Early results from a Mercer survey made headlines this week with the news that employers are projecting that per-employee health benefit cost will rise by an average of 4% next year after they make planned changes. That’s in line with the moderate cost increases we’ve been seeing over the past few years. What was more eye-opening was finding that underlying cost growth -- the change in cost employers would see if they made no changes -- has slowed to just 5.5%. That’s a gap of just 1.5 percentage points -- the smallest we’ve seen yet.
What does that mean? For one thing, it suggests that plan members might not see major increases in deductibles and out-of-pocket maximums. Employers have been pretty aggressive with cost shifting since the ACA was passed six years ago, and many feel they have gone as far as they want to go for now. The initial plan design changes required by the ACA added cost, driving up deductibles and out-of-pocket maximums as employers sought to absorb the increases. Since then, employers have been working to ensure their future costs stay below the threshold that would trigger the 40% excise tax.
The new survey results suggest these efforts are working to hold down underlying cost growth. That, along with the delay in the excise tax implementation date (and the potential for repeal), has given employers some breathing room. In 2017 we can expect to see them continue to nudge workers to move to lower-cost plan options. That nudge will likely take the form of a bigger difference in the employee contribution or maybe a little more funding in a health savings account. Most employers remain reluctant to offer a high-deductible plan as their only plan, but they have made progress in getting people to move to them.
You can find the press release with the preliminary survey findings here. Full survey results will be released later this year.
Confronting issues around healthcare costs is a significant challenge facing today’s small- and medium-sized businesses. While you might think your size limits your options, that’s not necessarily the case.
In fact, whether or not any particular small- or medium-sized company can actually reduce its health insurance premiums while maintaining the same level of coverage depends on each entity's specific situation. But there are some general techniques that will apply to all. Here are four actionable approaches to controlling healthcare costs:
- Negotiate better
This may seem obvious. The proposal you receive for next year is not necessarily the carrier’s best and final offer. Sit down with your broker to develop a renewal, marketing and negotiation strategy. A well-planned approach will help you get the lowest possible cost and leverage everything that today’s competitive marketplace has to offer.
- Investigate turn-key health and benefits solutions
Don’t assume you have to manage everything within your company. Investigate offerings that provide a “turn-key solution” that includes more personalized health and benefits support. A benefits solution like Mercer Marketplace 365+ would take the stress out of healthcare for your employees, making them happier and healthier in more ways than one.
- Switch to individual plans
Although it’s not a common strategy, some businesses have considered an individual plan approach that eliminates the employer contribution and positions employees who qualify to take advantage of subsidies that could provide them with coverage at around $100 a month. Options for individuals exist on the public exchange as well as in the private market. Be sure to consider potential penalties under the ACA and any impact this approach may have on other important business objectives, such as the ability to attract and retain employees.
- Promote a “Culture of Health” within the office
Reward employees for taking care of themselves and living a healthy lifestyle by giving them tools to track fitness goals and introducing lifestyle initiatives. These incentives will also motivate employees to take advantage of the benefits they have, such as their annual check-up. Studies show that leaders who live and promote healthy lifestyles are successful at getting employees to do the same.
The key to controlling company healthcare costs lies in having a plan -- and putting it to work.
Did you know that, on average, the sickest 4% of the population represents 41% of the total allowed medical and pharmacy spend? It’s hard to believe -- and even harder to manage. That’s why we created Mercer Health AdvantageSM (MHA), a proprietary, high-intensity care management program designed to manage care for employees with serious/chronic conditions -- and we’ve seen some great results. In fact, according to a study released this week, employers who offered MHA realized a combined average return on investment* of $2.70 in health care savings for every $1 spent.
Further, our analysis showed average annual savings of $338 per employee along with significant improvements in the quality of care for the most ‘at-risk’ patients. Based on 2014 clinical results, there was a much sharper decrease in hospital admission rates for the MHA-engaged (-18%) compared to the non-engaged (-5%) population.
MHA drives coordinated patient engagement -- at the right time, with the right providers. Individual health plan programs vary, but the core MHA model is based on a single registered nurse from a given health plan working with a dedicated team of other specialty clinicians, including social workers, pharmacists, physicians, and behavioral health specialists from the plan to coordinate patient care. This holistic, high-touch approach encompasses not only clinical care, but also addresses such important issues as spousal/family involvement, mental/psychological monitoring, and post-care monitoring.
Be sure to check out this case study to learn how a large aerospace company used Mercer Health Advantage to better control costs and improve patient outcomes.
*ROI is based on an analysis of claims data and program activity. Various best-practice methods are used to estimate savings from avoided costs attributable to program activity. The Mercer Health Advantage service was available through Aetna, Anthem, HCSC and UHC in 2014, and, as such, the ROI result herein is based on their combined performance.
The current employee tax exclusion for employer-provided health benefits came under scrutiny by lawmakers at an April 14 hearing held by the House Ways and Means Committee. Hearing witnesses included experts who argued that capping the employee income tax exclusion and providing universal tax credits would help to raise workforce wages, among other advantages. But a third witness warned that capping or ending the tax exclusion would undermine employer-sponsored coverage by removing a key incentive for employers to offer health plans, and break up employer risk pools that now include participation by younger, healthier workers.
The hearing comes as a House Republican task force continues work on developing an alternative to the Affordable Care Act (including repeal of the law’s “Cadillac” excise tax on high-cost plans). The task force is considering proposals that would cap or end the employee tax exclusion, using the resulting revenue to establish income tax credits or a standard deduction for the purchase of health insurance.
