Employers Take Bold Initiatives to Rein in Healthcare Costs: Survey

A majority feels they should also hold employees more accountable in the struggle to manage costs.

March 31 2011 by Fayazuddin A.Shirazi


Driven by continuing cost challenges and the anticipated effects of health care reform, an increasing number of employers are taking bold initiatives in designing healthcare packages for their employees. Additionally, employers are also pursuing bolder actions and implementing health program changes to hold employees and providers more accountable in the struggle to manage costs and improve worker health, a recent survey indicated.

According to Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care, employers expect average costs for active health care benefits to increase by 7% in 2011, up from a 6% increase in 2010.

The survey pointed out that although increases have stabilized over the past few years, they considerably outpace wage increases year over year, and are projected to reach $11,176, up from $10,387 in 2010. Employers pay 36 percent more for health care and employees contribute over 45 percent more than they did five years ago, a statement verified by a couple of other surveys as well.

A 2010 analysis by Hewitt Associates, a global human resources consulting and outsourcing company, found that due to recent higher medical claim costs, an aging population and changes brought about by health care reform, employers can expect 2011 health care cost increases to be at their highest levels in five years. According to Hewitt analysis, the total health care premium per employee for large companies will be $9,821 in 2011, up from $9,028 in 2010. The amount employees will be asked to contribute toward this cost is $2,209, or 22.5 percent of the total health care premium. This is up 12.4 percent from 2010, when employees contributed $1,966, or 21.8 percent of the total health care premium.

“Health care benefit managers have historically been focused on making incremental plan design changes,” said Randall Abbott, a senior health care consultant with Towers Watson. “When confronted with the post-reform health care landscape, employers are now considering sweeping changes to their health benefit and workforce health improvement strategies. Increasingly, this is a focus of the executive suite, which is accelerating the discussion.”

To rein in the burgeoning healthcare costs, the survey indicated employers are redefining their financial commitments to health benefits by redesigning programs to incorporate enhanced point-of-care consumerism, positioning incentives more aggressively and redefining the employee versus dependent subsidy.

Further, coming changes in the pre-65 and Medicare marketplace are fueling some employers to reconsider their commitment to retiree medical sponsorship, the report said.


Total employee/employer health care costs

The survey pointed out that healthcare reform will likely exacerbate the increasing cost trend, with eighty-one percent of employers reporting that the health reform law has substantially increased the administrative burden on their human resources departments.

Additionally, 80 percent of employers think excise tax on the highest value plans will have at least some impact on the cost of their plans if no substantive design changes are made. Under health care reform, a 40 percent nondeductible tax, known as the “Cadillac tax,” will be levied on the annual value of health plan costs for employees that exceed $10,200 for single coverage or $27,500 for family coverage beginning in 2018.

“The growing costs are cutting into employers’ profitability and the total rewards they are able to offer employees, plus concerns about the future Cadillac tax add a new level of urgency to their challenges. Employers that are best able to minimize this cost burden will be those that are able to provide the most competitive benefits package and attract the most talented employees,” Helen Darling, president of the National Business Group on Health said in a media release.

Changes due to health care reform

According to the survey more than half of employers are stepping up efforts to engage employees in actively managing their health. Although employers’ commitment to provide health care benefits to active employees remained strong, health care reform could accelerate a growing employer exit from retiree medical programs, the report said.

Interestingly, the Towers/Watson May 2010 survey also projected a similar trend, with most employers surveyed (77 percent) believe that reform will reduce the number of large employers offering employer-sponsored retiree health benefits, and 43 percent of employers that currently offer retiree benefits plan to reduce or eliminate them. This trend is even more pronounced for employers likely to be subject to the excise tax on expensive plans. Of that group, 55 percent are likely to eliminate or reduce retiree medical programs, the 2010 survey noted.

The report also revealed cost variations in the different plan types. Account-based health plans (ABHPs) are the most affordable plan type, costing $730 less than HMOs for employee-only coverage and $2,118 less for family coverage. However, Preferred provider organization (PPO) and point of service (POS) are the most expensive plan types, costing an average employee about $200 more than a typical health maintenance organization (HMO) plan for single-only coverage and more than $750 more for family coverage.

Even the Hewitt forecasts for 2011 predicted a substantial cost increase in point of service (POS) plan which is expected to increase from $9,747 to $10,575 on an average for large employers. According to Hewitt companies will have average cost increases of 8.5 percent for PPOs and POS plans. Employers will see an average cost increase of 9.4 percent for HMOs. That means from 2010 to 2011, the average cost per person for major companies will increase from $8,671 to $9,408 for PPOs; $9,373 to $10,254 for HMOs.

As employers design their 2012 health care strategies, they plan to redefine the financial commitment made between employees and dependents. As per the new commitment, employer actions planned for next year include increasing contributions in tiers with dependent coverage, raising contributions per each covered dependent, and/or using spousal waivers or surcharges. In the survey about 68 percent employers are moving to increase contributions for dependents, with 19 percent targeting per-dependent contributions, and 35 percent using or planning to implement spousal waivers or surcharges.

“Health care benefit managers have historically been focused on making incremental plan design changes,” Randall Abbott, a senior health care consultant with Towers Watson said in a recent media release. “When confronted with the post-reform health care landscape, employers are now considering sweeping changes to their health benefit and workforce health improvement strategies. Increasingly, this is a focus of the executive suite, which is accelerating the discussion.”