Employers Committed to Offering Health Plans; Cost Seen Going Up 5.3% in 2013

Following the U.S. Supreme Court decision on health care reform, most employers (88 percent) have affirmed their commitment to offer health care benefits to their active employees for the foreseeable future, according to a survey of 440 midsize to large companies by Towers Watson.

This commitment (up 17 percentage points from 2011) comes despite a projected 2013 per employee health care cost of $11,507, an increase of 5.3 percent from 2012. It also comes amid uncertainty relating to the November elections, development of insurance exchanges and the rapidly evolving health care delivery system.

“While the most significant changes mandated by health care reform will not occur until 2014, it is essential that companies develop a strategic response and prepare for these changes well in advance of then,” said Ron Fontanetta, senior health care consulting leader at Towers Watson. “These changes will have a profound impact on the way health care is delivered and how many individuals acquire health insurance, most notably retirees.”

Roughly two-thirds of companies say the Supreme Court’s decision has affected their overall health strategy. However, one-third are waiting for the upcoming elections or the opening of insurance exchanges before making any significant changes to their health care strategy. In fact, nearly three-quarters (72 percent) state they lack confidence that the exchanges will provide a viable alternative for active employees by 2015.

While relatively few companies are likely to direct active employees to exchanges in the near term, the story for retirees is very different. Nearly six out of 10 of companies with a program are somewhat to very likely to discontinue retiree medical plan sponsorship for post-65 retirees, with 64 percent considering the same for pre-65 retirees.

Although the rate of health care cost increases has slowed (5.3 percent projected for 2013 compared with an expected 5.9 percent this year), a majority of employers (58 percent) expect they will trigger the health care reform excise tax in 2018 if they do not make changes to their current benefit strategy. (Under the Patient Protection and Affordable Care Act, the federal government will impose an excise tax of 40 percent on insurers of employer-sponsored health plans, including self-insured employers, with an aggregate value of more than $10,200 for individual coverage and $27,500 for family coverage.) As a result, 83 percent of employers are planning to take steps to control their costs to avoid the tax. The $11,507 total cost represents an employer cost of $8,911 per employee and an employee cost of $2,596 per employee. While the overall increase in employee cost sharing is modest, it is meaningful to employees, as it outpaces average merit increases.

The actions and programs that companies are planning or considering include changing plan options (63 percent), significantly reducing subsidization of coverage for spouses and dependents (38 percent), and using spousal waivers or surcharges (29 percent). Additionally, some employers will pass along a greater percentage of costs to employees. Thirteen percent plan to increase their employees’ share of health care of premiums in 2013 by five percentage points or more, while 42 percent plan to increase employees’ share by one to five percentage points.

“Affordable health care remains a top priority for employers and a key component in employee value propositions,” said Randall Abbott, senior health care consulting leader at Towers Watson. “However, due to the increasing costs of medical benefits and the additional burden of compliance, business leaders need to keep the pressure on to control costs, increase workforce accountability and engage workers to lead a healthier lifestyle.”

Other trends from the survey include:

• More than three-quarters (77 percent) view health care benefits as core to their employee value proposition over the next several years, and more than one-third of companies will examine their health care benefits in a total rewards framework by 2013. Another 39 percent are considering doing so by 2014 or 2015.
• The strong growth of account-based health plans (ABHPs) is expected to continue. By 2015, 80 percent of employers plan to offer an ABHP, up from 61 percent in 2013. The enrollment within ABHPs continues to increase significantly, moving from single-digit numbers in 2006 to an expected 30 percent for employers offering these plans in 2013. An ABHP is a plan with a deductible offered together with a personal account (health savings account or health reimbursement arrangement) that can be used to pay a portion of the medical expense not paid by the plan. Account-based health plans typically include decision support tools that help consumers better manage their health, health care and medical spending.
• Health care delivery continues to evolve, which is leading to the acceleration in use of telemedicine services. Seventeen percent plan to offer telemedicine by 2013, and another 27 percent are considering offering it by 2014 or 2015.

Source: Towers Watson

Topics Trends Commercial Lines Business Insurance