After seven years of health benefit cost increases right around 6%, we saw cost growth slow to 4.1% in 2012 and then to just 2.1% in 2013 (according to Mercer’s National Survey of Employer-Sponsored Health Plans). And although employers predicted that cost would rise by 5.2% on average in 2014, for the past two years actual increases have come in lower than expected. So it’s reasonable to assume that this year we will again see a fairly narrow gap between the trend lines for health benefit cost, inflation, and workers’ earnings. While the economy and improvements in provider efficiency account for some of the slowdown in health benefit cost, as a new analysis of benefit cost demonstrates, high-performing employer plans are having a major impact.
Slower utilization driving lower cost growth
The last prolonged period of low health benefit cost growth was back in the 1990s. There was an obvious explanation – the market was undergoing a rapid transformation from traditional fee-for-service indemnity plans to network plans with negotiated provider fees.
This time, the change in trend is being driven by lower utilization rather than falling prices. Economists have attributed some of the slowdown in utilization to the dampening effects of the recession -- in times of economic uncertainty, people put off getting care. Other market factors include the less-rapid development of new medical technology and pharmaceuticals and improvements in provider efficiency and quality. An article in Health Affairs points out that targeted health-care quality programs like the LeapFrog initiative have helped lower the rates of hospital-acquired infections and readmissions. But only a portion of the change in trend is attributed to the recession and market efficiencies. The study’s authors also credit the actions of employer health plan sponsors with helping to slow utilization -- and we can validate that with our own data.
To understand what high-performing organizations are doing right -- and what other employers can learn from them -- we analyzed the data collected through our annual survey of nearly 3,000 employers to study the relationship between health plan cost and a broad range of about 20 specific health plan management strategies. We divided survey respondents with 500 or more employees into four equal groups based on the number of best practices they used, and then looked at average cost for the employers in each group. What we found was that the average health benefit cost per employee for employers using the greatest number of these best practices was 8% lower than for employers using the fewest.
This is especially important information for employers that are behind the curve in terms of cost performance. While the average cost trend has fallen, there’s a wide variation. While about one-fourth of large employers expect cost increases of less than 5% in 2014 (before making changes), about one-third expect increases of 10% or more. In other words, there are still a lot of employers out there that could benefit by implementing strategies other employers have used successfully to reduce health care utilization and, with it, cost. Our best practices analysis demonstrates that the organizations that are the most successful in controlling cost have waged the battle on a number of fronts.
Employer best practices make a big difference
- Giving employees a financial stake in their health care decision making through cost-sharing, consumer-directed health plans, and value-based design.
- Using data warehouses to identify and address cost drivers.
- Providing special services to the highest-cost portion of the population to ensure they get the most effective care.
- Engaging employees in learning about and reducing their own health risks.
- Taking steps to ensure employees have access to providers that have demonstrated that they can deliver effective care at a lower cost -- in centers of excellence or medical homes and through telemedicine.
With health reform putting pressure on cost from new fees, expanded eligibility, and required plan design changes, even the best-performing employer health programs will need to look for new sources of savings if they are to continue to provide employees with attractive benefits at a sustainable cost. The excise tax on high-cost plans looming in 2018 provides even more incentive to double down on cost management efforts.
Having experienced success in bringing cost growth under control, employers are more willing to explore emerging cost-management approaches that promise new gains. Private health care exchanges address the issue of over-insurance -- the fact that many employees today are paying for more coverage than they need. Offering employees a range of medical plans and voluntary benefits on a single platform allows them to expand choice and further engage employees in selecting coverages that meet their needs -- a logical extension of the consumerism concept that has been so successful. Exchanges make it easy to move to defined contributions, should an employer choose that approach.
The good news for employers already in the forefront of cost management is that there are still new strategies to explore. As health reform unfolds, employers will need to double down and build on past successes to keep up momentum in the health care cost battle.
Last week Republican leaders abruptly canceled a House vote on the proposed American Health Care Act (AHCA) because it was clear that it wouldn’t pass. At a March 24 press conference, Speaker Paul Ryan, R-WI, said that the party will now "move on" to tax reform and other policy priorities.
While “moving on” might be an option for Congress, it isn’t an option for employers who collectively provide health coverage to 177 million Americans and spend over $660 billion annually on health benefits -- more than federal spending on Medicare. Given that healthcare spending rises faster than inflation, it has been an ongoing challenge for employers to provide their workers with comprehensive, affordable coverage.
But there is reason to be optimistic. In recent years, we’ve seen overall health benefit cost growth slow, and some employers have made remarkable progress in bending the trend with breakthrough strategies. We believe there are steps that employers of any size can take to make a difference in their own programs -- and that ultimately these actions will drive change in the larger US healthcare system. We are working with employers to lead meaningful change through a collective focus on these four vital aspects:
- Pay for Value: Align reimbursement with value, not volume.
