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Health Care Benefits Cost Increases to Hold Steady in 2016, National Business Group on Health Survey Finds

Survey Shows Nearly Half of Large Employers Will Trigger “Cadillac” Excise Tax in 2018

August 12, 2015

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Ed Emerman

WASHINGTON, August 12, 2015 – Health care benefit cost increases at large employers are expected to hold steady in 2016, due in large part to changes employers are making to their benefit programs. At the same time, nearly half of large employers say if they don’t take additional measures to control costs, at least one of their health plans will reach the threshold that triggers the “Cadillac” excise tax under the Affordable Care Act in 2018, according to an annual survey released today by the National Business Group on Health, a non-profit association of 425 large U.S. employers.

According to the survey, employers project their health care benefits costs will increase 6.0% in 2016, the same increase employers would have experienced this year had they made no changes to their plan design. However, many employers expect to keep increases to 5% for the third consecutive year by making plan changes, such as increasing cost-sharing provisions, adopting consumer-directed health plans (CDHPs), and expanding wellness initiatives. The survey, based on responses from 140 of the nation’s largest corporations, was conducted in June 2015.

“The need to control rising health care benefits costs has never been greater,” said Brian Marcotte, president and CEO of the National Business Group on Health. “Rising costs have plagued employers for many years, and now the looming excise tax is adding pressure. Employers only have two more years to bend the cost curve before the excise tax goes into effect in 2018. And while employers are pursuing several strategies to keep their plans under the excise tax threshold, they estimate their actions will only delay the impact by two to three years.”

Almost one-half of respondents (48%) expect at least one of their benefit plans will hit the excise tax threshold in 2018 if they don’t take action. By 2020, almost three-quarters (72%) expect one of their plans will trigger the tax, while their plan with the greatest enrollment will only be one year behind. Employers, however, are taking action to delay the impact of the excise tax. More than three quarters of respondents (76%) are adding or expanding CDHPs and consumerism tools while 70% are expanding wellness programs.

Employers cited several factors driving rising costs. For many employers (43%), the number one driver of rising health care costs is high cost claimants. Respondents also cited three other cost drivers – the soaring costs of specialty pharmacy, specific diseases or conditions, and overall medical inflation.

Mixed Views on Private Exchanges
While no employers plan to eliminate health care coverage and pay the penalty for not doing so, some employers continue to look at the viability of private exchanges. By 2016, 3% of respondents will have moved their active employees to a private exchange. Nearly a quarter of respondents (24%) are considering a private exchange for active employees sometime in the future, but that is a decline from last year, when 35% were considering private exchanges. Contrary to the active population, the trend of employers partnering with a private exchange for retirees is growing. By 2016, nearly a quarter of respondents (24%) will offer retirees coverage through a private exchange versus just 10% in 2013.

Employers, however, continue to have mixed views on how private exchanges will perform. The three features that most employers are confident a private exchange would do better than they could were providing more choice of plans, complying with regulations and supporting a defined contribution approach. However, they are less confident in the ability of private exchanges to outperform employer efforts to control health care costs, assist employees with questions and problems, and engage employees in better health care decision-making.
“While we continue to see interest in private exchanges among large employers, there really hasn’t been much movement. Many of the models in the marketplace have yet to mature and so it’s not surprising that many employers are still taking a wait and see approach when it comes to private exchanges. Employers need to do their due diligence, ask questions, and study the options closely. The jury is still out as to whether a private exchange can manage costs and care more efficiently than what employers are currently doing on their own,” Marcotte said.

What Employees Can Expect During Annual Enrollment
Open enrollment season, the time when millions of employees choose which benefits they want from their employer for next year, is rapidly approaching. “There is a lot at stake, both financially and emotionally, for employees and their families. It’s critically important employees carefully evaluate all of the options their employers are offering when deciding which choices make the most sense for them,” Marcotte said.

Based on the National Business Group on Health’s survey, here is what employees can expect during open enrollment:

-- Small increases in premium contributions and deductibles: One in three employers will make small increases to the percentage of premiums employees pay for individual and family coverage. About one in four respondents will also make small increases to deductibles.

-- More spousal surcharges: More than one in three employers (34%) will implement surcharges for spouses who can obtain coverage through their own employer, an increase from 29% this year. A handful of employers will exclude spouses altogether when other coverage is available through an employer.

-- Growth in consumer-directed health plans (CDHPs) levels off: Overall, 83% of employers will offer a CDHP in 2016, up from 81% this year. In addition, one in three employers (33%) will only offer CDHPs to their employees in 2016. The vast majority (87%) of employers who offer CDHPs with a health savings account will continue to make contributions to those to assist employees enrolled in CDHPs.

-- Sharp increase in telehealth: Nearly three in four respondents (74%) plan to offer telehealth to employees in states where it is legal, a sharp increase from 48% this year.

-- Access to health care tools and resources: More than eight in 10 respondents (81%) plan to offer nurse coaching for care and condition management while 73% will offer nurse coaching for lifestyle management. Nearly three in four respondents (73%) provide employees with self-service decision-making tools to help them become better health care consumers.

About the National Business Group on Health®
The National Business Group on Health is the nation’s only non-profit organization devoted exclusively to representing large employers’ perspective on national health policy issues and helping companies optimize business performance through health improvement, innovation and health care management. The Business Group leads initiatives to address the most relevant health care issues facing employers today and enables human resource and benefit leaders to learn, share and leverage best practices from the most progressive companies. Business Group members, which include 71 Fortune 100 companies, provide health coverage for more than 50 million U.S. workers, retirees and their families. For more information, visit