Benefits September 12, 2019

Employer Health Benefit Costs to Rise 6.5% in 2020

A focus on managing chronic conditions, and education to improve health care utilization can help employers manage cost increases.

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U.S. employer-provided medical benefit costs are forecasted to rise 6.5% in 2020, outpacing general inflation by 3.8%, according to the 2020 Global Medical Trend Rates Report released by Aon plc.

The increase for U.S. employer-sponsored medical plans expected next year is due to a combination of higher costs for specialty drugs, moderate price increases for care and flat or decreasing health utilization.

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Aon’s report confirms the increasing impact of non-communicable diseases on health care costs globally. In the U.S., musculoskeletal, cancer, cardiovascular, diabetes and high blood pressure were the most prevalent health conditions driving health care claims. Aon’s report also confirms the growing prevalence of risks from unhealthy personal habits in the U.S., such as physical inactivity, obesity, bad nutrition, aging and excessive alcohol and substance abuse.

“Many of the risk factors lead to chronic conditions with long-term medical costs that make them difficult to treat and result in long-term medical cost increases,” says Tim Nimmer, Aon’s global chief actuary for health solutions. “As a large portion of our waking hours are spent on the job, the workplace is a logical place to create a healthier culture and change behaviors. Our goal is to guide employers as they become more critical in helping individuals and their families to take a more active role in managing their health, including participating in health and well-being activities and better managing chronic conditions.”

Of the health care initiatives large employers participating in the National Business Group on Health’s (NBGH) latest Health Care Strategy and Plan Design Survey cited, implementing virtual solutions (51%) and developing a more focused strategy to address high-cost claims (39%) were at the top of the list.

Increasingly, employers are working with partners to develop innovative solutions and address emerging challenges. Another reason for increased reliance on partners for 2020 is necessity, especially in the area of high-cost specialty therapies. Some therapies already on the market are in excess of $1 million per patient, and it is likely that new drug therapies will cost even more. As a growing number of high-price drugs from the pipeline are approved, the need to work closely with partners on how to finance and manage these therapies will only increase, the NBGH survey report says.

As for decreasing health care utilization, Lively found many employees don’t understand health benefits—including that most insurance covers preventive care. Better education can lead employees to use benefits correctly and become healthier, it says.
Data and Research September 12, 2019

Public-Sector Employees Shouldering More Risk in Retirement Plans

NASRA says since 2009, more than 35 states increased required employee contribution rates, and more states maintain plans in which the employee contribution rate may change, depending on the pension plan’s actuarial condition or other factors.

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Many people in the private sector may not realize that for the vast majority of employees of state and local governments, both participation in a public pension plan and contributing toward the cost of the pension are mandatory terms of employment.

In a recent report, the National Association of State Retirement Administrators (NASRA), says since 2009, more than 35 states increased required employee contribution rates. As a result of these changes, the median contribution rate paid by employees has increased to 6% of pay for employees who also participate in Social Security, and has remained steady at 8% for those who do not participate in Social Security.

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Contribution requirements for certain employee groups in some states that previously did not require some employees to make pension contributions were established in recent years for newly hired employees, existing workers, or both.

NASRA says a growing number of states are exposing employee contributions to risk. More states maintain plans in which the employee contribution rate may change, depending on the pension plan’s actuarial condition or other factors. NASRA’s report, “In-Depth: Risk-Sharing in Public Retirement Plans,” describes a range of variable employee contribution rate arrangements, including those based on the plan’s actuarial funding level, the plan’s normal cost, and a rate that is tied to a percentage of the employer rate.

In addition, an increasing number of public employees now participate in hybrid retirement plans, which combine elements of defined benefit and defined contribution plans, and that transfer some risk from the employer to the employee. In one type of hybrid plan, known as a combination defined benefit-defined contribution plan, employees in most cases are responsible for contributing all or most of the cost of the defined contribution portion of the plan.

Data compiled by NASRA, based on U.S. Census Bureau data, shows in the period from 1989 to 2018, investment earnings made up 63% of public pension’s sources of revenue, with employer contributions making up 26% and employee contributions 11%.

The report, “Employee Contributions to Public Pension Plans,” may be downloaded from here.

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