- Drive to Quality: Deliver the right care at the right time, in the right setting, error free.
- Personalize the Experience: Leverage data and technology to help employees make better healthcare decisions.
- Embrace Disruption: Leverage constant changes in the system -- with internal stakeholders and external partners -- to be future-ready.
Of course, true transformation will require change and cooperation from other players in the healthcare system -- including the federal government. That is why we will continue our efforts on the Hill, pushing for policies that address the underlying causes of healthcare cost growth, new health savings account rules, and the repeal of the Cadillac tax.
One possible fix for the public exchanges? Repeal the ACA provision expanding dependent coverage. Allowing young adults up to age 26 to be covered under their parents’ plans has been one of the law’s most popular provisions, especially since it went into effect at a time when many young people were struggling to find full-time work in the wake of the recession. But it also took these same people out of the potential pool of enrollees when the exchanges opened in 2013. While many factors have contributed to premium spikes in exchange coverage in some states, one quoted across the board has been that fewer young people than expected signed up for coverage. Had young adults not been able get coverage through their parents’ plans, it’s possible a portion of them would have signed up for exchange coverage. And having these younger, and generally healthier (i.e., lower risk) individuals in the pool might have helped to keep the premiums down.
Leading up to Thursday’s vote in the House on the AHCA, the GOP’s repeal and replace bill, lowering the dependent eligibility age to 23 was on the list of possible amendments but then withdrawn. As acknowledged in thisPolitico article, repealing the provision would be political suicide for anyone that proposes it; people don’t react well to losing a benefit they’ve gotten used to having. Yet the upsides for removing this provision are, in principle, aligned with GOP repeal and replace goals, namely, removing additional costs imposed through the ACA and helping to stabilize the individual market.
One approach might be to phase out this provision, or grandfather individuals born before a certain date, so that families have time to prepare and plan for alternative coverage for their older children. Of course, this only works if there’s an affordable health care option for these young adults on the exchanges. If the current subsidies are reduced to the levels proposed under the AHCA (an individual under 30 would only receive $2,000 towards health coverage per year regardless of income or location beginning in 2020), then leaving these individuals to the mercy of the individual market may not be wise; it could create a “black hole” of coverage from age 26 perhaps until the age when people are starting their families and see an absolute need for care. So while employers as well as the individual market could benefit from a rollback of this provision, adequate subsidies on the exchanges would need to be in place to help these individuals purchase and maintain continuous coverage.
Before the ACA, many self-employed individuals found it challenging to find a health plan on the individual market that met their needs, let alone to pay for it. Post ACA, the ability to obtain affordable coverage not tied to an employer has givenentrepreneurs in the growing ‘gig’ economy the flexibility to pursue their goals without having to worry about maintaining health coverage. These days may be coming to an end if the new GOP health care bill passes, however. Under theAmerican Health Care Act or AHCA, subsidies are dependent on age, as opposed to income (like under the ACA), and are not adjusted for geography, even though health costs vary widely depending on where you live. This could mean big changes in the amount of assistance an individual would receive under the AHCA compared to under the ACA. As cited in the article, a 40 year-old in San Francisco making $30,000 a year would receive $800 less a year under the new plan, and a 40 year-old living in Santa Cruz County, CA would see a $2,490 less per year -- potentially putting coverage out of reach.
A study published by the McKinsey Global Institute estimates that U.S. has between 54 million and 68 million ‘independent workers’, with some working independently full-time and others using independent/freelance work to supplement their primary income. With the proposed changes under the AHCA, some individuals may try to seek traditional employment for the purpose of healthcare coverage, or they may just choose to go without coverage completely. While critics of ACA subsidies have said they discourage people from seeking employment or advancing their careers since an increase in income would result in a decrease in subsidies, this new plan could have the same discouraging impact on the next generation of entrepreneurs.
Today is the seven-year anniversary of the signing of the ACA, and we spent it with our eyes glued on the House, waiting for a vote to repeal the law. It looks like the vote is delayed, so too soon to call if it’s lucky number seven for the Republicans or the Democrats.
Meanwhile, there’s no question that the ACA has had a big impact on the US healthcare system -- particularly for the relatively small segment of the pre-65 population that doesn’t have access to care through an employer-sponsored plan. Many millions of people have gained insurance because of the law, which was its primary goal.
But the ACA has had an impact on employers, too, and it’s less clear what that has accomplished in that arena. A look at our survey data is a reminder of the hoops we’ve jumped through since the law was passed. Two big ones:
- In 2013, nearly one-third of employers did not offer coverage to all employees working 30+ hours per week. By 2016, virtually all of them had taken steps to make the offer of coverage to their formerly part-time workers, and all employers were tracking and reporting employee hours to demonstrate compliance. At the end of the day, all this administrative effort appears to have resulted in little benefit -- enrollment levels overall barely budged.
