Having made it through the first year under Employer Shared Responsibility requirements, you may be ready for a break from the subject of ACA compliance. As we discussed in an earlier post, in a recent survey of 644 employers, very few believed they would be liable for penalties for 2015. That’s the good news. But while it’s one thing to achieve compliance, it’s another to consider how best to get there.
How you handle the affordability requirement may be one aspect of compliance that evolves over time. The survey found that 38% of all respondents -- but 63% of those with 20,000 or more employees -- used the Federal Poverty Line safe harbor to demonstrate that their plans are affordable. About a fourth of all respondents took action to meet the FPL safe harbor, by adding a new low-cost plan (13%) or lowering contributions in an existing plan (9%).
You might consider the creative use of salary bands for setting contributions. For example, if you set the lowest band at 400% of FPL, you don’t have to worry about demonstrating affordability for employees in salary bands above that. While only 15% of employers in our survey say they are using salary bands, another 13% indicate they are considering.
One in 10 survey respondents had to take action in 2016 because the “offer of coverage” threshold was raised from 70% of full-time employees to 95%. And about a fourth of all respondents have experienced an increase in health plan enrollment because of ACA requirements -- including almost half of hospitality employers and over a third of health care and retail employers. As enrollment grows, so does the importance of getting your contribution strategy right.
The deadline for ACA reporting to the IRS about coverage in 2015 was extended from March to June, and at this point most employers have a handle on their results. As reported in our recent survey – Living with Health Reform – virtually none of the nearly 650 survey respondents believe they will be liable for the “a” assessment – meaning they all offered coverage to substantially all employees working 30 or more hours per week. And just 8% thought they might be at risk for the “b” assessment – meaning that some of their employees might qualify for and obtain subsidized coverage on the exchange because their employer’s plan did not offer affordable contributions or meet minimum plan value requirements.
However, the requirement to offer coverage to “substantially all” employees working 30 or more hours per week will get harder to meet in 2016 when the definition of “substantially all” increases from 70% to 95%. Employers with limited-duration employees, like long-term temps and interns, might become liable for an assessment. About one in four respondents say they will pull back on use of these workers, and another 16% are considering it.
Are you interested in learning more about the ACA’s impact on employers and how they are responding? Join us for our April 28 webcast where we’ll share more of the highlights and insights from our latest survey.
Employers have made their opinion about the excise tax clear. There is another Affordable Care Act (ACA) provision, however, that irks them nearly as much: the employer mandate. In our recent survey of 644 employers, we asked employers what changes they would like to see made to the ACA. Repealing the excise tax was first, with 85% in favor, but repealing the employer mandate was second, favored by 70%. It’s not that employers don’t want to offer coverage; it's that proving they offer coverage is so much work.
Following closely behind on the employer “wish list” is changing the definition of a full-time employee to 40 hours per week. Employers and policy makers have debated this issue since the law passed. There has been support from lawmakers but the cost associated with changing the definition is the major deterrent holding up a change.
Rounding out the top four is repeal and replace. This is one of the most surprising insights from our survey. Fifty-four percent of respondents favor a repeal strategy even though they don’t know what a replace strategy would look like. You may want to be careful what you wish for, especially in light of the hearing last week on employee tax exclusion for employer-provided health benefits.
Are you interested in learning more about the ACA’s impact on employers and how they are responding? Join us for our April 28 webcast where we’ll share more of the highlights and insights from our latest survey.
We’ve been tracking employer adoption of, and interest in, private health exchanges through Mercer’s National Survey of Employer-Sponsored Health Plans for the past few years. Currently 6% of large employers either use an exchange now or will implement one this year for 2017. That’s doubled from 3% using an exchange in 2014 – a strong rate of growth, even if the numbers are still small. Perhaps more telling, more than a fourth of large employers say they are considering moving to an exchange within five years.
To look more closely at how one exchange works, we must turn to a different source of data: the 222 employers that now provide benefits to their active employees through Mercer Marketplace. We now have three years of data behind us on the cost reductions our clients are experiencing with Mercer Marketplace.
