You could argue that the "rising cost of health care" has become a clichéd phrase in the benefits arena; it is used so frequently that it doesn't seem to elicit much of a reaction anymore. But healthcare costs are obviously an ongoing concern for benefits professionals—a concern that is not likely to go away anytime soon.
Past practice
For the past decade or so, employers generally have combatted rising healthcare costs using a traditional "managed trend" approach, which includes aggressive management of costs through vendor management and employee cost sharing, says Jim Winkler, chief innovation officer for Health & Benefits at Aon Hewitt (www.aonhewitt.com).
By making a series of tactical decisions regarding whether to change deductibles and copays, increase employee contributions toward premiums, and switch from one plan to another, employers have achieved significant—and relatively quick—cost savings year after year, Winkler explains. However, "they're running out of runway. It's hard to save enough money anymore."
As a result, many employers are changing strategies when it comes to employee healthcare benefits. While 95 percent of participants in Aon Hewitt's 2014 Health Care Survey expect to continue offering healthcare benefits to active employees over the next 3 to 5 years, an increasing number plan to migrate away from a managed trend approach to a "House Money/House Rules" approach or a private health exchange.
"Traditional cost management tactics do not address foundational issues in health care, including worsening population health and misaligned provider payment methodologies," says Winkler. "Employers remain committed to providing health benefits, but recognize the need for new approaches that fix those problems." The "house money/house rules" approach and private exchanges "have elements that allow you to start addressing those issues."
House money/house rules
Forty percent of the more than 1,230 employers that participated in Aon Hewitt's survey reported that they currently use a house money/house rules approach, and 36 percent plan to do so in the next 3 to 5 years.
Winkler describes house money/house rules as a strategy in which employers promote healthy behaviors by offering a suite of services, such as wellness programs, health screenings, and health improvement programs (e.g., smoking cessation), along with an array of financial incentives and communication.
The rationale is, "If you follow the house rules, you get more of the house money," Winkler says. That is, while employees who participate in wellness programs, health screenings, and health improvement programs benefit from a health standpoint, they also benefit from associated financial incentives, such as:
- Lower premium rates,
- Lower out-of-pocket costs (e.g., the employer puts an extra $200 each in participants’ health savings accounts), and
- Cash incentives (e.g., a gift card or extra cash in their paychecks).
In addition, this approach changes the way primary care physicians are paid. Rather than paying them solely on the basis of volume, they are rewarded for coaching patients on wellness, Winkler says.
Unlike the managed trend approach, savings from the house money/house rules approach are achieved in the long term. "It's complex. It requires a multi-year game plan, and it may not deliver a meaningful short-term cost saving," he says. "You have to build the infrastructure and put the program in place and then engage people. Obviously, they won't get healthy overnight."
The biggest risk of using this approach, Winkler says, is, "if it's not well communicated, and, in particular, if the employer does not do a good job explaining how the individual employee will benefit from this, then employees might view it as an intrusion into their personal life."
For this approach to be effective in the long run, Winkler suggests doing the following:
Market it to your employees. "You have to think about your messaging in a way that a marketer does"—not in a traditional HR explanation of benefits," he says. You also need to be aware that "we're more inclined as humans to do something if others around us are doing it, too." So, for example, if you have a running group at work, you might consider including a feature story in your benefits materials about how a particular employee got started in running.
Make incentives easy to understand. "Make them really transparent and easy to understand, straightforward. I shouldn't need a calculator to figure out what I'm going to get," he says. Plus, financial incentives should not be excessive—use a couple of hundred dollars rather than a couple of thousand dollars so that the incentive is "meaningful enough that I'll pay attention but not so significant that I get stressed about whether I have to do this or not."
Keep it fun. If you're trying to get employees to be more active, don't make the activity a chore. Instead, get them excited about participating, see the value in it, and recognize that the activity can help them improve their health, Winkler says.
For example, he says an Aon Hewitt client encourages its employees to be active throughout the workday by handing out cards containing exercises that can be done in 5 minutes at their desks, such as stretching exercises. It’s top of mind, because employees keep the cards on their desks, and they are more likely to do the exercises because they see their colleagues exercising at their desks, too.
Exchanges
Exchanges are piquing employers' interest, because, under a well-run private health exchange, "the insurance carrier assumes the financial risk of managing health care costs," Winkler says.
As a result, carriers "become more motivated to address the foundational issues" of declining health in the U.S. population and the way that providers are paid. They have a vested interest in making sure employees in the exchange have access to cost-effective, high-quality health plans. Insurance carriers in a private exchange must make their premiums competitive, so their plans are attractive to consumers, Winkler says.
