BenefitsEngaged Workforce

Medical Plans—the Future

 
A new study suggests that cost anxieties are exceeding concerns about quality of care.
 
 
By Debbie Bolla
 
 
With healthcare costs on the rise, results from a new Towers Watson study, “Employee Perspectives on Healthcare” show that there is a growing affordability gap. Satisfaction with care isn’t the dominant issue. Nearly two-thirds of employees are pleased with their health plan, yet overall satisfaction with plans has fallen from 2007 levels. The central concern is that increases in healthcare costs continue to outplace the historic rate of inflation.
 

Recent Towers Watson research reveals that annual costs were expected to rise 8.2 percent in 2011, compared with only 7 percent in 2010. With healthcare costs steadily increasing, employee satisfaction is in turn declining. In fact, only 45 percent of employees are currently satisfied with their total healthcare cost, while in 2007, levels were at 53 percent (see figure 1). This could be the result of companies during the last two years bumping up the percentage the employee has to contribute in order to cover healthcare fees. These factors have positioned healthcare benefits as a differentiator for top talent during the recruitment process.
 

“We have data to suggest that, depending on the cohort of employee, healthcare benefits are a pretty significant discriminator in terms of attraction,” notes Jay Savan, principal at Towers Watson. “Previously with healthcare benefits, there was an assumption that they were competitive and had a certain construct to them. But now contributions and the type of programs are part of the analysis employees do [when considering working for companies].”
 

A newer option growing in popularity is high-deductible health plans (HDHP). Towers Watson defines these plans as having a deductible of $1,000 or more; it might have a personal account as well. Types of personal accounts include a health saving account (HAS) and a health reimbursement account (HRA). Research shows that satisfaction with this type of coverage varies. Respondents enrolled in HDHP are more pleased with their interactions with their health insurance carrier and just 2 percentage points less satisfied with the total healthcare cost.
 

“These plans have demonstrated that they can reduce short-term costs and mitigate the underlying trend rate—inflation rate—that applies to health benefits over time,” says Savan. “You can get a double dose of savings opportunity. Generally speaking, there is good data to support the suggestion that HDHPs mitigate costs longer term both for the plan sponsor and for the employee.”
 

An account-based health plan (ABHP) is another new alternative to traditional plans, featuring a deductible of $1,000 or more, along with a personal account that can be used to pay a portion of medical expenses not paid by the plan. Towers Watson research suggests that this could be the future of healthcare. An August 2010 survey of more than 460 healthcare benefits professionals revealed that 64 percent of employers plan to include ABHPs in their offerings, with 39 percent foreseeing employee ABHP enrollment of more than 20 percent by 2012. But there is still uncertainty about these types of plans. Seventy-nine percent of respondents who are HDHP-eligible and not enrolled are concerned about increasing out-of-pocket fees, which might be premature.
 

“Traditional health plans are essentially term insurance. You are purchasing coverage for a specific, typically one-year, term. And nothing carries over. Everything starts fresh the next year,” explains Savan. “In the account-based world, there is residual impact. Your activities and how you use your account in 2010 has impact on your experience in 2011, 2012, maybe 2050. ABHPs create a durable, tax-protected, equity accumulation vehicle that changes the construct of coverage from a one-year short-term perspective to a multi-year perspective.” Savan notes that often with HDHPs and ABHPs, employees can carry over their accumulated benefits to their next employer if they leave the job where it was first established—similar to a 401k plan.
 

While employees report concern over medical expenses, Towers Watson research shows that one in five employees has not made an effort to reduce healthcare costs. Such steps include making an effort to take better care of oneself; visiting the doctor for only serious conditions or symptoms; delaying going to the doctor; and saving money in a separate account for medical expenses. More than 25 percent of respondents attribute increased stress levels to rising costs, but the amount of employees making strides to control their costs hasn’t increased significantly since 2007. While three in five respondents are taking better care of themselves, there have been both positive and negative fluctuations.
 

The report showed that various employee groups responded to higher healthcare costs differently. Those with chronic conditions are far more likely to talk to their doctor about affordable treatment options, set money aside for medical expenses, and research for less expensive providers compared to the general employee population. However, the research revealed that this same group is more likely—by 9 percentage points—to delay going to the doctor and skip doses of prescribed medication.
 

HDHP enrollees are more aware than other employees of ways to control their spending. Research reveals that members of this group are more likely to be active in using company weight loss and smoking cessation programs to improve their health—and reduce their long-term costs.
 

“Employers are structuring their programs to encourage that level of engagement,” says Savan. “Participants are wise to the fact that staying healthy directly relates to the cost of their care and the amount of out-of-pocket expenses they have. The higher my claim utilization, the higher the premiums we’re going to have to deal with next year. So it behooves us to get engaged in our health and healthcare, and be more thoughtful of how we use the system and treat our bodies.”
 

With employers increasingly adopting ABHPs, the growth of this type of behavior is a positive sign.
 

Employees are facing an affordability gap with healthcare costs increasing faster than inflation and compensation. Plus employers have steadily made employees accountable for higher premiums, deductibles, and co-pays. For employees, healthcare cost concerns aren’t anything new. But they have become a crucial factor in planning strategic changes in total rewards solutions. To manage expenses, organizations have been adding ABHPs to their offering, and this trend is projected to continue. In fact, these types of plans may be more cost-effective for both employers and employees. But they do require employees to be more strategic in their healthcare spend. To that end, companies should take the proper steps to educate employees about the benefits of these types of plans, including tax advantages. This may encourage employees to participate in ABHPs and possibly allow them to actively accumulate savings while they’re still working to cover healthcare expenses after retirement. Financial and other incentives may also be used to guide employees in issuing appropriate use of care.
 

In the midst of healthcare reform, employers need to address employees’ fears and encourage them to become better managers of their own health and healthcare costs. 
 
 

Tags: Benefits, Engaged Workforce

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