Employers plan major changes in sponsored health insurance coverage

Employers remain committed to offering employees and their families health care insurance, however, company leaders plan to make major changes in plan design and strategy in order to lower escalating costs, comply with Affordable Care Act regulations, avoid business risks associated with the 2018 excise “Cadillac” tax and improve consumer engagement.

According to a recent Towers Watson survey, 2015 health care costs are projected to increase by 4% after plan changes, compared to the 5% uptick that employers previously projected for 2014. Total per-employee costs are expected to average $13,037, with employers paying $10,233 and employees paying $2,804. If no changes were made to medical and pharmacy plan designs, vendors, provider networks or other features, the increase would have been 5.2% for 2015.

Despite cost increases, nearly nine in 10 employers (87%) say health care benefits will be a key part of their employee value proposition in 2015. And this rate slips only slightly to 83% for 2016 and beyond.

Employers are also committed to continuing coverage for their part-time workers, with 91% of employers saying they are unlikely to discontinue health care plans for this workforce segment. When asked about using public exchanges, more than nine in 10 companies (97%) report they do not plan to discontinue health care plans for part-time employees and provide a financial subsidy to purchase coverage via this delivery channel.

Still, health care reform, in particular the 2018 excise tax, heightens affordability concerns. Nearly two-thirds of employers believe employees’ health care costs will be higher than in the past. The excise tax ceiling is driving major strategy changes since more than half (54%) of employers will trigger the “Cadillac” tax by 2020 if no changes are made to their health care benefit strategy.

This threat is one reason that two-thirds of CEOs and CFOs are more directly involved in health care benefit decisions than they were three to five years ago. Further, 54% of the senior finance executives surveyed by CFO Research pinpoint controlling the employer cost for health care benefits as their company’s top priority for its employee benefit programs over the next year.

Employers are making moderate to significant changes to reshape their health benefit plans between now and 2017 in order to reduce costs, according to Towers Watson’s 2014 Health Care Changes Ahead Survey, which compiled feedback from 379 midsize to large U.S. organizations. In particular, employers pointed to three specific factors that will help frame employer-sponsored benefits:

1) Employers will focus more on outcome-based incentives and the way they subsidize coverage for spouses and families.

In order to transform employees from passive patients to engaged consumers, 49% of employers expect to offer an account-based health plan enrollment as their only plan option by 2017. Employers are also exploring defined contribution arrangements with 16% of plan sponsors using DC approaches by 2015 and another 30% considering this solution for 2016 or 2017.

Employers are becoming more interested in telemedicine, with implementation expected to reach 37% by 2015, with another 34% considering the option by 2017.

To spur employee accountability and encourage healthy behaviors, outcomes-based incentives are becoming more prevalent: 18% of employers offer them today; another 10% plan to offer them in 2015, and an additional 48% by 2016 or 2017.

Additionally, 63% of companies expect to use spousal exclusions or surcharges when coverage for a spouse is available elsewhere by 2017, and 52% are considering making significant reduction in subsidies for employees’ family members. 

Two-thirds of employers (66%) will use eligibility and/or utilization restrictions as part of their specialty pharmacy strategy by 2015. Another 15% are considering this solution for 2016 or 2017. In addition, nearly six in 10 (58%) will evaluate and focus on specialty pharmacy spend within the medical benefit by 2015, and 24% more will consider this by 2016 or 2017.

Companies increasingly prefer to work with health plan partners that are aggressively adopting new, value-based payment methods that incorporate criteria for improving efficiency, quality and outcomes rather than reimbursing providers for each unit of service. Nearly three in 10 employers (29%) will evaluate partners with these strategies in mind for 2015, and another 32% are considering this approach for 2016 or 2017.

The use of value-based designs and benefit differentials that drive employees to high- performance or narrow networks for medical care is projected to rise. One in seven organizations (14%) will use value-based designs by 2015, and another 34% are considering them for 2016 or 2017. One in five (20%) employers will offer benefit differentials by 2015, and 37% more are examining this tactic for 2016 or 2017.

2) Employers show interest in, and hesitation, toward private exchanges.

While employers’ interest in private exchanges for active employees continues to grow, many await additional evidence that this model can deliver more value than their traditional self-managed program. Their three qualifications for seriously considering this option for active full-time employees are:

• Proof that private exchanges can deliver greater value than their current self-managed model for actives (64%);
• Actions of other large companies in their industry (34%);
• Inability to stay below the excise tax threshold using their traditional approach (26%).
• Almost three in 10 (28%) employers have done an extensive analysis of the viability of a private exchange for their organizations. As more employers conduct analyses, the adoption rate is likely to increase. In fact, their confidence in private exchanges as a viable alternative for employer-sponsored coverage builds between plan years 2015 (14%) and 2016 (24%).
• Public exchanges, however, do not enjoy the same confidence that private ones do, likely because of their highly publicized rocky start. Nearly eight in 10 (77%) employers lack confidence in public insurance exchanges as a viable alternative to employer-sponsored coverage, and almost all employers surveyed (99.5%) have no plans to exit active medical plans and direct employees to this arrangement.

3) Employers will center technology as a pivotal tool in strategies to boost employee engagement and improve access to health care.

Increasingly, employers are turning to personalized digital technologies to engage employees with their health benefits and encourage healthier lifestyles. In fact, 76% of companies are exploring mobile apps and fitness wearables for activity tracking, such as fitness and nutrition.

Further, more than half of employers are using mobile apps and fitness wearables for health care delivery (56%) and price/quality transparency tools (54%). These options spur employees to take a more active role in their personal health status and pursue a greater understanding of their health care benefits and services.

Source: Employee Benefit Adviser