Large businesses expect to pay between 4 and 5 percent more for health-care benefits for their employees in 2015 after making adjustments to their plans, according to employer surveys conducted this summer.
Few employers plan to stop providing benefits with the advent of federal health insurance mandates, as some once feared, but a third say they are considering cutting or reducing subsidies for employee family members, and the data suggest that employees are paying more each year in out-of-pocket health care expenses.
The figures come from separate electronic surveys given to thousands of mid- to large-size firms across the country by Towers Watson, the National Business Group on Health and PriceWaterhouseCoopers, consulting groups that engage with businesses on health insurance issues.
Bracing themselves for an excise tax on high-cost plans coming in 2018 under the Affordable Care Act, 81 percent of employers surveyed by Towers Watson said they plan to moderately or significantly alter health-care benefits to reduce their costs.
The excise tax will be levied on companies offering annual benefits that exceed $10,200 for individuals or $27,500 for families. For any costs above those amounts, businesses would be taxed 40 percent on the difference. Nearly three quarters of the businesses interviewed by Towers Watson said they are concerned they will be subject to the excise tax.
To lower their tax bill, many companies are looking to cut their premiums by raising deductibles. Many also are making greater use of health-care savings accounts.
“My takeaway from the employer surveys is that this trend is accelerating,” said Paul Fronstin of the nonprofit Employee Benefits Research Institute.
The National Business Group on Health finds 81 percent of employers offering insurance plans that include higher deductibles and an annual health savings account. The savings account allows employees to deposit money tax-free, and employers often deposit a set amount of money into these accounts at the beginning of the year.
“These plans have been around for more than a decade, but there is no doubt that the excise tax is out there, and employers want to do something now. Which is why we’re seeing greater interest in these types of plans,” Fronstin said.
Others see these changes as less of a result of the Affordable Care Act and more a response to the steadily increasing costs of health care. The expected increase of 4 to 5 percent from 2014 to 2015 is no greater than in previous years, but the continued pressure on businesses has forced a wave of cost-sharing innovation, giving employees what the industry calls more “consumer-directed” choices to make between the quality of care and the cost.
“I think this in many ways has very little to do with the Affordable Care Act,” said Gail Wilensky, a senior fellow at Project Hope, a health-care advocacy and services group. “It started 10 to 12 years ago, and is being used by employers to try to get their employees to react in what they see as a more responsible way.”
Experts say there is no evidence that consumer-directed plans necessarily increase what employees pay out of pocket, emphasizing that such costs depend on a range of details specific to the insurance plan.
“The question is whether it will get people to get better care, or whether they will put off care and end up having to get more expensive care,” Wilenski said.
Surveys by Towers Watson and the National Business Group on Health suggest out-of-pocket costs paid by employees are increasing. According to their data, average annual out-of-pocket costs have jumped more than 40 percent just in the past three years, from $1,890 per employee in 2011 to $2,649 in 2014. Over the same period, employees’ share of total expenses, which includes both monthly premiums and out-of-pocket expenses, has increased from 34.3 percent to just over 37 percent.
And experts point out that even costs absorbed by employers are felt by employees in other ways.
“Even if the increase is only a few percentage points, the health-care costs are crowding out other portions of the pie. It puts a squeeze on pay increases, it puts a squeeze on retirement contributions,” said Steve Nyce, a researcher in charge of surveys at Towers Watson.
“The challenge is not only premium increases, but also out-of-pocket expenses, where increasingly people have to pay more at the point of care.”
Even those shying away from high-deductible plans are finding other ways to give employees incentive to purchase cheaper care. Almost three quarters of employers interviewed by Towers Watson said they are adding some form of consumer initiative, such as pricing transparency tools, second-opinion services or claims assistance programs.
It also appears that employers are moving away from providing family coverage. A third of employers interviewed by Towers Watson have already cut subsidies for spouses, are planning to do so in 2015, or are considering such changes. Subsidy reductions are becoming even more common when spouses have insurance available through their own employer: 26 percent said they are considering surcharging or fully excluding spouses if coverage is available elsewhere, and another 37 percent already have this policy in place or plan to implement it in 2015.
The survey by Towers Watson found that nearly one in four employers considers private exchanges to be a viable alternative for 2016. Private exchanges are online platforms, typically operated by brokers or insurers, that allow employees to shop for plans directly and customize more expensive add-ons, such as dental or hospitalization benefits, presumably giving the employee some control over the real cost of an insurance plan. (Towers Watson operates its own private exchange).
By contrast, employers had very little confidence in public exchanges in their first year in operation; 77 percent said they are “not at all confident public exchanges will provide a viable alternative” for their employees. While it is clear that employers want to reduce or restructure benefits packages, most, 99.5 percent, said they have no plans to direct employees to public exchanges.
Businesses are also planning a range of changes to the ways employees can access health care. One third of employers interviewed by Towers Watson plan to expand telemedicine provisions, in which patients conduct routine health check-ups over the phone. A quarter of employers consulted by NBGH currently include so-called “narrow networks,” in which employer insurance plans will only support treatment at facilities that have been determined “high-value” by independent monitors who have measured the cost of care against the quality provided.
“This goes back to the idea of getting better value for the dollar spent,” said Randy Abbott, a senior consultant at Towers Watson. “At present, there is no correlation between cost and quality for doctors. The narrower networks are designed to evaluate providers based on quality of care and quality of outcomes, all compared to a competitive price.”
The Towers Watson survey, which came out on Aug. 20, projects that costs will increase 4 percent in 2015, factoring in likely employer adjustments. Surveys conducted by the National Business Group on Health and PriceWaterhouseCoopers placed the number slightly higher, reporting 5 percent and 4.8 percent, respectively.