What strategies should health care managers use to support health plans for employees

Cost and risk

Although annual cost increases of employer- sponsored health care remain at low levels, cost trends after plan changes continue to be well above the rate of inflation. Employers are focused on minimizing cost increases and expect the trend to remain similar to the past 10 years.

Respondents to our annual survey expect total health care costs (both employer and employee) to rise 5.0% in 2019 after plan design changes. According to our Financial Benchmark Survey results, the average cost of health care is $12,612 per employee per year (PEPY) in 2018; based on the expected increases, this will translate to $13,243 in 2019. For comparison, the general inflation rate for the first half of 2018 was 2.0%,1 and many economic forecasts suggest this will persist throughout 2019.2 Before plan changes, cost trends are expected to be 5.3% in 2018, which is up from 5.0% in 2017 (Figure 2).

Annual increases in the cost of health care, plus sustained cost shifting to employees over the years, continue to raise concerns about employee affordability — especially for lower-paid employees.

On average, employees contribute 24% of total premium costs in 2018. In paycheck deductions, this translates into an average annual employee contribution of $3,027 in 2018, which could rise to $3,178 per year in 2019 under current plan designs.

With their own PEPY costs rising, employers will continue to mitigate increases by managing their plan utilization and efficiency. Although many employers have moved to ABHP and even total replacement over recent years, one in five who moved to full replacement has reinstituted a plan without a high deductible.

Figure 2. Health care costs before and after plan changes are well above the rate of inflation

^Expected
*Projected
Sample: Based on respondents with at least 1,000 employees

Affordability

The 0.5% difference between 5.5% projected trend before plan changes in 2019 and 5.0% after plan changes is the smallest difference in over 10 years. Employers are less focused now on cost shifting to employees than they have been since the passage of the ACA in 2010. The maturation of ABHPs, a heightened focus on employee affordability, an increased need to attract and retain employees in a competitive environment, and less concern about the excise tax have altered employers’ focus from cost shifting to strategies that improve plan efficiency while providing a better employee experience.

Employers will utilize several key strategies to improve efficiency of their plans, including:

• Managing cost and utilization of pharmacy benefits — particularly specialty pharmacy
• Encouraging the use of high-quality health care delivery channels, including telemedicine, COEs and HPNs
• Ensuring vendors and carriers are aligned with their cost and health improvement goals; measuring and evaluating their performance accordingly

Top priorities

Employers have identified priorities that will improve health outcomes and the health experience for employees (Figure 3). Over the next three years, employers’ top priorities include:

1. Clinical conditions: Improving the health of employees and reducing the costs for key clinical areas
2. Employee wellbeing: Enhancing employees’ physical, emotional, financial and social wellbeing
3. Employee experience: Promoting employee involvement in workplace, technological and physical environments
4. Healthy workplace: Creating a workplace environment that encourages healthy living

Figure 3. Progress over last three years and priorities going forward, focus on total wellbeing and clinical conditions

Note: Percentage indicates “To a very great extent” or “To a great extent”
Sample: Based on respondents with at least 1,000 employees

Employers report strong interest in improving clinical conditions, with 85% reporting that they will prioritize at least one clinical condition over the next three years. However, there is a 55-point gap between interest and progress made in the past three years.

Employers report the following clinical conditions are their top concerns (Figure 4):

1. Metabolic syndrome/Diabetes
2. Musculoskeletal disease
3. Mental/Behavioral health
4. Cardiovascular disease
5. Cancer
6. Maternity/Infertility

Figure 4. Nearly two-thirds of employers will emphasize metabolic syndrome/diabetes over the next three years

Note: Percentage indicates “To a very great extent” or “To a great extent”
Sample: Based on respondents with at least 1,000 employees

Meanwhile, employers are committed to their wellbeing initiatives. With 82% reporting wellbeing as a top priority for the next three years, it is the second highest priority. Despite having the highest progress level of all the top priorities, the gap between progress and interest remains large as only 41% reported making progress in wellbeing over the past three years. Although most employers have started their wellbeing activities focusing on physical wellbeing, the best wellbeing initiatives also address emotional, financial and social wellbeing, which integrates employee engagement at work leading to higher productivity.

To address experience, employers are offering more choice allowing employers to offer a broader variety of benefits and more options to better meet the personal or family needs of employees. Some of the choices include deductibles, insurance carriers and even types of plans as some employers are beginning to rethink their total replacement programs. Employers are also expanding voluntary benefit offerings. As choice increases for employees, so does the need for — and employer interest in — providing decision support to help employees choose what’s best for their personal situations. The percentage of employers that offer decision support is expected to double between 2017 and 2020 from 35% to 71%.

Rounding out the top four priorities is a healthy workplace, which is driven by wellbeing initiatives. By creating a workplace environment supported by managers and leaders that encourages employees living healthy lives at work and at home, employers are also addressing many of the aspects of wellbeing by integrating physical, emotional, financial and social components.

