The prediction that healthcare cost increases are expected to stay at the same level this year is not allaying employer fears that they won’t offer the same health benefits in 10 years.
Healthcare costs are predicted to rise 6% for the third straight year in 2009, which pales in comparison to the 14.7% increase in 2002. However, the 489 large U.S. employers surveyed about health benefits are still concerned whether they can continue to offer employee health benefits in a decade, according to the 14th annual National Business Group on Health/Watson Wyatt Employer Survey on Purchasing Value in Health Care.
The reasons are twofold: the current economic downturn and the fact that the annual 6% cost increase is twice the rate of inflation. Ted Nussbaum, group and healthcare practice leader at Watson Wyatt in Stamford, CT, says large employers are reevaluating health plan strategies given the current financial crisis.
Sixty-two percent of large employers in the survey are confident that they will offer healthcare benefits in the next decade, which is a drop from 73% in 2007.
Nussbaum says 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.
"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.
Though companies are concerned, few are actually making major changes to healthcare benefits now. "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, such as moving all employees into a consumer-directed health plan. Only 3% of employers in the survey said they plan a total replacement plan and a mere 6% of those surveyed already have total replacement plans, according to the survey.
Nussbaum says most employers don’t implement total replacement plans because they are worried about employee backlash and eliminating choice. He adds companies faced employee backlash after businesses moved their covered employees into point of service (POS) plans in the early 1990s. Employees did not like losing choice, he says.
"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 they are not making large-scale program changes, employers are tweaking programs and strategies. For instance, health plan eligibility and enrollment audits/reviews, personal health records, and lifestyle behavior change programs are on the rise, while fewer employers are "significantly" increasing employee copays and coinsurance.
Helen Darling, president of the National Business Group on Health in Washington, DC, says many of these programs are extra services that 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," but thinks employers will adopt data initiatives, provide quality and price information, measure program ROI, remove programs that aren’t producing positive ROI, and create new incentive-laden consumer-directed health plans.
Employers are also linking employee health to the bottom line. The survey found agreement on the top challenge that employers face in order to maintain affordable benefit coverage. About two-thirds of large employers surveyed pointed to employees' poor health habits as the No. 1 concern, with the underuse of preventive services a distant second.
"[Employers] recognize that employees’ poor health habits are so important," says Darling. In the past, Darling says, 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.
Darling says health insurers should learn from the results that there is a lot of 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 it 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.
Though healthcare costs have increased at the same level over 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.