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Employers concerned about future of health benefits

Healthcare costs are expected to stay steady for the third straight year in 2009, but that news is not allaying employers’ fears that they won’t offer health benefits in 10 years, according to the 14th annual National Business Group on Health/Watson Wyatt Employer Survey on Purchasing Value in Health Care.

The survey asked 489 large U.S. employers a host of health benefit questions and found cost increases will remain stable in 2009. (See Figure 1 on this page.)

The predicted 6% medical healthcare cost increase for 2009 is lower than the 14.7% increase of 2002, but is still nearly twice the rate of inflation. Ted Nussbaum, group and healthcare practice leader at Watson Wyatt in Stamford, CT, says employers and health insurers have been able to maintain the 6% annual increase because of consumerism efforts and infrastructure, which are helping individuals manage their health.

Although costs have increased at the same level in the past three years, Nussbaum says Watson Wyatt expects a spike soon because healthcare expenses work in cycles. “I don’t know if we will get to a 15% trend again, but this is a cycle like most other economic systems,” he says.

Large employers are reevaluating health plan strategies given the current financial crisis, Nussbaum says. Sixty-two percent of large employers in the survey are confident they will offer healthcare benefits in the next decade, which is a drop from 73% in 2007.

Employer confidence levels usually correlate with cost trends, so the higher the cost trend, the less comfort for companies. That’s what makes this year’s percentage surprising, he says.

“This is the first time in 14 years that confidence has dropped, and it’s not related to cost trends. It sort of tells you, given the economic climate that we are in, that companies are feeling less confident that they can [offer health benefits],” says Nussbaum.

Although companies are concerned, few are currently making major changes to healthcare benefits. (See Figure 2 on p. 6.) “I think companies are moving along a continuum and they are comfortable with where they are going and what they are doing. I am certain they are making contingency plans in other areas, not in healthcare,” says Nussbaum.

That short-term satisfaction is evident in the fact that most large employers are shying away from total replacement programs. Three percent of employers surveyed said they are planning a total replacement plan, such as a consumer-directed health plan (CDHP). If those employers follow through with their plans, that would increase the percentage of total replacement plans to 9%, according to the survey.

Most employers don’t implement total replacement because they are worried about employee backlash and eliminating choice, Nussbaum says, noting that in the early 1990s, some companies converted to point of service plans, and employees did not like losing choice.

“I would expect that there would be a much more aggressive posture relative to addressing healthcare programs. While choice is nice, choice doesn’t maximize your ability to control costs, to control patterns of use, so on and so forth. I was surprised that we did not have more total replacement consumer-directed health plans,” says Nussbaum.

Although most employers are not making large-scale changes, they are tweaking programs and strategies. For example, health plan eligibility and enrollment audits/reviews, personal health records, and lifestyle behavior change programs are on the rise. Additionally, fewer employers are using vendors’ estimates of savings and return on investment (ROI) and significantly increasing employee copays or coinsurance. (See Figure 3 on p. 7.)

Helen Darling, president of the National Business Group on Health in Washington, DC, says many of these programs are extra services health plans did not offer more than five years ago. “What that is saying is even in a time of severe financial stress, including a recession, employers are spending extra money in order to do these things to try to improve the health of their employees and dependents,” says Darling.

Nussbaum doesn’t expect radical changes. However, he thinks employers will adopt data initiatives, provide quality and price information, measure ROI on programs and remove those that aren’t producing positive ROI, and create new CDHPs with incentives to take part in those plans.

Best performers lead the way

The survey found that best-performing companies enjoyed a much smaller health cost increase between 2008 and 2009 compared to average and poor performers.

“The ability to keep cost increases low over an extended period of time is a critical factor in making companies sustained performers,” according to the survey.

About 275 companies participated in the survey in the past four years, and 53 of those have maintained healthcare cost trends at or below the median for each of those years. The survey researchers refer to them as “consistent performers” and found that, although the median increase for all companies was 6%, consistent performers saw their costs increase by 2.4% in 2008.

Best and consistent performers are facing smaller increases through programs and initiatives in five areas, according to the survey:

  • Appropriate financial incentives
  • Maximizing health and productivity
  • Effective information delivery
  • Metrics and evidence
  • Quality care

“Companies that have maintained consistently lower healthcare cost trends over the last four years are clearly differentiating themselves from other companies, including the best performers. The consistent performers have made even greater strides, especially in their use of financial incentives and by providing employees with essential information to manage their health,” according to the survey.

