Over 5 Percent Boost in 2018 Health Premiums Causing Cost Management Steps

Last modified: August 2, 2019

Richard Honaker M.D.
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Health benefit charges are an ongoing challenge and it doesn’t look like it will subside anytime in the near future. Employers have already responded to higher health care expenses by using high-deductible health plans and changing larger share of plan premiums to employees. According to a new study though, the tiny break in the escalation rate of medical expenses could be ending soon as US employers are expecting that their health care charges will be 5.5% higher next year. In comparison, the increase this year from last year is 4.6%.

The study came from the Best Practices in Health Care Employer Survey by Willis Towers Watson. They surveyed 678 US employers this June and July wherein 555 of the respondents have a minimum of one thousand employees.

According to Julie Stone, the national health care practice leader at Willis Towers Watson, cost management of health benefit programs is still the prime concern for employers in 2017 and 2018. She also mentioned that although employers have made remarkable progress over the last few years in enhancing their subsidy and vendor/carrier strategies, most are now focusing on other aspects of their health benefit programs to ameliorate health and minimize future rise in expenses.

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One example of such efforts is motivating patients to go to preferred health care providers that guarantees better results and cost savings in high-priority clinical conditions like diabetes, musculoskeletal health, and mental health. For the next three years, employers are also expected to enhance patient engagement, widen the use of analytics and effectively manage pharmacy expenses and usage. But because of the increasing concerns about affordability, employers are finding it more difficult to keep the costs low without financially overburdening their employees.

Another survey was conducted and consultancy PwC estimated that 2018 medical expenses will hike up to 6.5%, which is up from the 6% increase that employers have seen this year and also the first growth boost in three years.

Annual medical charges from 2006 to 2007 saw an uptick of 11.9%, which was a per year figure that diminished steadily except for a small increase from 6.5% in 2014 to 6.8% in 2015.

The increase in employers’ expenses could be less than the overall health care inflation because of plan design alterations like the change to high-deductible plans with lower premiums and other steps that minimize the costs. According to PwC, companies would have to address the price of services as well the rate of application to lessen the trend of medical charges in the future.

Biggest Employers Predict Health Costs to Exceed $14,000 for Every Employee in 2018

As reported in an annual survey by the National Business Group on Health in Washington D.C., since a growing number of large US employers are concerned with the additional 5% increase in health care benefit charges, they plan to concentrate more on how health care is delivered and paid for.

A recent study called the Large Employers’ 2018 Health Care Strategy and Plan Design Survey was administered between May and June of this year and had answers mostly from Fortune 500 companies. It revealed that large employers estimate the total expenses of giving medical and pharmacy benefits to increase 5% for the fifth consecutive year in 2018. It also found that including premiums and out-of-pocket expenses for employees and dependents, the total health care charge would be around $13,482 for every employee this year, and is estimated to increase to an average of $14,156 next year. Lastly, the survey also showed that large employers will cover almost 70% of the projected expenses and the employees will shoulder the other 30% or around $4,400 in the year of 2018.

Large employers prioritized specialty pharmacy as the highest cost driver. Specialty pharmacy expenses will most likely remain as one of the highest concerns because new high-priced medicines are on the market.

Almost 40% of large employers have integrated some kind of value-based benefit program wherein employees receive minimized cost sharing or premium cutbacks when they need to handle chronic conditions or get better quality or more effective health care. There’s some presence of more   frequency in the usage of value-based benefit program to lead employees to take advantage of telehealth.

Here are some of the other survey findings: 90% of large employers will provide at least one consumer-directed health plan (CDHP) in 2018. Furthermore, almost 40% of employers will provide a CDHP as the only plan option in 2018 as compared to only 35% this year; the most prevalent CDHP design is a high-deductible health plan (HDHP) together with a health savings account that will be provided by 80% of large employers with any kind of CDHP. 28% of the respondents paired HDHP with a health reimbursement arrangement; and to restrain escalations in specialty pharmacy expenses, 44% of large employers will provide site of care management strategies in place next year, which is a 47% increase over this year. 70% of them will employ more aggressive application of management agreements.

As stated by the president and CEO of the National Business Group on Health, one of the most fascinating discoveries from the survey is that employers are more centered on improving the employee experience. There’s actually a significant increase in the number of employers providing decision support, concierge services and tools to aid employees in navigating the health care system.

The survey revealed that 66% of large businesses will provide medical decision support and second opinion services next year, which is an increase of 47% from this year. Furthermore, the number of businesses providing high-touch concierge services will have an increase from 28% this year to 36% next year.

Balancing Benefit Expenses

According to another study from Willis Towers Watson called Shifts in Benefit Allocations Among US Employers, the expense of giving employee benefits in the US increased 24% between 2001 and 2015, which was mostly driven by a doubling in health care benefit charges. Escalating health care expenses have motivated employers to change how they distribute benefit dollars and elicit the question if they are giving the benefits their employees want.