The four top priorities are connected because employees who are healthy and financially secure are more productive and engaged at work. Today’s workforce is multigenerational with different wants and needs. Some people may have health issues, while others may have financial challenges. Some may be willing to take on risk, while others are risk averse and demand a level of certainty. It is not enough for employers to apply a one-size-fits-all approach.

New market entrants: clinical conditions and tech

As employers look for innovative ways to help their employees manage clinical conditions, many are turning to new technology firms. In fact, 43% of employers say they are watching emerging companies that leverage connected devices — like digitized glucometers and remote physical therapy monitoring — to revolutionize the management of chronic conditions.

Rising confidence

Amid a strong economy with record low unemployment, employer confidence in offering health plans remains high. In fact, employer confidence is practically absolute with 94% of employers confident that they will offer health care benefits to employees five years from now — two points higher than last year. Longer term, employer confidence over 10 years is also strong, standing at 69% marking a new high since the passage of the ACA in 2010 (Figure 5). Employers recognize that offering health care benefits is vitally important in attracting and retaining employees as well as improving employee health, wellbeing and ultimately productivity.

Figure 5. Employer confidence in sponsoring health care benefits over the next 10 years continues to g (percentage of “Very confident” )

Best performers create their own competitive advantage

Employers continue to show dramatic differences in their abilities to manage their health care cost trends. Our research identified 48 companies that qualify as best performers based on their sustained ability to manage cost trends and efficiency. Best-performing companies must exhibit the following two characteristics:

• Efficiency: Efficiency that is 5% or greater — roughly 60th percentile and above
• Cost trend: Two-year average trend before and after plan changes that is at or below the national norm

The 48 best performers represent 14% of eligible companies reporting both favorable efficiencies and cost trends before and after plan changes at or below the national average. We estimate best performers will pay $1,393 PEPY less than the average employer in our national survey ($11,219 in 2018 compared with the national average of $12,612). For perspective, a best performer with 10,000 employees is saving almost $14 million a year over similar size peers.

Best performers also maintain a two-year average cost trend after plan changes of 0.8% — roughly 3.6 percentage points lower than the national average (4.4%). While plan design changes have helped to mitigate their cost increases, best performers also maintain a two-year average gross trend (before plan design changes) of 3.5 percentage points lower than the national norm (1.7% versus 5.2%).

Defining efficiency

Efficiency is a financial measure that compares an employer’s annual per employee per year cost to a PEPY benchmark, which is adjusted for factors including the employer’s age and gender mix, family size, geography and location of plan participants, and plan design. A PEPY cost that exceeds the adjusted benchmark is “inefficient,” and organizations that have a 5% or better efficiency and lower trend are best performing.

What can we learn from best performers?

Best-performing companies lead the way in developing high-performing health care programs that manage costs and add value, in part by implementing superior network and provider strategies. Throughout the rest of this report, we identify specific tactics that best-performing companies are deploying much more than the national average or other organizations — best practices focused on six core areas:

• Plan design and financial management
• Participation: employee and dependent
• Subsidization
• Account-based health plans
• Health care access and delivery
• Pharmacy management
• Employee wellbeing
• Employee experience
• Measurement

While many factors can explain the reasons for best performers holding the line on costs, these activities are likely an important part of their recent success, and many are emerging trends that could position them — and those who emulate them — for success in the future. While best performers are leading the way, there is plenty of opportunity for all companies to take actions to rein in costs and improve the performance of their health care programs.

Where do we get our data?

For the fourth year, total plan costs for this study are being based on Willis Towers Watson’s annual Financial Benchmark Survey, which includes detailed medical plan cost values on 2,248 companies with more than 10.8 million enrollees and total costs of over $133.7 billion. By incorporating the use of this deep and broad database in our annual Willis Towers Watson Best Practices in Health Care Employer Survey, we enhance our ability to provide detailed annual plan costs for over 18 industry groups.

These cost data are adjusted for demographic, geographic and design factors, and as a result, help us evaluate how efficiently companies’ health plans are performing. This adjustment enables participating employers to gain a richer understanding of how well their plans are performing compared with those of others at a level of detail that is unmatched by any other survey data source in the marketplace.

For fully insured medical and pharmacy plans, the costs presented reflect premium rates. For self-insured plans, the costs reflect premium equivalencies, which include company contributions to medical accounts such as health reimbursement arrangements and health savings accounts (HSAs), health management program costs and program participation incentives paid by the plan, and administration costs.

We selected best performers from the 351 companies that completed the 2018 Willis Towers Watson Financial Benchmark Survey and the 2018 Willis Towers Watson Best Practices in Health Care Employer Survey with sufficient health care cost trend and efficiency information.

Endnotes

1. Bureau of Labor Statistics figures for first half of 2018 average based on all urban consumers.
2. OECD estimates.

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