- Administrative burden is one thing -- the Cadillac tax is another. We can’t say it enough: the tax is not an effective method of penalizing rich plans because plan design is only one factor affecting plan cost and often less important than location and plan-member demographics. We initially projected that 33% of employers were at risk of being taxed in the first year, a number that would increase every year as benefit cost rose faster than the threshold amounts. Many employers responded by implementing and steering employees into consumer-directed health plans. While such a move might have been a sound strategy in any case, unfortunately about a third of employers have said they have made changes they would not have made in the absence of the tax, such as unbundling medical and dental/vision coverage, raising deductibles and other cost-sharing provisions, and eliminating healthcare FSAs.
Yet all along, employers have continually reaffirmed their commitment to offering health insurance. In 2010, just 6% of large employers said they were likely to terminate coverage within five years. By 2016, that already small number had shrunk to just 2%. In other words, the vast majority of employers really didn’t need a law to get them to offer coverage.
Whenever the vote and whatever the result, we’ll continue working with employers and policymakers on making a better, more efficient healthcare system for all.
Despite last week’s cold snap, the bloom of cherry blossoms along Washington DC’s Tidal Basin is now under way – a peaceful sight that belies this stormy moment in Congress, where new healthcare legislation is being debated and the headlines seem to shift from moment to moment. However, one thing is for sure: any legislation affecting the US healthcare system must consider the impact on employer-sponsored health insurance – the source of coverage for 177 million Americans, 16 times the number enrolled in public exchanges.
That’s why the leadership of MMC companies Mercer and Oliver Wyman created a health policy group to help formulate MMC’s views on ACA repeal-and-replace legislation. Our efforts led to the issue of a policy paper that showcased original Mercer research on changing the tax treatment of employer-sponsored coverage.
Last month, we took this research to the US House of Representatives to meet with policymakers actively working on the newly proposed American Health Care Act, or AHCA. We demonstrated that the excise tax on high-cost plans, currently law under the ACA, is not an effective method of penalizing rich “Cadillac” plans because plan design is only one factor affecting plan cost and often less important than location and employee demographics.
This would also be true of a cap on the employee individual tax exclusion for employer-provided health benefits, a provision included in an early draft of the AHCA and favored by powerful voices such as House Speaker Paul Ryan (R-WI), House Ways and Means Chair Kevin Brady (R-TX) and new HHS head Tom Price. Mercer had also modeled the impact such a cap would have on the effective tax rates of Americans based on their income. The hardest hit, by far, would be lower-paid workers with families. Some staffers faced with this information for the first time were visibly struck.
When the bill was released for mark-up, the cap on the exclusion was not included, and the Cadillac tax was delayed until 2025 (and possibly 2026). But while we were pleased with this outcome, we also knew the bill was a long way from becoming law and the cap could easily resurface.
It was my privilege to meet last week with Senators Rob Portman (R-OH) and Tom Carper (D-DE), both members of the Finance Committee; Senator John Cornyn (R-TX), Majority Whip and Member of the Finance Committee; and Senator Orrin Hatch (R-UT), Chairman of the Finance Committee. I urged them, first and foremost, to preserve the health benefit tax exclusion, and secondly, to liberalize HSA rules. I also discussed the potential impact of proposed cuts to the Medicaid program, and our concern that a surge in uncompensated care would cause providers to shift cost to private group plans – making it harder for employers to continue to provide adequate coverage to their workers.
Our work is far from done. I look forward to returning to Washington as the legislative debate continues – to advance the goal of preserving and enhancing the employer-sponsored healthcare system that is a stable source of good health coverage for approximately half of all Americans.
Join me on LinkedIn to continue the conversation. How will changes in healthcare policy have an impact on your organizations and people?
In an effort to garner more support for their ACA repeal legislation, House Republican leaders revealed changes to the legislation on Monday night pending the Rules Committee vote before going to the House for their vote. Of greatest interest to employer plan sponsors is the delay in the Cadillac Tax from 2025 to 2026. The bill’s amendment repeals some of the other ACA taxes retroactively to the beginning of 2017 instead of 2018 as originally proposed. Other changes include additional funding to increase tax credits for older Americans and some Medicaid revisions.
In light of the changes, the House Freedom Caucus has indicated they won’t oppose the legislation, but they may still have enough “no” votes to kill the bill. President Trump went to the Hill on Tuesday to help the House Leaders secure support for the bill. In the meantime, the CBO is analyzing the changes and is expected to issue a new CBO score before Thursday’s House vote. The Brookings Institution doesn’t expect a meaningful improvement in the score.
What happens to the ACA has serious implications for employers. In response to the recent introduction of the American Health Care Act, which seeks to repeal much of the ACA and replace it with new policies, we’ve prepared a very brief survey to gauge employer response and ensure your voice is heard.
