Best Practices In Health Care Employer Survey by Tower Watson
U.S.-based employers say they are more committed to providing some form of a health care benefit to employees over the next 10 years than they have been in recent years now that the Affordable Care Act (ACA) is settled law, and its implications and future better understood. Employers’ confidence that they will still be offering health care a decade from now nearly doubled — rising from 25% in 2014 to 44% this year, according to the 487 respondents to the 2015 Towers Watson/National Business Group on Health (NBGH) Best Practices in Health Care Survey.
Notwithstanding this dramatic increase, employers continue to be challenged by both the cost — still trending above the rate of general inflation — and performance of their health benefit programs. With cost projections, particularly for specialty drugs, indicating that cost concerns won’t be going away anytime soon, they continue to search for new and better ways to manage cost and value through benefit delivery and workforce health improvement.
In addition, employers increasingly view a healthy and productive workforce as a business imperative and a source of competitive advantage. As a result, concerns about employee well-being — including lifestyle-based health risks, lack of engagement in their own well-being, low participation in wellness programs and their financial health — are prompting companies to consider further changes to their health benefit plans. Notably, while rethinking their incentive strategy and looking to enhance the workplace experience, they have made a healthy workplace culture a top strategic priority (see Towers Watson’s soon-to-be-published [email protected] Survey Report).
Standing out from the crowd is a small group of best performers that are gaining significant competitive advantage by creating and leveraging best practices, especially superior network and provider contracting strategies, to control costs and improve workforce health.
Cost pressures are driving employers to make changes to their benefit programs Most respondents (95%) expect (to a moderate or great extent) to reevaluate their health and pharmacy benefit strategy. Nearly as many (89%) expect to evaluate their vendor/network strategy.
A vast majority (83%) also expect to make changes to avoid the ACA’s excise tax on high-cost plans, up from 31% in 2014.
Respondents expect total health care costs (employer and employee) to reach $12,041 per employee per year (PEPY) in 2015, up 4.1% from $11,567 in 2014, and to rise nearly 5% to $12,643 PEPY in 2016.
Although our study of these trends over two decades shows that health care cost trends remain at historically low levels, they are still well above the rate of general inflation and the indexing factor for the excise tax. With low inflation limiting the degree to which companies can raise prices on goods and services to cover rising costs, and the 40% excise tax starting in 2018, employers are focusing more than ever on cost management.
Employee affordability concerns intensify
In 2015, employees are paying, on average, 22.2% of total premium costs, which is expected to rise to 22.8% in 2016 after employers make changes to control their costs. In paycheck deductions, the average employee is contributing $2,676 in premiums, which is expected to rise to $2,882 in 2016, a 7.7% increase compared to the average salary increases in 2015 of 3% or less.1 This inevitably creates an issue for employers with low-wage employees, whose ability to absorb increased health care costs may be reaching its limit.
Companies aggressively manage their plans’ population to rein in costs
Employers are stepping up their focus on the biggest drivers of cost, including the size of the participating population. Four in five identified changes to health and pharmacy plan designs as their most important strategic priority over the next three years, and many have already taken action: 27% have adopted spousal surcharges, and another 30% said they are considering it by 2018. Twenty percent have moved to a defined contribution (DC) arrangement (see What Is a DC Health Arrangement? page 13), a strategy that’s expected to double by 2018.
Employers take action to curb the cost of specialty pharmacy
The cost and utilization issues regarding specialty pharmacy are a top pain point for employers. Fifty-three percent have added new coverage and utilization management, and 32% more plan to do so by 2018. A quarter (26%) have addressed specialty drug costs and utilization that are currently billed under the medical plan. Nearly double that number expect to address it in 2016 and triple by 2018.
Eighteen percent have adopted coverage changes in 2015, hoping to drive patients to less expensive sites of care, with another 42% planning to do so by 2018.
As employer adoption of account-based health plans (ABHPs) becomes pervasive, the use of full-replacement ABHPs continues to grow
Eighty-two percent of companies have an ABHP in 2015, and another 4% expect to add an ABHP for the first time in 2016. As the excise tax on high-cost plans draws ever closer, median employee enrollment in ABHPs has increased from 15% to 43%, largely because many employers have replaced all their plans with ABHPs (20%, up from 7% in 2012). Looking ahead, nearly one-quarter (24%) of all companies could offer an ABHP as their only plan option in 2016 if they follow through with their current plans, jumping to nearly 50% by 2018. More than 70% of companies offering an ABHP pair it with a health savings account (HSA), the dominant account model, in order to motivate employees to use this tax-advantaged opportunity to defray the rising cost of health care today and accumulate savings to help pay for health care in retirement. Employers are accelerating year-round communications to active employees about the value of HSAs today (36%, more than doubling to 76% by 2018) and after they retire (27%, increasing to 68% by 2018). Moreover, a strong majority of employers with ABHPs (84%) put seed money into employee accounts (no match or participation in wellness programs required), and 64% contribute funds at the beginning of the year or immediately when earned.
““Employers are stepping up their focus on the biggest drivers of cost, including the size of the participating population.”
““Many employers have or are planning to differentiate cost sharing for the use of high-performance networks or COEs.”
Best performers: Using a variety of strategies to create competitive advantage
Our research identified 43 best performers — companies that have distinguished their health plans from those of other large and midsize companies by implementing superior network and provider strategies that make their programs more efficient and hold the line on cost trend before any changes to their health plan designs. They also use data and metrics to inform new strategies. These companies have created a peremployee cost advantage of over $2,000, compared to this survey’s national average ($10,258 versus $12,041 of total cost PEPY). For a company with 10,000 employees, that translates to a $20 million per-year advantage. Best performers also maintain a two-year average cost trend that is 2.6 percentage points lower than that of other organizations before plan changes (4.3% versus 6.9%) and 1.3 percentage points lower even after changes (3.7% versus 5.0%). Best performers lead the way in developing high-performing health programs that manage cost and add value. For instance, 33% offer ABHPs as their