Recent Labor Department guidance clarifies how the ACA interacts with the Service Contract and Davis-Bacon Acts, which require government contract workers to receive prevailing local wages and fringe benefits. The new memorandum to federal contracting agencies addresses several questions, including that employers paying an employer shared responsibility assessment can’t credit that amount against their Service Contract Act or similar obligations.
When employers are asked how they plan to control health benefit cost over the long term, they talk about improving employee health. This focus on employee health is one factor fueling growth in worksite clinics. Last year, Mercer’s National Survey of Employer-Sponsored Health Plans found that 29% of employers with 5,000 or more employees provided an onsite or near-site clinic offering primary care services, up from 24% in the prior year. Mercer followed up with these employers in a new, targeted survey on worksite clinics. Of the 134 respondents, 72% of those whose clinics provide general medical services said that managing employee health risk and chronic conditions is an important objective for the clinic.
Worksite clinics are a convenient way for employees to undergo biometric screenings (offered at 77% of clinics), participate in face-to-face chronic condition coaching (60%), and take part in lifestyle management programs such as smoking cessation (59%) or weight management (56%). Pharmacy services are offered at 38% of clinics, and just over a fourth (26%) provide mental health or employee assistance program (EAP) counseling in their clinics.
For more than two-thirds of survey respondents (68%), improving access to care was also an important objective. As the Affordable Care Act (ACA) expands health coverage to more Americans, primary care shortages in some parts of the US could be exacerbated. Establishing a new clinic, or expanding an existing occupational health clinic to provide general medical services, is one way employers can ensure that their employees — and in some cases employees’ dependents — will have access to quality care.
While the ACA may have spurred employer interest in worksite clinics, an IRS notice released this February has clouded the picture by suggesting that the cost of care received through the clinic must be counted in the ACA’s excise tax calculation. Some respondents (15%) believe their general medical clinic will hurt them in terms of the excise tax calculation by pushing them over the threshold for the excise tax, and some (11%) believe it will help, presumably by holding down the cost of the company’s health plan. Another 28% believe it won’t have an impact either way, and 46% simply don’t know how the clinic will affect the calculation. Typically, the cost of the clinic accounts for 10% or less of an employer’s total health care spend and for about half of the respondents, it accounts for 5% or less.
Measuring clinic success
The great majority of respondents — 85% — say that their organization generally perceives the clinic as a success. Specifically, 63% say it has successfully reduced lost work days, and 58% say it has been successful in helping members control chronic conditions.
Measuring return on investment (ROI) remains a challenge for employers, and only 41% of respondents were able to provide ROI data. An ROI of 1.00 to 1.99 was most common (23% of respondents reported ROI in this range), and 13% percent reported an ROI of 2.00 or higher. Only 5% have an ROI of less than 1.00.
The best measure of employee satisfaction may be utilization. Respondents report that 45% of employees, on average, used the clinic in 2014. Nearly half of respondents (48%) with a general medical clinic don’t require any copayment for clinic services, and 25% require a lower copayment than the employee would pay for comparable services under the company health plan. The majority of respondents with hourly employees (61%) do not require them to clock out of work for visits to the clinic.
For many employers, employee satisfaction is a more important measure of success than ROI. If employees are using the clinic, it means they haven’t been taking time off work to visit a doctor, and that they’re getting the medical care they need to stay healthy and productive.
There’s been a fair amount of buzz about this Bloomberg article, which concludes that the ACA has caused “barely a ripple in corporate America” in terms of its effect on profits. Their findings were based on a review of conference-call transcripts and interviews, and it makes sense when you consider that most employers – and virtually all “major U.S. employers” – already provided comprehensive health coverage to employees that met the new requirements for value and affordability. This is an important point, and one that sometimes gets lost in all the debate. It should also be acknowledged that employer health benefit professionals have been working hard to slow benefit cost growth and keep this item off the agenda of investor calls. Still, the law has affected different employers to different degrees. Among smaller employers – those with fewer than 200 employees – and those with large part-time populations, the ACA has had a bigger impact. (And even among larger employers, what has helped to keep this item off the agenda of investor calls is the slowing cost trend – the product a lot of hard work by health benefit professionals.) The article also downplays the added administrative effort needed to comply, which for many employers has had to be the focus of health benefits strategy for the past few years. Finally, there’s no mention of the upcoming excise tax on high-cost plans, which will potentially affect employers of every size. Employers have already been taking decisive action to avoid hitting the tax threshold but many acknowledge that it may not be possible. Those that wind up paying tax on already costly coverage may feel they’ve been hit by more than a ripple.
Employers, keep pushing on health care pay-for-performance! That was one theory to account for the recent slowdown in health care spending growth aired at a forum held by the Altarum Institute in Washington, D.C. last week. This article in Bloomberg BusinessWeek focused on a presentation by Peter Orszag, former director of the White House Office of Management and Budget (now with Citibank) that medical providers, and hospitals in particular, are changing their ways in preparation for the end of fee-for-service reimbursement. He cited the drop in hospital readmission rates as evidence that the industry is responding to what they see as the future – reimbursement that rewards quality, not quantity – even though the incentives to provide more care are still currently in place. It’s an interesting -- and encouraging -- point of view (I’m typing with one hand as I knock on wood), even if another expert at the forum, Uwe Reinhardt, said no one really has a full explanation of the current slowdown in cost growth. FYI, the article includes links to all the presentations.