You can access the survey here. Your response will be kept strictly confidential.
The survey will close Wednesday, March 22. If you provide us with an e-mail address, we’ll send you the results. You’ll also be invited to register for a free webcast about the AHCA which will include a discussion of the survey findings.
The Congressional Budget Office (CBO) estimates that House Republicans' legislation repeal and replace much of the Affordable Care Act (ACA) will reduce federal deficits by $337 billion and increase the number of uninsured by 24 million -- for a total of 52 million uninsured people -- by 2026.
While most of the projected coverage losses are in the individual market and under Medicaid, CBO projects that fewer people -- 2 million in 2020 and 7 million in 2026 – would enroll in employer coverage under the bill as a result of eliminating individual and employer mandate penalties while making tax credits available to a wider range of people (e.g., people with higher incomes). The GOP bill’s tax credits would only be available if an individual does not have an offer of health coverage from their employer or elsewhere. While these changes might cause some employers to offer coverage to fewer employees, CBO said employers may adapt slowly to the legislation given the uncertainties.
The projected coverage losses are heightening concerns by moderate Republicans - particularly in the Senate - about the House bill, while conservatives are demanding changes that could further increase the number of uninsured. Congressional GOP leaders and President Trump are discussing potential revisions to the bill ahead of a House vote that could happen within weeks, and the CBO is expected to issue new projections as the legislation changes.
On Monday the CBO released its much-anticipated score of the American Health Care Act, the Republican legislation to repeal and replace the ACA. The CBO projection shows a loss in healthcare coverage for 24 million Americans over the next decade, accompanied by a reduction in the federal deficit of $337 billion. The state Medicaid programs are taking the biggest hit, with a decrease in funding of $880 billion during the same time period. In the short term, the CBO projects that health insurance premiums in the individual market will increase 15-20% and 14 million fewer Americans will have coverage as soon as next year.
None of this bodes well for employer-sponsored medical plans. At the time the CBO score was released, I was speaking at the Society for Human Resource Management's 2017 Employment Law & Legislative Conference. We asked the employers in the audience to respond to a polling question – “If healthcare reform were to occur this year, what are your concerns?” Overwhelmingly, the top concern was that a rise in the number of uninsured will lead to cost shifting by providers to employer-sponsored plans.
That was the theme of a recent article I co-authored with Terry Stone from Oliver Wyman. We argued that cost-shifting fails to address the underlying causes of cost growth – it may even worsen it. Moreover, increasing the cost burden on employers will simply make it harder for them to provide affordable coverage to the many millions of health consumers – 177 million, to be precise – who receive benefits through work. You can read more about our recommendations from health reform in this report.
This article discusses the tax conundrum Republicans are facing as they try to repeal portions of the ACA. In short, legislation passed through reconciliation cannot increase the deficit beyond the budget window. With the proposed repeal of most of the ACA taxes, Republicans are using the Cadillac Tax to “smooth over the budget math.” The Cadillac Tax is disliked on both sides of the aisle so there’s still hope for a full repeal before the 2025 effective date. In the meantime, employer groups like the Alliance to Fight the 40, American Benefits Council, and ERIC continue to oppose the tax.
Employers recognize the important role of healthy communities in employee well-being. The government plays an important role in creating healthier communities through the support and funding of public health initiatives. That’s why we found The American Health Care Act’s repeal of the Prevention and Public Health Fund concerning. The fund provides money to the CDC to support disease prevention programs. The loss of funding is likely to impact:
- The federal vaccines program which ensures healthcare providers receive the vaccination doses they need and mobilizes responses to disease outbreaks.
- Public health programs aimed at preventing and reducing the risk of heart disease.
- Programs to reduce the risk of healthcare-associated infections. One-hundred percent of the money the CDC uses for this effort comes from this fund established under the ACA.
Prevention and public health funding addresses community health, and communities are where employees live. Well-being is linked to improved productivity, absenteeism, presenteeism and healthcare utilization – all factors that can impact a business's bottom line. For individuals, health and well-being affects both financial security and quality of life.
Just FYI. Since the ACA was enacted, there has been a succession of repeal and replace proposals coming out of Washington, culminating in this week’s House Republican bill. The Kaiser Family Foundation makes it easier to compare and contrast the proposed changes to specific ACA provisions with an interactive tool posted on their website. Click on a provision, for example, “Premium subsidies for individual,” to see how subsidies are currently handled under the ACA and how that changes in the proposed American Health Care Act. Take it a click further to see this same provision in any of five other proposals, including HHS leader Tom Price’s “Empower Patients First” Act from 2015. Given predictions that the AHCA will have a tough time getting to the President’s desk as currently written, you may want to bookmark this page.