- On average, they have saved 9% (and up to 15% in some cases) on their benefits plans. That averages $975 per enrolled employee.
- While the average health benefit cost per employee increased 3.8% from 2014 to 2015 across the market, Mercer Marketplace clients experienced an average year-over-year increase of only 1.6%.
- One of the keys to savings on both sides – employer and employee -- is that employees are more informed in their decision-making. For some, that means realizing the benefits of enrolling in higher-deductible plans. In fact, 56% of enrolled employees choose high deductible plans on Mercer Marketplace. That’s much higher than the average 29% enrollment reported by large employers that offer a HSA-eligible consumer-directed health plans as a choice.
Contributing to these savings is the enhanced purchasing power, network influence, state-of-the-art wellness program and buying coalitions that are all part of the Mercer Marketplace value proposition. And, as Tracy Watts describes in her recent post, these savings are achieved while the employer’s administrative burden gets lighter, not heavier.
Every year when we tabulate our survey results, we eagerly dive into the results for jumbo employers (those with 20,000 or more employees) to identify and measure movement in the latest health benefit management trends. The jumbo employers have long been the pioneers driving health care innovation. They cover more people, so more at stake. They also tend to have more resources - people and financial - to devote to the cause. Their focus is not just cost, but also includes the other two components of the triple aim - quality and engagement. How do we know it works? Historically they have demonstrated lower rates of increase in health care cost than the overall averages and at the same time maintained richer benefits (lower deductibles, etc). But the real proof is in an analysis we do of 25 best practices across large employers in three areas – plan design, workforce health, and care delivery – where those in the top quartile for most best practices outperform those in the bottom quartile with about one percent lower trend.
Cost-management best practices
Plan design and delivery infrastructure
|Contribution for family coverage in primary plan is 20%+ of premium||Offer optional (paid) well-being programs through plan or vendor||High-performance networks|
|PPO in-network deductible is $500+||Provide opportunity to participate in personal/group health challenges||Surgical centers of excellence|
|Offer CDHP||Offer technology-based well-being resources (apps, devices, web-based)||On-site clinic|
|HSA sponsor makes a contribution to employees’ accounts||Worksite biometric screening||Telemedicine|
|Voluntary benefits integrated with core||Encourage physical activity at work (gym, walking trails, standing desks, etc.)||Value-based design|
|Mandatory generics or other Rx strategies||Use incentives for well-being programs||Medical homes|
|Steer members to specialty pharmacy for specialty drugs||Spouses and/or children may participate in programs||Accountable care organizations|
|Reference-based pricing||Smoker surcharge|
|Data warehousing||Offer EAP|
|Collective purchasing of medical or Rx benefits|
|Transparency tool provided by specialty vendor and/or used by 10% of members|
|Use private health benefits exchange|
While we like to pay attention to what jumbo employers are doing and use it as a lens to predict market movement, it does not mean they are the only employers doing innovative things. Let's take a look at some newer practices that we all could take advantage of:
- Provide access to Accountable Care Organizations. While the ACOs are still very much in the developmental stage, the move from fee-for-service to value-based care is starting to take hold to deliver better care.
- Expansion of the scope and reach of Centers of Excellence (COE) is another emerging trend. While we see the list of conditions for COE expanding, there are two schools of thought about how many facilities are best to offer. Some programs identify a small number of best-in-class facilities nationally and others take a regional best-in-class approach to provide access a little closer to home.
- Use technology to engage employees in caring for their health. Employers are incorporating wearables and mobile apps into their well-being programs to help
- Telemedicine is one of the fastest growing trends. It offers employees a way to access care at a significantly lower cost in the convenience of their homes.
- Onsite services are another way to "meet employees where they are.” Worksite clinics, although not without their challenges, have been implemented by a growing number of larger employers. But smaller employers have new options to consider in this space, like shared or near-site clinics.
Where to start? One of the best practices that has been on our list since the very beginning is access to claims and utilization data in a data warehouse. It is likely not feasible or even practical, to try to do everything. Use your data to identify where the greatest opportunities are to focus your efforts and get you on the right path to tackle the triple aim.
