Midsized Businesses Grapple with Healthcare Coverage Options

Nearly one-third of the nation's midsized and larger businesses say they're not sure if they'll continue to offer healthcare coverage to their employees through 2014, when key provisions of the healthcare reform law take effect.

Towers Watson reports that 29% of the 368 businesses it surveyed had not decided if they would continue employer-based sponsorship for healthcare, or offset the loss of healthcare benefits with an equivalent salary increase. In the same survey, 54% of businesses said they would discontinue healthcare benefits to both pre-65 and post-65 retirees.

"With so much still unknown regarding both the short- and long-term impact of healthcare reform, most employers will not make wholesale changes to employer-sponsored health plans in 2012," Ron Fontanetta, senior health care consulting leader at Towers Watson, said in the report.

"However, a small group of employers is driving more fundamental change in 2012 by using account-based platform designs, aggressively positioning incentives, and rethinking subsidization levels."

The survey found that employer healthcare costs are projected to rise by 5.9% in 2012, compared with the 7.6% cost growth in 2011. Even with the slowing rate of healthcare inflation, 88% of employers said they will take steps to control their costs and avoid the impact of healthcare reform's excise tax.  

Roughly half (45%) said they will rethink their long-term healthcare strategy in 2012, and many businesses said they don't know how they will respond to the impact of state-based insurance exchanges in 2014.

For 2012, the survey projected that the average reported annual cost of medical and pharmacy coverage will be $11,204 per employee for active coverage. Two-thirds of employers will increase employees' share-of-premium contributions for single-only coverage for 2012, and 73% will increase them for employees with dependent coverage.

"It is clear from our research that employers remain committed to providing employer-sponsored benefits for the foreseeable future," Randall Abbott, senior healthcare consulting leader at Towers Watson, said in the report. "2012 will ultimately be a defining year— the year some employers head down a path of bold and decisive actions, while others will wait and see. Whether choosing to pay or play, employers will need a strategic view for the future."

Cost shifting is expected to continue well beyond 2012. By 2013 or 2014, the survey showed that 23% of employers are considering significantly reducing their subsidization of coverage for spouses and dependents, and 19% are considering spousal waivers and surcharges when other coverage is available.

Now, only 5% of employers have, or plan to encourage, performance-based payments to providers based on the health status of plan participants by 2012, but an additional 26% are considering the implementation of this strategy for 2013 or 2014.

Robert Zirkelbach, press secretary for America's Health Insurance Plans, told HealthLeaders Media that the healthcare reforms will place a tremendous burden on the nation's businesses, in part because the emphasis is on expanding coverage and not containing costs.

"The new healthcare reform law imposes billions of dollars in new healthcare taxes and benefit mandates that will make it even harder for employers to continue offering coverage to their employees," Zirkelbach says. "In order to make healthcare coverage more affordable for families and small businesses, there needs to be a much greater focus on the underlying cost of medical care that is driving up the cost of coverage." 

By a narrow majority, 53% of employers said they are confident that healthcare reform will be implemented on schedule, but 70% are skeptical that health insurance exchanges will provide a viable alternative to employer-sponsored coverage for active employees in 2014 or 2015.

Along with that uncertainty, 56% of employers believe that they will trigger the excise tax by 2018. Yet more than three-quarters believe that healthcare benefits will continue to be a key component of their employee compensation beyond 2014.

Between now and 2014, employers are planning or considering the following actions:

• Increase offering of account-based health plans (17% intend to add this plan design in 2013 or 2014, which would result in nearly three in four [74%] employers offering an ABHP)
• Use value-based benefit designs(49%)
• Increase use of preferred networks (58%)

Further strategy changes in 2014 and 2015 include:

• Substantially reduce the health care benefit value of active employees (47%)
• Reduce employee health care contributions for lower-paid workers (57%)

The survey also found that:

• 70% of employers expect to lose grandfathered status by 2012.
• 57% of employers are considering rewarding or penalizing their employees based on biometric outcomes (versus 8% today).
• 32% don't offer healthcare coverage to part-time employees.
• 44% of employers now use or are considering using social media tools to impact employee health and well-being (versus 14% today), and 26% currently support or are considering supporting employee health management with the use of online games (versus 9% today).