. Health care costs have experienced dramatic cost inflation over the past two decades, and employers continue to subsidize the majority of plan costs.” She added, “[T]hese costs are cutting into employers’ profitability and the total rewards they are able to offer employees, plus concerns about the future Cadillac tax add a new level of urgency to their challenges. Employers that are best able to minimize this cost burden will be those that are able to provide the most competitive benefits package and attract the most talented employees.”

This entry was written by Ilyse Schuman.

Photo credit: MBPHOTO, Inc.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.