The study showed that from 2001 to 2015: the total expense of employer provided benefits like health care, retirement, and postretirement medical increased from 14.8% of pay to 18.3% of pay, a boost of 24%; health care expenses for active employees more than just multiplied by two, increasing from 5.7% to 11.5% of pay; and that retirement benefit expenses, including defined benefit (DB), defined contribution (DC), and postretirement medical plan (PRM), decreased by 25% between 2001 and 2015, from 9.1% to 6.8% of pay.

As mentioned by the managing director of human capital and benefits at Willis Towers Watson, most of the downsizing in retirement expenses since 2001 can be accredited to the extensive change by employers away from providing traditional DB pension plans, and generally replacing them with improvements to their 401(k) or other DC plans.

DC plan expenses may have increased by 1.6% between 2001 and 2015, but this was not enough to counteract the 2.9% reduction in DB benefit expenses.

Vacation and other paid leave benefits are not incorporated in the analysis, which pulls from the firm’s database of retirement and health care programs at more than 500 US employers that have a minimum of 200 employees.

The increasing expense of employee benefits continues to be a difficult task as employers aim to get the most employee value from their pay and benefit programs. Apart from the comprehensive increase, there has been a developmental change that can be distinguished as a tale of two benefit programs, which are health care benefits are getting a bigger portion of dollars and the amount allotted on retirement programs is on the downturn.

Employees’ Cost Burden Increases

Plenty of employees seem to have reached the limit of how much they are willing or are able to pay for health care benefits. They are also mostly worried about their present and future financial conditions. They are also afraid that they won’t be able to save enough for retirement and will need to work beyond the usual retirement age. This is according to the senior retirement consultant at Willis Towers Watson.

She also said that employers need to balance the cost with the long term returns on giving benefit packages that the employees would highly value. And that because of the change from DB to DC plans already established, the companies should re-evaluate the distribution of benefit dollars to better address the employees’ needs and concerns.

She has also suggested that it would be better if this could result to involving widened utilization of health saving accounts and giving employees training tools to encourage more sensible health care spending.

Securian Financial Group has more evidence that employees are struggling with higher health plan expenses. They conducted a survey this June and gathered responses from 573 employer-sponsored health plan participants.

The group has also discovered that: almost 4 out of 10 employees on employer-sponsored health plans are personally experiencing or know someone who is having difficulties in their finances because of medical bills; 52% of millenials on a health plan through their employer are personally struggling or know someone who is finding it difficult to pay for their medical bills; and among those who have household incomes of $35,000 or less who have health insurance through work, 55% of them report knowing someone or are personally experiencing difficulties in their finances because of medical bills.

According to one of the directors with Securian, the increasing expense of health care has motivated most employers to provide supplemental group insurance products that are usually connected with a health savings account. The said combination can be practical or even profitable for both the company and the worker.

The Scarcity of Long-Term Planning

The president of the employee benefits practice at Hub International stated that because benefits are a crucial operating cost, HR leaders should take long term views of their benefits plans to be able to truly demonstrate the value they give in talent acquisition, retention, attraction, productivity, and eventually company performance.

The 2017 Employee Benefits Barometer survey by Hub International had over 300 employee benefits professionals at organizations with 50 to 1,000 employees. The survey has found that it is common to have a lack of multilayer benefits planning. Four out of five businesses say that one of their goals is to manage health benefits expenses better. 40% don’t even plan to execute new cost management programs in the next 12 to 18 months and 50% believe that they’ve already done all that they can reasonably do to manage expenses. Such inadequate dedication to planning and implementing tactics for managing the expenses is truly sad and worrying.

Help from Brokers

According to a new survey, 83% of health insurance brokers stated that companies rely on them to control health care expenses and 78% mentioned that they’ve had additions of new products and services in the past year to aid companies minimize health care expenses like tools and resources that assists employee engagement by giving price transparency for health care providers’ services.

The mentioned services supports the employees to become more informed health benefits buyers and consequently choose plans and procedures that get them the care that they need without having to pay more for unneeded charges. As a result, both employees and employers get to save money. This is according to the CEO of the company who sponsored the survey of over 120 insurance brokers.

He also said that broker services could also aid sponsors in planning effectively to produce more benefits documents and lessen their risk of noncompliance penalties and that brokers have a big chance to be the tactical partner for aiding companies to minimize expenses, engage workers on their benefits and preserve compliance to changing regulations.

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Submitted by Dr. Richard Honaker: http://www.independentmedicalexaminer.com/IME-Directory/Virginia/Dr-Richard-A-Honaker-MD.asp

Disclaimer: This article provides general information and is not intended to diagnose, treat or cure any disease or medical condition. If you require specific advice, please consult one of our medical professionals through the app. However, in case of an emergency, please call 911.

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