Employees, Spouses to Shoulder More Health Costs

News Updates

Employer health care costs are expected to reach $9,560 per worker in 2014 

In 2014 the cost of providing employer-sponsored health benefits is expected to increase 4.4 percent for large U.S. organizations (up slightly from 4.1 percent in 2013), taking into account health-plan design changes that shift more costs to employees. The projected cost increase for this year, before plan changes are taken into account, is 7 percent, according to Towers Watson and the nonprofit National Business Group on Health (NBGH).
 
Rising health costs have been mitigated by a tepid U.S. economic recovery and low overall inflation, clocking in at 1.6 percent for the 12 months ending in January 2014, according to government data, with a similarly low inflation rate expected throughout the year.
 
The latest Towers Watson/NBGH Employer Survey on Purchasing Value in Health Care summary report reveals that the vast majority of large U.S. employers remain committed to providing benefits to active workers, but they expect to continue making moderate to significant changes to their plans over the next few years. Taken between November 2013 and January 2014, the survey was based on the responses of 595 organizations with at least 1,000 employees.
 
Among key survey findings for plan year 2014:
 
Employer costs are expected to reach $9,560 per worker, up from $9,157 in 2013.
 
Employees’ share of premiums increased to $2,975, up from $2,782 in 2013. 
 
The total employee cost share (including deductibles and co-pays) climbed from 34.4 percent in 2011 to 37 percent. Workers now pay more than $100 more each month for health care than they did three years ago.
 

 

Although 95 percent of respondents said subsidizing health care coverage for active employees is a very important part of their rewards package, almost as many (92 percent) expect to make moderate to significant changes to their programs by 2018. 
 
 
“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, who unveiled the survey findings at the NBGH's Business Health Agenda 2014 conference, held March 5-7 in Washington, D.C. “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.”
 
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 of employers (49 percent) have increased worker contributions for dependent tiers at higher rates than for individuals.
  • Another 19 percent expect to take this step next year.
  • About one-quarter of companies (24 percent) now impose spousal surcharges of around $100 per month when ther coverage is available to the spouse.
  • Only 56 percent of companies believe that subsidized health care for spouses will be very important in 2015 and beyond—down from more than 70 percent today—an indication that the trend toward increased cost-sharing for spouses will continue. 
 
 
More Employers Embracing HSAs and HRAs
 
Employers consider consumer-directed account-based health plans, including health savings accounts (HSAs) and health reimbursement arrangements (HRAs), effective in helping them manage costs, the survey revealed.
 
  • Nearly three-quarters of respondents offer these plans, with another 9 percent expecting to add one for the first time in 2015. 
  • Total-replacement account-based plans, in which these are the only options offered by an employer, are also on the rise, with nearly 16 percent of respondents having adopted them (up from only 7 percent in 2012). 
  • Nearly one-third of all companies could offer account-based plans as their only option by 2015 if they followed through with their current intentions.

Employers Looking at Exchange Options

Two-thirds of businesses believe that, as early as 2015, private health care exchanges will offer a viable alternative to employer-sponsored coverage for active employees.
 
“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, NBGH president and CEO, speaking at the 2014 Business Health agenda event. Additionally, employers that no longer sponsor health care benefits could send their workers to a public exchange and remain compliant with health care reform by providing access to group coverage through the exchange-based Small Business Health Options Program (SHOP)—although, Darling added, “confidence in these [federal or state-run] exchanges remains quite low.”
 
Other findings from the survey include:
 
Retiree health. Employer subsidies for retiree medical coverage have sharply declined over the past 20 years, especially for pre-Medicare-eligible retirees, due to costs rising significantly faster than plans for active employees. Nearly two-thirds of organizations that offered a sponsored retiree-health plan in 2014 are likely to eliminate it in the next few years, with many planning to steer their pre-Medicare-age population to public exchanges and their post-65 retirees to private Medicare exchanges.
 
Wellness incentives. Twenty-two percent of companies adopted outcomes-based wellness incentives (other than for tobacco), involving monetary rewards based on achieving health goals; that figure could reach 46 percent by 2015 if businesses follow through with their plans. Two-thirds of companies also use financial incentives to encourage participation in wellness activities, in compliance with the Affordable Care Act and other statutes, and 22 percent of those (especially best performers) frame these incentives as penalties, such as higher health care premiums for those who don’t take part in wellness initiatives.
 
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.
 
Stephen Miller, CEBS, is an online editor/manager for SHRM.
 
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