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Employers Expect Changes to Employee Health Care Programs to Retain Competitiveness, According to New Towers Watson Survey

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The majority of U.S. employers (84%) are expecting to make changes to their full-time employee health benefit programs over the next three years, despite cost increases remaining at historically low levels, according to new research from global professional services company Towers Watson (NYSE, NASDAQ: TW). In addition to aggressive cost management, employers are evaluating the implications of the changing provider landscape, embracing new ways to deliver care through innovative network arrangements, focusing on increasing employee engagement and exploring new options for delivering benefits. This includes assessment of active employee private exchanges and a rapid migration of Medicare retirees to private exchanges.

The 2015 Emerging Trends in Health Care Survey found that employers project health care costs to increase 4% in 2015 after plan changes, compared to the 4.5% employers predicted for 2014. Without plan changes, projections are for an increase of 5.2%. These modest increases are still more than double the current rate of inflation and are a primary factor driving employers’ affordability concerns as the 2018 excise tax in the Patient Protection and Affordable Care Act approaches. Two in five employers that have done extensive modeling of their plans say they will trigger the excise tax in 2018. Two-thirds say the tax will have an impact on their health program strategies.

“Historically, employers have strived to keep their cost increases at the market average, but increasingly, this just isn’t enough,” said Randall Abbott, a senior consulting leader at Towers Watson. “The new focus is on reducing cost trends to the overall CPI or below. This means driving cost growth to roughly 2% or less, which requires an acute focus on all aspects of health plan performance. In addition to solving the rate of cost trend, employers must pay attention to the base cost. We are seeing a wide variation across and within industries even after adjusting for unique group characteristics. High-performance health care has become the new mantra emphasizing not just reducing costs but improving workforce health, better engaging employees and leveraging new health technologies,” he added.

Managing Costs by Addressing Program Participation

Among the actions gaining traction are changes to benefits for spouses and dependents. For example, the percentage of employers using spousal surcharges (when coverage is available elsewhere) is expected to nearly double, from 32% now to 61% in three years. Half of respondents (53%) plan to significantly reduce subsidies for spouses and dependents by 2018. In addition, four in 10 employers (41%) say they may adopt a defined contribution arrangement (capping employer contributions at a flat dollar amount) by 2018.

Seeking Sources of Measurable Added Value

Employers reported greater resolve to improve health outcomes per dollar spent, with two-thirds planning to use data extensively to evaluate plan performance and employee behavior changes in lifestyle and health management. In addition, the use of centers of excellence (either within health plans or via a separate network) and narrow networks are expected to triple over the next three years. The use of telemedicine services in place of in-person physician visits, when appropriate, will continue to be rapidly adopted, already expanding by more than one-third (35%) in 2015 over 2014. Over 80% of employers say they could be offering telemedicine services by 2018.

Over the next few years, more than 80% of employers will carefully evaluate specialty pharmacy programs and benefits embedded in their medical plans. Over half (61%) of employers report including coverage and utilization restrictions in their specialty pharmacy strategy today.

Increasing Employee Engagement

Employers recognize the business value of a healthy workforce and are encouraging employees to take control of their health. Two of the top five areas employers say will be the focus of their health care activities in 2016 link to employee engagement and accountability: developing or enhancing a workplace culture where employees are responsible for their health (66%), and adopting or expanding the use of financial incentives to encourage healthy behaviors (51%).

Among employers surveyed, the most popular tactics for boosting employee engagement in health care are:

  • Education and tools for better decision making. Nearly half of employers (48%) will place more emphasis on educating employees about how to select providers based on quality and cost information over the next two years. In 2016, 43% of employers will provide price and quality transparency tools to help employees make better consumer choices.
  • Mobile apps to deliver health messages. Today, 60% of employers deliver health and wellness messages through mobile apps and portals. That percentage will increase to 95% by 2018.
  • Account-based health plans (ABHPs) as the only plan option. While 17% of employers currently offer full-replacement ABHPs (high-deductible plans tied to tax-advantaged health savings accounts), the percentage may increase to nearly 50% by 2018.

Exploring New Benefit Delivery Channels

Employer confidence in private exchanges is increasing: 17% view private exchanges as a viable alternative for active full-time workers in 2016. Confidence more than doubles to 37% by 2018.

In addition, a quarter of employers (26%) have extensively analyzed private exchanges, and 20% say they are more interested in adopting a private exchange today than they were a year ago. Companies that have completed extensive analysis of private exchanges (versus companies that have not) are twice as likely to find private exchanges a viable alternative in 2016.

Employers report that cost savings and administrative simplicity are key factors in prompting use of private exchanges. Finance will play a role in shifting to a private exchange model: More than half (53%) report that finance will influence the decision to move to a private exchange or continue to maintain traditional employer-managed health plans.

“Employers are using and actively considering various options to manage cost, change employee behaviors and optimize program performance,” said Julie Stone, senior consulting leader at Towers Watson. “And the real business risk of the 2018 excise tax creates a sense of urgency for them to take decisive action. While future-proofing health care strategy is impossible, employers can exceed average performance by making changes that meet business needs and fit with the total rewards strategy.”

About the Survey

Towers Watson surveyed 444 midsize to large U.S. employers representing 7.2 million employees in January 2015 for its 2015 Emerging Trends in Health Care Survey. The survey yields insights into how employers are thinking about health care benefits and the key actions they anticipate taking over the next three years.

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. With 15,000 associates around the world, the company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Learn more at

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