2010 Health Care Cost Survey

Workforce Health: New Deal, New Dividend

21st Annual U.S. Results Report

With health care costs continuing to climb, the effects of the current economic crisis yet to be shaken off and health reform discussions still under way, employers find themselves at a crossroads. A Towers Watson survey recently found that, amid these challenges, employers have never been more interested in workforce health and well-being.

According to the survey — which profiles 552 of the nation’s largest employers, representing over $57 billion in annual spend on medical and dental benefits to approximately 10.3 million employees, retirees and dependents — average health care costs will increase 7% in 2010. This marks the sixth consecutive year of single-digit cost increases, in contrast to the double-digit trends seen in the first four years of the new millennium. However, it is important to note that average health care cost increases have outpaced the CPI for over a decade and will continue to do so in 2010.

In flat dollar terms, gross health care expenditures will rise by an average of $636 per employee in 2010, pushing the average total cost above $10,000 for the first time in history.

Survey results show that employers are eager to embrace change. Leading companies are looking at creative ways to redefine the deal with employees, optimize their investments in building and sustaining a culture of health, and capture a health dividend for the business.

Affordability remains a chronic problem.

The dollar burden for employees has grown exponentially over the past several years due to the ever-increasing cost base and the added impact of benefit design-related increases in out-of-pocket costs. Low-wage workers and individuals who retire before Medicare eligibility are most vulnerable to the cost crunch. For example:

• Considering both premium increases and benefit design changes, employees will pay nearly $400 more on average in 2010 than they did in 2009.
• Pre-65 retirees face the highest costs of all groups — paying three times more than active employees for similar levels of coverage. The growing number of pre-65 retirees who still provide coverage for their families must contribute more than 50% of the total $20,000 annual cost — an amount that is unaffordable for most.

High performance matters more than ever.

Our performance analysis, now in its fifth year, shows that the competitive advantage attained by companies with high-performing health programs has never been greater from a cost perspective, and also drives other significant business outcomes:

• High performers in the 2010 survey pay 18% less — roughly $2,000 per employee — for their health benefit programs. The affordability proposition for employees is also better, with employees at high-performing companies paying 20% less than their counterparts at low-performing companies.
• Additional aspects of the health dividend for high performers include supporting/building the company reputation, attracting the needed workforce, maintaining productivity and supporting workforce well-being — all areas where high performers are roughly twice as likely as low performers to report positive impacts from their health programs.

Necessity is the mother of invention.

The survey suggests that best practices will soon enter the mainstream, as many employers, including the low performers in our database, are compelled to step up their game and adopt key elements of the “high-performance top 10”:

1. Understanding, supporting and demonstrating the business value of workforce health
2. Ensuring that key success factors, such as leadership support and disciplined execution, are firmly in place
3. Establishing business-focused goals to ensure that health investments deliver a health dividend — and rigorously measuring the program’s success in producing targeted results
4. Building action plans to address gaps and opportunities
5. Engaging employees and promoting a culture of health
6. Creating a sense of shared responsibility and employee accountability for health and cost management
7. Designing programs that support transparency and create meaningful incentives for healthy behaviors and choices
8. Investing in a broad range of current and emerging health management approaches and technologies
9. Supporting employee needs for risk management and planning appropriately for health expenses in retirement
10. Building connectivity across health-related programs and vendors

For more information about the Towers Watson 2010 Health Care Cost Survey, contact your Towers Watson consultant.

You can download the Towers Watson 2010 Health Care Cost Survey to better understand the many factors that contribute to the dramatic variations in performance results among companies in our survey, and to learn more about what leading organizations are doing to deliver greater value to individuals and businesses.