As we’ve reported, consumer-directed health plans have mushroomed during the health reform era. In 2015, exactly half of all large employers (those with 500 or more employees) offered a CDHP eligible for a health savings account -- yet only 5% offered it as the sole plan available to employees at their largest worksite. Still, many employers are at least thinking about a full-replacement strategy.
In designing a full-replacement plan, how do employers take into account the fact that the plan must now work for all employees, rather than the minority who typically select it? And how is cost affected? To find out, we analyzed data from Mercer’s National Survey of Employer-Sponsored Health Plans to compare HSA-eligible CDHPs offered as a full-replacement strategy to those offered alongside PPOs or HMOs. Here’s what we learned:
Employee demographics: Employees enrolled in a full-replacement plan are older, on average, than those enrolled in HSA plans offered as an option (44 years versus 41 years), and they are also more likely to elect dependent coverage (58% versus 53%).
Plan design: Plan design is generally richer among the full-replacement plans. Employers are more likely to make a contribution to a health savings account (80%, compared to 71% of those offering the plan as an option), and the median contribution amount is higher ($700 compared to $500 for employee-only coverage, and $1,400 compared to $1,000 for family coverage). While the median in-network deductibles are actually higher in the full-replacement plans (by $200 for employee-only coverage and $400 for family coverage), out-of-pocket limits are significantly lower (by $800 for employee-only coverage and $1,600 for family coverage), to protect employees that incur significant medical expenses.
Employee contribution requirements: Employee contributions are somewhat lower as well. Among the full-replacement plans, employees contribute 18% of premium, on average, for employee-only coverage and 23% for family coverage, compared to 20% and 27% among plans offered as an option.
And what about cost savings? With younger (and presumably healthier) employees in the optional HSA plans and richer plan design in the full-replacement plans, it’s not surprising that the average per-employee cost of coverage in the full-replacement plans is higher than in the plans offered as a choice -- $9,835 compared to $9,032. Clearly, the opportunity for tax-advantaged savings can make an HSA-eligible plan more attractive to many employees than a traditional PPO with similar cost-sharing levels. And plans that incorporate effective transparency tools and other consumerism resources may deliver higher-than-average savings. However, this analysis suggests that most HSA sponsors are not willing to offer as lean a plan when it’s the only type of plan rather than a choice among traditional options -- and that will necessarily be a limiting factor when it comes to cost savings.
And as organizations go through the significant change management process of moving away from traditional medical plans to all HSA-based ones, they may well be finding that reinvesting some of the savings back into making the program more worker-friendly could be just the sweetener they need to support attraction, retention and a happier work-force.
An important caveat: Because so few large employers currently offer an HSA plan as a full replacement, these results should be considered suggestive rather than representative.
It was nice while it lasted. The average annual increase in prescription drug benefit cost jumped up to 8% in 2015 after five years of hovering around 5%–6%. Many employers remember the long period of double-digit drug cost increases in the late 1990s and early 2000s. We’re not back to that point yet, but we’re heading in that direction.
It’s a perfect storm of cost pressure. The influx of new generic drugs into the market has slowed, so we’ve lost that brake on cost growth. At the same time, we’re seeing unexpected increases in the cost of many generic drugs. Employers and pharmacy benefit managers (now used by 19% of all employers with 500 or more employees and nearly half of those with 10,000 or more) have given employees strong financial incentives to select generics over brand-name drugs, but this tactic has become less effective as the cost of generics rises.
Topping the list of cost drivers, however, is the increased use of new specialty medications for treating complex diseases like cancer, MS, and hepatitis C. The largest employers (those with 10,000 or more employees) are the most likely to track the cost of specialty drugs separately. Among the 65% that can track cost, the average increase in 2015 was a whopping 25%.