Five percent of employers in Aon Hewitt's survey have already moved to a private exchange, and 33 percent expect to do so within the next 3 to 5 years. Winkler attributes the current low adoption rate to the fact that private exchanges are so new. For example, although Aon Hewitt's exchange for employers was one of the first to be offered, it is only in year 3.
However, Aon Hewitt is already seeing measurable cost savings. Companies that returned to its private exchange in 2014 saw a 5.1 percent average cost increase in fully insured premiums, including the reinsurance fees levied on all group health plans under the Affordable Care Act. Meanwhile, average healthcare cost increases of approximately 6 percent to 7 percent are expected for large U.S. employers in 2014, before employers make changes in deductibles and copays, Aon Hewitt reports, citing its own estimates and other industry reports.
The biggest drawback with this approach, Winkler says, is that the employer gives up the ability to select providers and plan design. Plus, although employees enrolled in the private exchange are pleased to have so many plans to choose from, he says broad choice can be overwhelming for some employees, making it important for employers that are migrating to a private exchange to make sure the process is explained properly to employees.
Benefits for part-timers
Although employers have the ability to direct part-time employees to buy health coverage through federal and state-run public exchanges, nearly two-thirds of surveyed employers plan to continue offering part-timers the same level of benefits that they offer to full-time employees—with or without an employer subsidy. Only 38 percent of survey participants don't plan to offer benefits to part-time employees in the next 3 to 5 years.
"I think, in general, employers are conservative and somewhat risk averse as it relates to their employees," Winkler explains. In mid-2013 (when employers were preparing for open enrollment), "it was unclear how the public exchanges were going to operate." Coupled with access problems on healthcare.gov, many employers may have decided to let the marketplace mature a bit before going that route, he says.
"I think the biggest thing employers will try to figure out is, where are their employees truly better off?" Winkler says. For example, as the public exchanges mature, an employer might find that it is more beneficial for an employee working 15 to 20 hours per week to obtain insurance through a public exchange, and qualify for a tax subsidy, than to continue on employer-sponsored benefits, he explains. "I think we'll see that part-time space evolve over the next 3 to 5 years, but it will be slow"—unless the public exchanges mature quickly or "health care economics get significantly worse."
Benefits for retirees
Meanwhile, in a separate report on retiree health benefits, Aon Hewitt found that only 3 percent of 424 surveyed employers have moved all or some of their pre-65 retirees to the public exchanges, but 20 percent favor doing so within the next 3 to 5 years.
"Employers will be moving at least some portion of their pre-65 retiree populations to state and federal exchanges, but they are waiting for these marketplaces to become more robust, competitive, and mature," says John Grosso, leader of Aon Hewitt's Retiree Health Care Task Force. "This movement will be slow and methodical, as the public marketplaces evolve and as employers understand the implications of the 2018 excise tax, which will only impact group-based health insurance plans."
Regarding post-65 retirees, Aon Hewitt reported that the number of employers offering subsidized retiree health benefits has dropped from about 50 percent in 2004 to just 25 percent in 2014. Many of those employers have turned–or are planning to turn—to the individual Medicare plan market to provide health benefits.
In fact, 30 percent of employers already have sourced benefits through the individual market—mainly through a multicarrier private health exchange. Two-thirds of employers that are considering future changes to their post-65 retiree strategies are also considering that approach, the survey found.
"A growing number of employers are leveraging multicarrier private exchanges for Medicare beneficiaries, because they see the value in both the competitive mix of plans offered and the Medicare-specific navigation and advocacy offered by these private exchanges," says Grosso.
"The competitive nature of the individual Medicare market has resulted in more moderate year-over-year rate increases than what employers have experienced on their own," says Winkler. "As health insurers regain control for creating a competitive market that is accountable to the consumers within it, we expect to see similar cost moderation across the system, including the new competitive markets emerging for pre-65 retirees and active employees."
Key takeaways
Aon Hewitt's research offers some valuable lessons for benefits professionals. "If you haven't done something strategic in the last 3 to 5 years, it's OK. You're not alone yet," says Winkler. However, "you need to be working on a strategy now for how you're going to change the direction you're going in [and travel] down one of those paths" (i.e., the house rules/house money approach or private exchanges)—especially with the so-called Cadillac tax on plans above a certain threshold looming in 2018. "That's not that far away."
"You need to start thinking about this," he says. "These are complex, sophisticated, multi-year strategies that take some planning and socialization within your organization."
He recommends thinking about your employees as consumers, who need to be vested in your strategy, and creating a plan to market it to them just as your company markets the products it sells.
Source: Business & Legal Resources