Benefits August 21, 2013

Employers Will Implement New Health Benefit Strategies

August 21, 2013 (PLANSPONSOR.com) – Despite concerns, 82% of employers continue to view subsidized health care benefits as an important part of their employee value proposition in 2014.
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Employers revealed, however, they are concerned about a predicted 5.2% increase in 2014 health care costs, as well as the risk of triggering an excise tax in 2018, according to Towers Watson’s “2013 Health Care Changes Ahead Survey.” A majority of employers anticipate making moderate to significant changes in their health benefit programs for all employees and retirees by the beginning of 2016.

Employers remain committed to sponsoring health care benefits, and nearly all (98%) plan to retain their active medical plans for 2014 and 2015. However, they will look to private exchanges as a potential delivery channel.

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Nearly 30% of employers have confidence in public health insurance exchanges as a viable alternative to employer-sponsored coverage in 2015. In contrast, private exchanges are more appealing, with 58% having confidence in them as a viable alternative. Employers are intrigued by the potential of private exchanges to control cost increases, reduce administrative burdens and provide greater value.

Using exchanges enables them to maintain their role as plan sponsor, but outsource certain aspects of plan management to an exchange operator. Nearly three-quarters (74%) of companies reported that as they evaluate private exchanges for active full-time employees, they will want evidence that private options deliver greater value than the current self-managed model.

“The health care landscape is changing rapidly thanks to health reform, continued cost escalation, the emergence of health benefit exchanges, and new provider contracting and care delivery arrangements,” said Randall Abbott, a senior health care consultant at Towers Watson. “While employers are grappling with how to comply with health care reform right now, they are evaluating new health care designs and delivery approaches for their employee and retiree populations that will ultimately transform the look of employer-provided health plans over the next three to five years. In particular, employers recognize the impact of the excise tax requires strategic planning now to create a glide path to 2018.”

Initiatives to Avoid the Excise Tax

According to the Patient Protection and Affordable Care Act, the federal government will impose an excise tax of 40% 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. More than 60% of employers believe they will trigger that excise tax in 2018 if they do not make adjustments to their current benefit strategy. Nearly the same percentage believe the excise tax will have a moderate or significant influence on their strategy.

To combat the increase in employee health care costs and avoid the excise tax, nearly 40% of employers will be changing their plan designs for 2014. In addition to emphasizing employee wellness and health improvement approaches, employers are looking to increase their use of supply-side strategies and aggressive vendor management techniques. For 2015 or 2016, they are considering providing outcome-based incentives (49%), offering a benefit differential for use of high-performance networks (47%) and using value-based benefit designs (40%). Employers will also be focused on reducing coverage subsidies for spouses and dependents, as well as implementing spousal coverage exclusions or spousal premium surcharges when other health coverage is available.

“Employers are balancing many competing factors as they revisit their financial commitment to health benefits and their ability to maintain a sustainable plan in the face of annual cost increases and the excise tax. They see health care benefits as an important part of their total rewards mix. And as they weigh new options, they will be looking to keep their plans affordable and viable for the long term,” said Ron Fontanetta, a senior health care consultant at Towers Watson. “In the next two years, many employers will evaluate their strategic options for active employees, and wait to see how exchanges evolve and the broader market responds. We are likely to see a much different and faster pace of change in retiree medical plans.”

Health Care Coverage for Retirees, Part-Time Workers

With the existence of proven exchange solutions for Medicare-eligible retirees, the survey found the percentage of employers that are somewhat or very likely to discontinue their employer-sponsored plan for post-65 retirees will grow from 25% in 2014 to 44% in 2015. With the advent of public exchanges making new solutions available for pre-65 retirees, the percentage of employers that are somewhat or very likely to discontinue their plan for pre-65 retirees will jump from 10% in 2014 to 38% in 2015.

Less change is expected for part-time employees. Only 11% are considering changes to their total rewards mix or design for part-time employees. Many part-time employees are likely to seek coverage through public exchanges.

Other Notable Trends

The survey also found:

  • CEOs and CFOs have become increasingly involved in health care strategy decisions (36% and 46%, respectively).
  • Seven in 10 employers have a stronger commitment to improving employee health because of health care reform, while 71% have a stronger commitment to work with health care providers and suppliers to improve health care delivery and quality.
  • The use of personalized digital technologies to improve employee health engagement is on the rise. Forty-three percent of companies plan to use the technologies by 2014, and another 31% are considering its use for 2015 or 2016.
  • Half the companies surveyed provide employee communications that go beyond meeting compliance standards in educating employees on the law and its implications; 36% meet minimum compliance standards, and 14% go significantly beyond compliance to prepare employees for planned and potential strategic changes.

The survey was conducted among 420 mid-size and large companies during July 2013 and reflects respondents’ 2014 to 2016 health care benefit decisions. The responding companies comprise a broad range of industries and collectively employ 8.7 million employees.