What can employers do to protect themselves from this resurgence of prescription drug benefit cost growth? Participating in a prescription drug purchasing coalition gives employers leverage to improve the terms of their contracts with pharmacy providers. In addition to the immediate cost savings, employers in collectives have access to enhanced clinical oversight that helps to moderate cost growth and improve pharmacy adherence among patients with chronic conditions. The largest employers have been the first to join: While 16% of all large employers belong to a purchasing coalition, that number rises to 24% of employers with 5,000 or more employees.
Consider whether you’re doing enough to encourage the use of generic drugs, which now account for about 80% of all prescriptions. Employers have kept the copayments for generic drugs low (while raising copays for brand-name drugs) to make generics the more attractive choice for plan participants. Is it time to think about raising them, or moving to coinsurance? About a third of employers (32%) have gone further by implementing a mandatory generics provision within their drug plan, although some will allow a physician to override the requirement. Step therapy -- the use of generic or preferred brands required before a non-preferred brand -- is required by 55%.
We’ll address strategies for managing specialty drug cost growth in an upcoming post. Meanwhile, you can start by asking your carrier or PBM for a separate accounting of specialty drug costs, and what they’re currently doing to address the issue.
While Mercer’s surveys have consistently shown that large employers remain committed to offering health coverage, in the early days of health reform, sizable numbers of small employers thought it was likely that they would drop their plans and send employees to the public exchange. In 2013, 21% of employers with 50-499 employees said they were likely to drop their plans within the next five years; this number fell to 15% in 2014 and to just 7% this past year. Among employers with 500 or more employees, just 5% say they are likely to drop their plans, essentially unchanged from 4% in 2014. Even back in 2010, when there was greater concern that new health plan requirements under the ACA would drive up cost, just 6% of large employers said they were likely to terminate their plans within five years.
In that year, a fifth of small employers thought it was likely they would drop coverage. However, when we released these results, we also pointed out that in Massachusetts, where insurance exchanges had been operating under state-based health reform for over three years, it hadn’t happened. In fact, a study published in the June 2010 issue of Health Affairs found that enrollment in employer plans in Massachusetts grew during the four years in which many of the reforms on which the federal reform law was based had been in place. That finding suggested that few employers had chosen to drop plans despite the low penalties under the state’s "play or pay" rule.
Employers are moving quickly to implement telemedicine services -- telephonic or video access to providers -- as a low-cost, convenient alternative to an office visit for some types of non-acute care. According to Mercer's 2015 National Survey of Employer-Sponsored Health Plans, offerings of telemedicine services jumped from 18% to 30% of all large employers in 2015. And, since an additional 35% said they were considering it, another big increase is likely this year. Among the nation’s largest employers -- those with 20,000 or more employees -- 44% already offered telehealth services in 2015.
What's driving this growth? One factor may be another benefit trend: the rise of the high-deductible consumer-directed health plan. Employers have learned that the higher deductible can be a real deterrent for employees and are looking for ways to help them stretch their health care dollars. Access to telemedicine provides them with a real, and financially substantive, “shopping” choice. Where a traditional office visit might cost $125, a telemedicine visit typically costs about $40.
Then there’s the convenience factor. When you’re not feeling well, it’s nice to have the option of consulting with a physician without getting off the couch. And, in the internet era, consumers are increasingly comfortable with accessing services through their phones, tablets, and laptops.
For employers, telemedicine offers an opportunity to save as well as to provide a valuable benefit for employees. If an employee can get the help he or she needs through a telemedicine visit instead of a trip to the ER, that’s a considerable savings. But when asked about their objectives, 85% say that the most important reason for offering telemedicine is to provide employees with a more affordable, convenient source of care.
Of course, savings for both employer and employee will hinge on utilization, and, as with any new program, it will take a while for those numbers to grow. Among employers offering telemedicine in 2014, only about a fourth (26%) reported a utilization rate of 5% or higher in 2014.
But that could grow quickly if telemedicine truly meets a consumer need. A recent article reports that a major telemedicine provider released data showing that it facilitated 575,000 remote visits between patients and providers during 2015 -- a 92% increase over 2014!
So if you’ve been taking a wait-and-see approach to telemedicine, it may be time to more seriously explore this fast-growing benefits solution.