The consistent and best performers in the survey drive healthy behavior through:

  • Offering incentives for participating in smoking cessation programs and providing coverage for retail clinic use (see Figure 4 below)
  • Offering health risk appraisals (see Figure 5 on p. 9)
  • Offering Web-based programs to help enrollees reduce lifestyle risk factors or manage health conditions and providing education on healthcare costs and ways to help manage costs (see Figure 6 on p. 10)
  • Requiring plans to provide complete extracts of claims data (see Figure 7 on p. 11)

“I think one of the most important conclusions from this year’s study is that it really is possible over a multi-year time period to sustain low-cost trends by doing a variety of things that we’re able to be very specific about. [Consistent performers] are not doing anything different than the best performers, but they do a little more of it and they do it more consistently,” says Nussbaum.

Health insurers should learn from the results that there is much work needed to fix healthcare, such as reducing waste and unneeded services. “I think the most important thing, and I think the president is saying very well, is ‘We will not be able to have a strong economy and strong country if we don’t have control of our healthcare costs,’ ” says Darling.

Top challenges for employers

The survey found agreement on the top challenge employers face to maintain affordable benefit coverage. About two-thirds of the large employers surveyed pointed to employees’ poor health habits as the No. 1 concern, with the underuse of preventive services a distant second. (See Figure 8 on p. 11.)

“[Employers] recognize that employees’ poor health habits are so important,” says Darling. In the past, employers focused on hospital and provider costs and didn’t think about employee health and prevention.

“They have really begun to connect the dots between costs and cost drivers, not just costs for providers. That’s a totally different framing of it,” says Darling.

Many employers are gauging ROI for population health programs. “Health improvement programs are the way the companies are confident in going, but they need to see ROI,” says Nussbaum.

Health management program participation and incentives

Companies are using incentives to spark population health program participation, but are seeing only modest success. Companies that offer annual financial incentives are reporting significantly higher program participation in wellness and population health programs.

More than 60% of employers surveyed said they provide financial incentives to employees who complete health risk appraisals. (See Figure 9 on p. 12.) Sixty-five percent of high-program-participation companies paid employees more than $150 to complete health risk appraisals, and 83% paid at least $150 to have employees complete biometric screenings. (See Figure 10 on p. 12.)

However, many employers are offering incentives that don’t involve financial incentives. For example, most high-program-participation companies use coverage and premium differentials as a way to encourage health risk appraisal completion. Ninety-six percent of high-program-participation programs offer premium differentials for employees who complete biometric screenings. (See Figure 11 on p. 13.)

Consistent and best performers are able to get more employees involved in health programs, such as weight management, smoking cessation, and disease management. (See Figure 12 on p. 13.) However, participation levels in health management programs across all of the survey respondents are still low. The lowest participation levels are in smoking cessation, weight management, and disease management programs, but those are programs that might not interest a large employee population.

Consumer-directed health plans become more popular

The survey found that about half of large employers offer CDHPs, and that number is expected to increase to 59% in 2010.

CDHPs aren’t just a way to shift costs onto employees, but a way to educate individuals to take better care of themselves and be better-educated healthcare consumers, Nussbaum says.

“This is more about getting an individual’s attention and getting them to be a partner in managing their own health than it is about shifting costs,” he says.

Enrollment rates, which have settled in the single digits since CDHPs were created earlier this decade, are on the rise. In fact, 43% of large employers surveyed said they have more than 20% employee enrollment in a CDHP, and the median enrollment level has increased to 14%.

Getting more employees enrolled in a CDHP correlates with lower costs. Companies that added 10% or more enrollments between 2007 and 2008 achieved two percentage points in lower cost trends than those with slower enrollment growth. Companies that added 10% or more enrollments between 2008 and 2009 enjoyed more than a three percentage point advantage over those with slower increases in enrollment, according to the survey.

Looking at cost trends and basic costs, Nussbaum says companies need 15% enrollment to begin seeing ROI that is required for building CDHP infrastructure. Companies with at least half of their employees enrolled in a CDHP have a two-year cost trend that is 25% lower than non-CDHP sponsors, according to the survey.

“We’re starting to reach that [15%] threshold. Companies are working very hard to address the health status of their population and get their employees to get involved in the process themselves,” Nussbaum says.

Health savings accounts (HSA) have grown more popular in the past three years, but health reimbursement arrangements (HRA) have remained steady. Employers view HSAs as a better way to spark patient activation. Whereas HRAs are funded by businesses, and their balances do not carry over into subsequent years or if the individual changes employers, HSAs can include employee and employer donations. HSAs also belong to the individual, so when he or she changes employers, the HSA account goes with the individual.

HSAs help employees feel that the accounts belong to them and not the company. “Employers feel they own the money,” Nussbaum says.