Benefits August 21, 2013

Employer-Sponsored Family Health Premiums Rise

August 21, 2013 (PLANSPONSOR.com) – A survey found annual premiums for employer-sponsored family health coverage reached $16,351 this year, up 4% from last year.
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According to the Kaiser Family Foundation/Health Research & Educational Trust (HRET) “2013 Employer Health Benefits Survey,” workers on average this year paid $4,565 toward the cost of their coverage. During the same period, workers’ wages and general inflation were up 1.8% and 1.1%, respectively.

This year’s rise in premiums remains moderate by historical standards. Since 2003, premiums have increased 80%, nearly three times as fast as wages (31%) and inflation (27%).

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“We are in a prolonged period of moderation in premiums, which should create some breathing room for the private sector to try to reduce costs without cutting back benefits for workers,” said Kaiser President and CEO Drew Altman.

The survey shows that firms with many lower-wage workers (at least 35% earning $23,000 or less annually) require workers to pay $1,363 more on average toward family premiums than workers at firms with fewer lower-wage workers ($5,818 vs. $4,455 annually). The lower-wage firms on average offer less costly coverage too, creating a large disparity in the share of the premium that their workers pay (39% vs. 29%).

This year, 78% of all covered workers face a general annual deductible, up from 72% in 2012. Workers typically must pay this deductible before most services are covered by their health plan. The average deductible this year for worker-only coverage is $1,135, similar to the $1,097 average deductible in 2012.

The survey also found large deductibles of at least $1,000 or more are common in employer-sponsored plans, especially among workers of smaller firms. This year, 38% of all covered workers face such a deductible. At small firms, 58% of covered workers now face deductibles of at least $1,000, including nearly a third (31%) who face deductibles of at least $2,000, up from 12% in 2008.

Wellness Programs and Financial Incentives

Employee wellness programs are a popular strategy for employers trying to control costs. In 2013, 35% of employers say they are a very effective strategy for controlling costs, a larger share than says the same about any other strategy, including disease management (22%), consumer-driven health plans (20%) or higher cost sharing (17%).

Nearly all large employers (at least 200 workers) offer at least one wellness program, which can take many forms and target a wide range of conditions. More than one-third (36%) of large employers who offer wellness programs offer some kind of financial incentive for workers to participate, such as lower premiums or a lower deductible, receiving a larger contribution to a tax-preferred savings account, or gift cards, cash or other direct financial incentives.

Among large firms offering health benefits, more than half (55%) offer some kind of biometric screenings to measure workers’ health risks. Of these, 11% reward or penalize workers financially based on whether they achieve specific biometric outcomes.

Implications for the ACA

The Patient Protection Affordable Care Act (also known as the ACA) includes provisions that allow broader use of financial incentives to encourage workers to improve their health status and outcomes.

“This will be an important issue to watch next year, as employers will have more flexibility and could ask workers to pay more because of their lifestyles and health conditions,” said Kaiser Vice President Gary Claxton, the survey’s lead investigator and director of the Foundation’s Health Care Marketplace Project.

The survey also found 36% of covered workers are in “grandfathered” plans as defined by the ACA, down from 48% last year. The shift means a rising share of workers will benefit from some of the health law’s reforms affecting the employer market, such as covering preventive benefits without cost sharing and offering an external appeals process. Grandfathered plans, which were in place before the law’s passage, are exempt from these provisions. Plans lose their grandfathered status if they make significant changes to reduce benefits or raise workers’ costs.

The slow growth in premiums also means fewer employer plans are likely to be subject to the ACA’s high-cost plan tax that takes effect in 2018, according to the survey. The Congressional Budget Office recently reduced its estimate of the number of plans that would trigger the tax, and a continued low growth rate could further reduce the impact of this provision.

For the first time, the survey asked large employers about their interest in private health insurance exchanges, a relatively new concept that pulls together a wide range of insurance plans which participating employers can offer to their workers to choose from. Though relatively few chose this option in 2013, 29% of those with at least 5,000 workers say they are considering offering benefits through a private exchange in the future. These jumbo firms employ almost 40% of all covered workers, so their interest could portend a significant shift in the way many people get their health insurance in the future.

Offer Rates

Offer rates have remained relatively stable. This year, the survey finds 57% of firms offer health benefits to their workers, which is statistically unchanged from the 61% in 2012 and 60% in 2011. As in the past, the larger an employer is, the more likely it is to offer health benefits, with nearly all firms with at least 200 workers offering health benefits to at least some of its workers.

Since most firms in the country are small, variation in the overall offer rate is driven primarily by changes in the percentages of the smallest firms (three to nine workers) offering health benefits (45% in 2013, similar to the 50% that did so in 2012). Also, firms with many low-wage workers are significantly less likely to offer health insurance than firms with few low-wage workers (23% and 60%, respectively).

The survey was conducted between January and May of 2013 and included 2,948 randomly selected, non-federal public and private firms with three or more employees, 2,067 of which responded to the full survey and 881 of which responded to a single question about offering coverage.

The full survey results and an accompanying summary can be found here.

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