Last week the Centers for Medicare and Medicaid Services (CMS) released a report on U.S. health care expenditures in 2014. The big news was that total spending rose 5.3%, ending a multiyear trend of sharply smaller cost increases -- a 2.9% rise in 2013 and an average annual increase of 3.7% from 2009 through 2013. The national tab surpassed $3 trillion, a number most of us can’t comprehend, but it works out to about $9,500 per person.
CMS attributes the acceleration in cost to expansion of coverage under the Affordable Care Act (ACA) -- subsidized coverage on the exchanges began in 2014 -- and a sharp increase in spending on specialty prescription drugs, especially new therapies to treat hepatitis C.
Meanwhile, employers reported increases in total health benefit cost per employees of 3.9% in 2014 and 3.8% in 2015, lagging the national cost increase by more than a percentage point. The business imperative to control health benefit cost growth has taken on a new urgency with the fast-approaching implementation of the excise or “Cadillac” tax, one of the ACA's final provisions. Employer actions to reduce their exposure to the 40% excise tax, which goes into effect in 2018, has helped hold growth below 4% for a third straight year.
Mercer’s newly released National Survey of Employer-Sponsored Health Plans (with 2,486 participants in 2015) found that total health benefits cost averaged $11,635 per employee in 2015. This cost includes both employer and employee contributions for medical, dental, and other health coverage, for all covered employees and dependents. Small employers were hit with higher increases than large employers. Cost rose by 5.9% on average among employers with 10-499 employees but by just 2.9% among those with 500 or more.
Employers predict that in 2016 their health benefits cost per employee will rise by 4.3% on average. This increase reflects changes they will make to reduce cost; if they made no changes to their current plans, they estimate that cost would rise by an average of 6.3%. But about half of all employers indicated that they would make changes in 2016.
Employers are moving on several fronts to hold down health cost growth. In the best scenarios, they’re addressing workforce health, restructuring provider reimbursement to reward value, and putting the consumer front and center by providing more options and more support. In other cases, the pressure to avoid the excise tax is leading to some cost-shifting.
Over the coming weeks, we’ll be analyzing the new data to find out what employer actions are having an impact on cost, so you can compare your strategies to best practices. First up: specialty Rx, one of the biggest health-plan cost drivers in 2015.
In 2015, enrollment in consumer-directed health plans (CDHPs) reached a new milestone -- one-fourth of all covered employees. Mercer’s 2015 National Survey of Employer-Sponsored Health Plans found continued growth in both CDHP prevalence and enrollment rates. Growth has been fastest among large employers. More than half of employers with 500 or more employees now offer a CDHP (59%, up from 48%), and 28% of covered employees are enrolled.
CDHPs place additional responsibility on the consumer. Typically, while CDHP premiums are lower, the risk for out-of-pocket expense is higher. This year’s survey results suggest that employers and providers are catching up to the demand for support tools to guide employees in making the most out of their CDHPs. A growing number of large employers contracted with a specialty vendor to provide employees with transparency tools that deliver price and quality information about specific health care providers or services to employees (15%, up from 12% in 2014). An advantage of these tools is that they can help consumers find an appropriate provider and obtain an estimate of the cost of a visit before the visit.
In addition, telehealth services, which can help employees manage out of pocket spending by providing a cheaper alternative to seeing a physician in person for certain non-acute services, are now offered by 30% of large employers, up from 18% in 2014 and 11% in 2013.
Employers are also taking steps to educate their employees about consumerism in general. Over half (55%) of large employers that offer HSA plans say they have made extensive efforts to provide communications related to this topic, including decision-support tools and provider cost and quality.
While health care consumerism has always made intuitive sense, in the early days it may have been an idea ahead of its time. But now, the tools and resources that make true consumerism possible are finally available, and all trends point to additional and more sophisticated resources on the horizon. Offering a complete “consumerism package” to employees takes more effort than simply implementing a high-deductible health plan. But providing appropriate support tools and education may be necessary to ensure that a consumerism strategy leads to a paradigm shift, and not just a cost shift.