NEW YORK, March 6, 2014 — The cost of providing employer-sponsored health care benefits is expected to increase 4.4% this year, a slight uptick from last year, when cost increases fell to a 15-year low, according to an annual survey by global professional services company Towers Watson (NYSE, NASDAQ: TW) and the National Business Group on Health (NBGH), an association of large employers. The closely watched industry survey of 595 large U.S. employers also found that the vast majority of employers remain committed to providing benefits to active employees, but say moderate to significant changes to their plans are in store over the next few years.
The 19th Annual Towers Watson/NBGH Employer Survey on Purchasing Value in Health Care found that employer costs are expected to reach $9,560 per employee in 2014, an increase of 4.4%* from $9,157 in 2013. Health cost increases fell to a 15-year low of 4.1% in 2013. In response to rising costs, employers continue to shift costs to employees. The survey found the employees' share of premiums increased nearly 7%, to $2,975, this year. Out-of-pocket costs also increased. The total employee cost share has climbed from 34.4% in 2011 to 37% in 2014. Employees now pay over $100 more each month for health care compared with just three years ago.
"Despite the moderation, health care costs continue to outpace inflation and remain a major concern for U.S. employers given the challenging macroeconomic environment," said Ron Fontanetta, senior health care consultant for Towers Watson. "To find more effective ways to manage health costs, many employers are focusing on reshaping their health strategy for the next three to five years."
Indeed, while the vast majority (95%) of respondents indicate that subsidizing health care coverage for active employees is a very important part of their rewards package, almost as many (92%) expect to make moderate to significant changes to their programs by 2018
Contribution Strategy for Spouses Changing
One of the many changes employers have been implementing and expect to continue making is to their contribution strategies for spouses and dependents. Nearly half (49%) of employers have increased employee contributions for dependent tiers at higher rates than for individuals. Another 19% expect to make this move next year. About one-quarter (24%) of companies now use spousal surcharges of around $100 per month when other coverage is available to the spouse. Only 56% of companies believe that subsidized health care for spouses will be very important for 2015 and beyond — down from over 70% today, an indication that the trend toward increased cost sharing for spouses will likely continue.
More Employers Embracing Account-Based Health Plans
Account-based health plans (ABHPs) are proving effective in helping employers manage costs. Nearly three-quarters of respondents currently offer these plans, with another 9% expecting to add one for the first time in 2015. Total-replacement ABHPs are also on the rise, with nearly 16% of respondents having adopted them, up from only 7% in 2012. Nearly one-third of all companies could offer ABHPs as their only option by 2015 if they follow through with current plans.
Employers Looking at Exchange Options
Two-thirds of companies believe that private exchanges will offer a viable alternative to employer-sponsored coverage for active employees as early as 2015.
"While private exchanges are proving to be an effective option for retiree health coverage, most employers are taking a wait-and-see approach to gauge whether these models can deliver greater value for their active employees than self-managed programs," said Helen Darling, president and CEO of the National Business Group on Health. "Additionally, employers that no longer want to sponsor health care benefits could send their employees to a public exchange, although confidence in those remains quite low."
Other findings from the survey include:
- Retiree health. Employer subsidies for retiree medical coverage have sharply declined over the last 20 years, especially for pre-Medicare-eligible retirees, due to costs rising significantly faster than plans for active employees. Nearly two-thirds of employers that offer access to a sponsored plan today say they are likely to eliminate those programs in the next few years and steer their pre-Medicare-age population to public exchanges.
- Health and financial subsidies. Twenty-two percent of companies adopted outcomes-based incentives (other than for tobacco), and that figure could reach 46% by 2015 if companies follow through with their plans. Two-thirds of companies also use financial incentives to encourage participation in wellness activities, and 22% of those companies (especially best performers) design these as penalties.
- Value purchasing. Driving value in health care has become increasingly crucial to employers. The best-performing respondents are addressing key drivers of performance including pharmacy management, network delivery options and enhanced wellness strategies.
About the Survey
The 19th Annual Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care tracks employers' strategies and practices, and the results of their efforts to provide and manage health benefits for their workforce. This report identifies the actions of high-performing companies, as well as current trends in the health care benefit programs of U.S. employers with at least 1,000 employees. The survey was completed by 595 employers between November 2013 and January 2014. Respondents collectively employ 11.3 million full-time employees, have 7.8 million employees enrolled in their health care programs and represent all major industry sectors.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at towerswatson.com.
About the National Business Group on Health
The National Business Group on Health is the nation's only nonprofit membership organization of large employers devoted exclusively to finding innovative and forward-thinking solutions to their most important health care and related benefit issues and to being the voice for large employers on national health care issues. The Business Group, whose 390 members include 66 of the Fortune 100, identifies, develops and shares best practices in health benefits, disability, health and productivity, and related paid-time-off and work/life balance issues. Business Group members provide health coverage for more than 55 million U.S. workers, retirees and their families. For more information, visit businessgrouphealth.org