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Health Care Benefits Changes on the Horizon, Towers Watson/National Business Group on Health Study Finds


March 8, 2012

For more information contact:
Ed Emerman
eemerman@eaglepr.com
609 275 5162

For Immediate Release

Employee costs continue to rise at double the rate of inflation

NEW YORK, March 8, 2011 -- Although the rate of health care cost increases is expected to remain stable in 2012, employers are taking more aggressive steps to manage their rising costs and improve employee health, according to findings from the 2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care.

The 17th annual Towers Watson/National Business Group on Health survey found that total health care costs per employee are expected to rise 5.9% this year, as compared to 5.4% in 2011. Health care costs per employee averaged $10,982 last year, and is expected to rise to $11,664 in 2012. Employees' share of costs increased 9.3% during this period, to $2,764. This amount represents a 40% increase in costs from just five years ago, as compared to a 34% increase for employers over the same time period. Early retirees face an even greater affordability challenge, as they pay a considerably larger share of coverage costs than active employees. For 2012, retirees not yet eligible for Medicare can expect to pay an average of $4,226 per year for single-only coverage and $10,500 for family coverage.

The Spectrum of Health Benefit Design Offerings
Many employers plan to make substantial changes to their health care benefit offerings over the next several years. Four in 10 employers say that developing a workforce culture where employees are accountable for their own health is a top health care strategy focus in 2013. One in four employers say the same about reviewing their overall mix of benefits. Many employers are also keeping their eye on staying up to date and complying with the PPACA (34%).

"As employers try to maintain the balance between containing costs and offering competitive total rewards packages, they are realizing that their future health care benefit choices are not quite as simple as 'paying or playing,'" said Ron Fontanetta, senior health care consulting leader at Towers Watson. "In fact, there is a wide spectrum of design choices that will allow employers to develop a health care strategy that matches their unique objectives and workforce demographics."

The options, which range from continuing to discontinuing health plan sponsorship, include offering an employer-sponsored plan to only a portion of the population and providing employees with a defined contribution for use in state Exchanges. According to the survey, only 3% of employers are somewhat to very likely to discontinue health care plans for active employees in 2014 or 2015 without providing a financial subsidy. By the same measure, 45% of employers are somewhat to very likely to offer coverage to only a portion of their workforce and direct the others to the Exchanges.

While most employers will remain focused on sponsoring the design and delivery of their health care programs through 2015 (77%), they are much less confident that health care benefits will be offered at their organization over the longer term. Less than one in four (23%) companies are very confident that they will continue to offer health care benefits 10 years from now, down from a peak of 73% in 2007.

The opening of state insurance Exchanges will also have a strong impact on retiree medical offerings, as 40% of employers view subsidizing health care benefits for retirees of no importance to their employee value proposition today. Eight percent of employers plan to make changes to their subsidy in 2013, and another 20% are considering changes in 2014 or 2015. While the employer sponsorship of retiree medical health care coverage will continue to erode, many employers will begin to offer an account-based alternative--similar to a 401(k)-- which will enable employees to save for their retiree medical costs. Only 10% of employers with retiree medical programs currently offer a retiree medical account, but 4% are planning to offer them by 2013, and another 18% are considering them for 2014 or 2015.

How Leading Employers Are Driving Employee Accountability
The nation's most "consistent"* employers are reducing their health care benefit costs and improving the productivity of their employees today by encouraging employee accountability--not only for the management of their health but also the cost of the health care services they consume. In fact, these companies have experienced an average health care cost increase of just 2.2% over the last four years.

Consistent performers are most likely to make health care benefit decisions to boost transparency by providing employees with information about health care service pricing and quality. Ultimately, the companies are looking to help employees make more informed choices by adopting decision-making support tools next year (21%). Consistent performers are also planning to take steps to improve provider quality by offering specialty treatment or narrow networks, and providing incentives for the use of evidence-based care.

"To be truly successful at containing costs, employers need to empower their employees to make smart health care consumption decisions with financial incentives and tools that provide information on pricing and quality," said Helen Darling, President and CEO of the National Business Group on Health. "Employers can also reduce their claim costs and boost the productivity of their employees by using incentives to promote health improvement and behavior change."

Companies today are continuing to expand their use of financial rewards to engage employees and their spouses to better manage their health. In fact, more than two-thirds of respondents offer incentives today. Respondents also indicated that they have become more willing to add penalties to their arsenal (used by 20% today), and some (10%) have even adopted achievement standards, which will likely continue to grow in use as companies increasingly hold employees accountable for unhealthy life choices, losing weight and lowering blood pressure.

Emerging Health Care Benefit Trends
As employers continue to struggle with an uneven economy and regular health cost inflation, there are several emerging tactics they plan to use to control their costs:

Spousal and Dependent Coverage Surcharges: Roughly half of the companies (47%) increased employee contributions in tiers with dependent coverage, and about a quarter (24%) are using spousal surcharges, with another 13% planning to do so next year.

Growth in Account-Based Health Plans (ABHPs): Nearly one in six companies (59%) are offering an ABHP today, and another 11% plan to do so by 2013. ABHP enrollment has nearly doubled in the last two years, from 15% in 2010 to 27% in 2012.

Changing Pharmacy Landscape: Six in 10 companies have added or expanded step therapy or prior authorization programs, and 21% reduced pharmacy copays last year for those using a generic with a chronic condition (with another 16% planning to add this feature in 2013).

Vendor Management and Transparency: Three in 10 companies (30%) have consolidated their health plan vendors in the past two years, and 11% plan to do so next year.

*Towers Watson defines "consistent" performers as companies that have been successful in maintaining health care cost trends at or below the Towers Watson/National Business Group on Health norm for each of the last four years.

About the Survey
The 2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care provides many strategic insights into the actions and plans of leading U.S. employers, and what the future of employer-provided health care in the U.S. may look like this year and in the coming three years. The survey was completed by 512 employers between December 2011 and January 2012, and reflects respondents 2011 and 2012 health program decisions and strategies. Respondents, who work at companies with at least 1,000 employees, collectively employ 9.2 million full-time employees, represent more than $87 billion in annual health care spend and operate in all major industry sectors.

About the National Business Group on Health
The National Business Group on Health is the nation's only nonprofit organization, with 342 members including 68 of the Fortune 100, devoted to representing large employers' perspective on national health policy issues and providing practical solutions to its members' most important health care problems. The Business Group helps drive today's health agenda while promoting ideas for controlling health care costs, improving patient safety and quality of care, and sharing best practices in health benefit management with senior benefit and HR professionals, and medical directors from leading corporations. For more information, visit businessgrouphealth.org.

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 solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at towerswatson.com.

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