A new reports reveals how both employers and employees are navigating the reality of healthcare benefits.
By Towers Watson
The 2012 Towers Watson/National Business Group on Health Employer Survey on purchasing value in healthcare provides many strategic insights into the actions and plans of leading employers in the United States. It also offers views of what the future of employer-provided healthcare in the U.S. may look like this year and in the next three years.
This analysis comes at a time when employers are still facing a number of long-term challenges, such as controlling growing costs, improving employee engagement and accountability, and optimizing the total rewards mix. Organizations are also determining how they’ll comply with healthcare reform legislation such as the Patient Protection and Affordable Care Act (PPACA), with major components scheduled to take effect in less than two years. At the same time, employees continue to face a growing affordability gap, as their out-of-pocket healthcare costs rise at a faster rate than their income and the Consumer Price Index (CPI). All of which makes it increasingly difficult to save for retirement.
Amid the political, legislative, and judicial uncertainty, most employers are steadfast in their commitment to keeping active healthcare benefits as a central component of their employee value proposition. Through 2015, most employers will remain focused on optimally managing the design and delivery of their programs. Total rewards is becoming a key driver in the employee value proposition at companies, as employers use the significant changes to the U.S. healthcare system as an opportunity to revisit their entire reward portfolios. In particular, organizations are seeking to balance benefits with employees’ need for access to affordable healthcare, a secure retirement, and a competitive salary. A closer look at the new roles both employees and vendors play to help improve the overall health of employees and better address high-cost areas, such as chronic disease and complex care management, is a priority. Overall companies are trying to manage the difficult task of controlling healthcare cost increases—and lowering that trend.
The survey addressed 512 participants with $87 billion in health expenditures in 2011. The results provide directional insights and details on their current programs, strategies and planned actions. A group of employers stood out: They have maintained cost increases at or below the Towers Watson/ National Business Group on Health (TW/NBGH) median for the past four years. The way these employers manage their health benefit programs provides vital insights for everyone studying healthcare trends today. The following overview of the survey findings highlights key trends influencing healthcare benefits as companies build healthcare strategies for the years ahead.
Healthcare costs continue to grow—at a rate of 5.9 percent. Average total healthcare costs per employee are expected to reach $11,664 in 2012, up from $10,982 in 2011. Employers are taking more aggressive steps to manage these costs with greater emphasis on employee accountability, while investing in the programs and emerging technologies to support and cultivate a healthy and productive workforce. To help hold the line on costs, employers are also working with their health plan vendors and altering plan designs to improve the quality and efficiency of care received by members.
Affordability issues are a growing challenge. Healthcare costs continue to increase at double the rate of inflation. Employees’ share of premium costs increased 9.3 percent between 2011 and 2012, with the dollar burden rising from $2,529 to $2,764. In fact, employees contribute nearly 40 percent more for healthcare than they did five years ago, compared with 34 percent for employers. Likewise, out-of-pocket expenses increased over the last year from 16 percent to 18 percent. That increase is partly due to subsidy shifts for dependents, as nearly half of companies increased employee contributions in tiers with dependent coverage. About a quarter of companies (24 percent) are using spousal surcharges, with another 13 percent planning to do so next year. The total employee cost share, including premiums and out-of-pocket costs, has climbed from 33.2 percent in 2011 to 34.4 percent in 2012.
Consistent performers are set up for long-term success. The median trend for employers that have maintained cost increases at or below the TW/NBGH median for the past four years (our consistent performers) was 2.2 percent, compared with 6.1 percent for all respondents. The findings of this year’s analysis clearly show that the most successful companies stand above their competitors by making significant strides in six core areas, including health improvement, engagement, accountability, linking provider strategies, technology, and a healthy environment.
Employers confirm their commitment to providing healthcare benefits for active employees, but long-term confidence declines sharply. Many employers are steadfast in their commitment to their active healthcare benefits as a central component of their employee value proposition. Through 2015, most employers will remain focused on optimally managing the design and delivery of their programs, with a select number tailoring their designs to facilitate the availability of federal subsidies in the exchanges for a portion of their workforce. Looking to the end of the coming decade, employers are much less confident that healthcare benefits will be offered at their organization:
• Only 3 percent of employers are somewhat or very likely to discontinue healthcare plans for active employees with no financial subsidy in 2014 or 2015.
• 45 percent are somewhat to very likely to offer an employer-sponsored health plan to only a portion of their population and direct ineligible employees to the exchanges.
• 23 percent of companies are very confident that they will continue to offer healthcare benefits for the next 10 years, down from a peak of 73 percent in 2007.
