More Employers Adopting Value-Based Health Plan Strategies

In addition, more employers are embracing plan design features that encourage employees to use higher-quality, more efficient and lower-cost services, Willis Towers Watson finds.

A growing number of employers seeking to achieve better health outcomes for employees at a lower cost are implementing value-based reimbursement and payment arrangements with their health insurers and medical service providers, according to the 21st Annual Best Practices in Health Care Employer Survey by Willis Towers Watson.

More employers plan to adopt the following value-based plan strategies in the coming years;

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  • Establish centers of excellence (COEs) for specialty services with health plans, separate providers or third-party vendors. Today, 45% of employers are giving employees access to COEs for specialty services such as back, knee, cardiac and infertility issues. This is up from 37% of employers who provided access to COEs in 2015. Another 32% are planning to do so by 2018. The vast majority of employers that have established COEs (97%) did so working with their health plans. While just 17% of employers reduce employee cost sharing at a COE today, that could triple to 54% by 2018.
  • Implement high-performance networks. Today 20% of employers offer networks of high-quality, cost-effective medical service providers that agree to provide care for a specific population at lower cost. The use of high-performance networks is up from 11% in 2015, with another 39% potentially adding them over the next three years. Of employers that offer such networks, about 50% reduce employee cost sharing for care within the network; that number is expected to increase along with the expansion of such networks over the next two years.
  • Contract directly with service providers to secure improved pricing. While few employers are contracting directly with service providers today, nearly 16% of employers are currently considering this approach. Among the service providers they identified as potentials for direct contracting are COEs, accountable care organizations and patient-centered medical homes.
NEXT: Changes in plan design

The survey also found that more employers are embracing plan design features that encourage employees to use higher-quality, more efficient and lower-cost services.

The plan design features expected to grow in usage include:

  • Reducing point-of-care costs for the use of high-value services - 11% of employers do this today, but the number could reach 47% by 2018;
  • Increasing point-of-care costs for the use of commonly overused services - 9% do so today, but the number could grow to 41% by 2018; and
  • Requiring employees who get certain types of medical procedures to pay a higher cost share if they do not get a second opinion - 4% do so today, but the number could reach 31% by 2018.

“As employers grapple with how to lower the cost of health care without lowering quality, they are increasingly looking to pay medical service providers for health outcomes instead of the services they provide,” says Trevis Parson, chief actuary, Health and Benefits, Willis Towers Watson. “Today, these strategies are more common in geographies where employers have large concentrations of employees or where cost-efficient providers are available and willing to engage in emerging reimbursement models. But this is just the start of a much larger transition—a move from a health care delivery system based on fees for services to a more patient-centric system based on fees for value or outcomes.”

The annual Willis Towers Watson Best Practices in Health Care Employer Survey was completed by 600 U.S. employers between June and July 2016. Respondents collectively employ 12.2 million full-time employees and operate in all major industry sectors.

A Plan Sponsor Philosophy Can Help With Plan Decisions

A philosophy can help plan fiduciaries focus on the “why” when making retirement plan decisions and not just the “how,” enhancing their fiduciary process.

Many companies have mission statements or philosophies that drive business decisions, products and services they offer and how customers are treated.

David Hudak, senior consultant at Portfolio Evaluations, Inc. in Warren, New Jersey, says a company’s retirement plan is just another piece of that overall mission. In an article he wrote with Attila Toth, partner at Portfolio Evaluations, they stress the need for having a plan sponsor philosophy.

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In the article, Toth and Hudak say a well-defined mission or philosophy can help plan fiduciaries think about the “why” when making decisions and not just the “how.” As an example of “why” versus “how” thinking, the article considers the way an investment committee seeking an Employee Retirement Income Security Act (ERISA)-approved qualified default investment alternative (QDIA) may select a target-date fund (TDF) series. The simple choice to go with a TDF is “how” they meet their QDIA requirements. But those plan sponsors with a well-thought-out philosophy will also elect to assess the glide paths of a group of diverse TDFs, to ensure the final selection aligns with their plan’s goal. This is “why” one TDF series is selected over another.

“In some cases plan sponsors have gotten away from the ‘why’ for making decisions,” Hudak tells PLANSPONSOR. “Conversations with clients revealed they felt brow-beaten by regulations and litigation, and felt they have gotten out of touch with why they have the plan in the first place. They felt they were losing focus.” This led to the idea of establishing a plan sponsor philosophy.

Portfolio Evaluations has helped clients develop plan sponsor philosophies; it starts with the retirement plan committee asking some open-ended questions. For example, What is the purpose of the plan, does it align with the organizational mission, and does it fit with other benefits? Hudak warns that there will not necessarily be consensus among committee members in the beginning, but as they have the dialogue, they usually are able to come to a group consensus.

NEXT: Considerations for developing a plan sponsor philosophy

One thing to consider is whether the organization wants to be paternalistic. Paternalistic plan sponsors feel it is a company’s duty to help their employees reach retirement readiness in any way they can. They are more likely to offer a match and automatic plan features, often at higher levels than other plans. 

The article explains that non-paternalistic plan sponsors feel their primary obligation is to provide employees with the essential components of a retirement plan by meeting all Employee Retirement Income Security Act (ERISA) requirements, but not necessarily expanding on them. Beyond that, they feel it is up to the employee to make the most of it. Then, there are plan sponsors that fall somewhere in the middle.

Another consideration is the type of employee turnover a company experiences. Hudak explains that some clients in industries where there is very high turnover, say 50% to 70% on annual basis, don’t want to be paternalistic. For example they don’t want to auto-enroll employees that will be in and out of the plan within a year. On the other hand, companies with very low turnover, such as higher education institutions, want to be very paternalistic to reward employees and create loyalty.

It’s also important to know what other retirement benefits employees are offered, Hudak says. If a large portion of the workforce is eligible for a defined benefit (DB) plan, the plan sponsor may tend to be less paternalistic with its defined contribution (DC) plan, because it knows employees are already getting a benefit from the DB plan.

But, Hudak notes that even though two plan sponsors may have similar demographic and benefit traits, their philosophies may be very different.

“Having a plan sponsor philosophy shows sponsors realize how critical saving and having money set aside for retirement is for participants,” Hudak says. “A philosophy better articulates a plan sponsor’s fiduciary process, and helps it make decisions regarding the plan.”

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