Insurance exchange openings will have a strong impact on retiree medical plans. The availability of insurance exchanges, coupled with changes to Medicare, will lead many employers to exit sponsorship of retiree medical programs. However, many companies will provide a softer landing for current retirees by offering them account-based defined contribution alternatives that will make it easier to purchase insurance in the individual marketplace. Active employees and new hires will likely see a more significant shift in their company’s role in their retiree healthcare coverage, although the growth in account-based health plans (ABHPs), which provide a tax-favorable savings opportunity, could provide an important and valuable vehicle for many of these employees. Four out of 10 employers view subsidizing healthcare benefits for retirees as having no importance to their employee value proposition.
• 8 percent of employers with retiree medical programs plan to make changes to their subsidy in 2013, and an additional 20 percent are considering making changes in 2014 or 2015.
• While only 10 percent of employers with retiree medical programs currently offer a retiree medical account, 4 percent are planning to offer them by 2013, and another 18 percent are considering them in 2014 or 2015.
Putting health and other benefits in a total rewards context is on the rise. As employers revisit their entire reward portfolios and seek to balance benefits with employees’ needs for secure retirements and competitive salaries, some are quantifying the impact of changes to their reward programs, including healthcare benefits, on critical employee behaviors and actions, such as retention or engagement. They are using the data to reallocate reward programs and budget in ways that ensure the program delivers the highest potential value to employees for the lowest cost to the company. A top focus for nearly a quarter of employers is to review healthcare benefits as part of their total rewards strategy.
Employers are looking for success by improving vendor transparency and accountability. Employers have been asking for more from their health plan vendors—particularly in two areas: helping engage employees in better managing their health, and providing greater transparency on prices and quality. Although frustrations linger about the effectiveness of health plan vendors in these areas, plan services show signs of improvement in providing members with information to make clinical decisions concerning preference-sensitive care, identifying gaps in care, and engaging members in health improvement programs.
• 38 percent of employers say that their vendors offer only to a slight extent — if at all — a center of excellence (COE) network of facilities that provide the best outcomes and reasonable prices for procedures.
• 12 percent of employers say their vendors engage members in health improvement programs to a great or very great extent.
• While 34 percent of all respondents will require vendors to provide complete extracts of claim data (including discounts and identification of providers) in 2012, another 12 percent plan to do so in 2013.
• This year, 44 percent of employers will require vendors to share data for employee outreach and integrated reporting; another 16 percent plan to add that requirement in 2013.
Use of ABHPs is surging but must be part of a broader strategy to be effective. ABHPs can be an important element in an organization’s health benefit management if the right incentives and employee education are attached. Today, 59 percent of companies have an ABHP in place, with another 11 percent expecting to add one by 2013. But ABHPs will not necessarily result in lower costs without significant enrollment. The study shows that employers that take a comprehensive approach to ABHPs (e.g., increasing employee and provider accountability while at the same time helping to cultivate smarter healthcare consumers) are the ones that have gained the greatest advantage. Using a health savings account (HSA) can also effectively align with an employer’s retirement strategy by providing employees with a tax-advantaged vehicle to pay for current costs while accumulating wealth for retirement.
• Total replacement ABHPs are also on the rise, representing nearly 12 percent of companies with an ABHP—up from to 7.6 percent in 2010.
• ABHP enrollment has nearly doubled in the last two years—from 15 percent in 2010 to 27 percent in 2012, and the move toward total replacement ABHPs is continuing.
About 10 percent of respondents say employees and dependents enrolled in an ABHP are better at reducing lifestyle risks than those enrolled in non-ABHPs.
• Nearly four out of 10 companies currently consider their HSA part of their retiree medical strategy, and another 20 percent say they are planning or considering such a strategy during the next three years.
Expansion of employee incentives to improve health continues. Although engaging employees to better manage their health is an ongoing challenge, companies have expanded their use of financial rewards to employees and their spouses to encourage participation in health management programs. These programs have become significant elements in the HR toolbox. In fact, more than two-thirds of respondents offer incentives today. This is hardly surprising, since competitive pressure and the pace of change have increased the demands on everyone at all levels of any company. Companies have also been more willing to add penalties to their arsenal (used by 20 percent today), and some (10 percent) have adopted achievement standards. It’s likely that achievement-based incentives will continue to grow as companies look to employees to change unhealthy life choices (lose weight and lower blood pressure).
• Nearly one-third of employers plan to adopt or expand the use of financial incentives to encourage healthy behaviors as a main focus of their organizational health strategy. Conversely, one-fifth believe that lack of sufficient financial incentives to encourage participation in programs is a major obstacle to changing employee behavior related to health.
• 43 percent of employers provide incentives to encourage participation in biometric screenings, and 30 percent offer incentives to engage in healthy lifestyle activities in the workplace.
• Employers are embracing incentives to encourage use of high-performance networks. While only 9 percent currently use incentives for this purpose today, 23 percent are planning to use them in 2013.