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Survey Report

Making health care affordable and controlling costs

Benefits Administration and Outsourcing Solutions|Health and Benefits|Talent|Total Rewards
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April 3, 2020

Employers must continue to improve health experiences and health outcomes while seeking ways to mitigate the impact of cost increases.

Cost and risk

Health care cost trends after plan changes continue to be well above the rate of inflation. With no end in sight to the persistent rise in health care costs, U.S. employers are focused on controlling costs while also making health care more affordable for employees.

Respondents to our annual survey expect total health care costs (employer and employee) to rise 4.9% in 2020 after plan design changes, up nearly a full point from 4.0% in 2019 (Figure 1).1 According to findings from our Financial Benchmarks Survey, the average cost of health care is $13,087 per employee per year (PEPY) in 2019 and is expected to rise to $13,728 in 2020. By point of comparison, the U.S. inflation rate is expected to average 1.8% in 2019 and to increase to 2.0% in 2020. Without plan changes, cost trend would be 5.0% in both 2019 and 2020.2

The relentless increases in health care costs along with the sustained cost shifting to employees over the past 14 years make affordability a challenge for many employees, particularly low-wage workers. Employees paid, on average, 23% of total premium costs in 2019. In paycheck deductions, this translates into an average annual employee contribution of $3,031 in 2019, which would rise to nearly $3,180 in 2020 under current plan designs.

icon: graph denoting trends
Health care cost trends after plan changes are well above the rate of inflation.
Health care costs between 2001 and 2020 (estimated) have trended downward but are still significantly above the inflation rate.
Figure 1. Health care costs before and after plan changes

Note: Percentages of health care trend are median numbers.
Sample: Companies with at least 1,000 employees
Source: 2019 Willis Towers Watson Best Practices in Health Care Employer Survey

Facing their own rising costs, employers will continue to look for ways to mitigate the impact of cost increases. While many employers have implemented account-based health plans (ABHPs), a quarter of companies that offered ABHPs exclusively in 2019 intend to reintroduce plans with lower point-of-care costs by 2021.3 With the maturation of ABHPs along with the greater emphasis on affordability, and the need to attract and retain talent in a competitive environment, employers are more focused on implementing a range of strategies that improve plan efficiency and offer a better employee experience.

These include:

  • Encouraging use of network and delivery solutions, such as telebehavioral health services, centers of excellence (COEs) within health plans, onsite/ worksite health promotion activities, onsite and near- site health clinics, and high-performance networks (HPNs)
  • Proactively managing pharmacy benefit costs with a particular emphasis on specialty drug costs and utilization
  • Evaluating vendors best positioned to help deliver on their organization's strategy

Confidence continues to rise

In a tight labor market, employers report they are highly likely to continue to sponsor health care benefits over the next decade. In fact, nearly all employers (95%) are confident that they will offer health care benefits in five years, up one point over 2018. This confidence extends over the longer term, with 74% of employers indicating that they are confident they will offer health care benefits in 10 years, an increase of five percentage points over 2018 and a new 10-year high (Figure 2).4 Offering health care benefits is an important part of the reward package for employees of all ages, and it drives improved health, wellbeing and productivity — the keys to business success. However, the cost of health care has become so high that if an alternative source of coverage were to become available, it’s quite possible for some employers to move in that direction.

After a drop in confidence following the financial crisis, respondents which were very confident they'd offer health care benefits in 10 years grew from 25% in 2014 to 74% in 2019. That confidence grew 5 percentage points between 2018 and 2019.
Figure 2. Employer confidence in sponsoring health care benefits over the next 10 years continues to grow (% of “Very confident”)

How confident are you that your organization will continue to sponsor health care benefits to active employees in 10 years?

Sample: Companies with at least 1,000 employees
Source: 2019 Willis Towers Watson Best Practices in Health Care Employer Survey

Identifying the key priorities

As employers look to improve the health experience and health outcomes, they are focused on the following key priorities
(Table 1):

Table 1. Employers value measurement and health culture over the next three years
Progress made over the past three years (%) Priority over the next three years (%) Percentage growth (%)
1 Measurement Use data/metrics to evaluate the performance of your health care and wellbeing programs 37 78 +41
2 Health culture Design systems and create a workplace environment supported by managers/leaders that encourages employees to live healthy lives and thrive on the job 35 73 +38
3 Health technology solutions Adopt connected devices, enhanced enrollment, and integrated platforms and processes to improve delivery of care, navigation, health analytics and the consumer experience 30 65 +35
4 Employee wellbeing Enhance employees' total wellbeing in the areas of physical, emotional, financial and/or social wellbeing 50 83 +33
5 Affordability and costs Achieve health program costs that are affordable for members and for the organization 68 93 +25
6 Pharmacy Examine and leverage cost-effective options to manage overall pharmacy spend and specifically specialty drug costs 63 87 +24
7 Network strategy Adopt health care delivery strategies to maximize the purchasing value of health care services 40 64 +24
8 Plan design Align overall health program design with the organization's business and workforce strategy 68 87 +19
9 Vendor/Carrier strategy Evaluate vendors best positioned to help deliver on your organization's strategy 70 79 +9

Note: Percentage indicates “To a very great extent” or “To a great extent”.
Sample: Companies with at least 100 employees
Source: 2019 Willis Towers Watson Best Practices in Health Care Employer Survey

  • Measurement
    Employers indicate a strong interest in using data and metrics to evaluate their health and wellbeing programs, with 78% reporting they will prioritize measurement in the next three years. In particular, there’s growing interest in using a value-on-investment approach, which involves leveraging a variety of financial and nonfinancial metrics to assess program impact. However, employers have much work to do in the measurement area, reflected in the 41-point gap between progress made in the past three years and priority.
  • Health culture
    Employers are committed to creating a workplace environment that encourages employees to live healthy lives and thrive at work. Even though they are using various means to promote a healthy workplace environment, such as wellbeing programs, employers find it challenging to make progress in this area. In fact, 45% indicate that health culture will be most difficult to improve over the next three years, second only to affordability and costs (Table 2).

  • Health technology solutions
    Over the next three years, almost two-thirds of companies (65%) will prioritize health technology solutions. Employers are especially interested in helping employees make optimal decisions during enrollment and throughout their health care journey using a range of tools for decision support, health management, treatment decisions and price transparency. In turn, these tools will improve the overall employee experience. But slightly less than a third of employers (30%) report making progress in this area in the past three years.

  • Employee wellbeing
    Employers recognize the importance of enhancing employee wellbeing, which drives productivity and performance. Wellbeing is a top priority for over four-fifths of organizations (83%), and half report making progress in their wellbeing programs in the past three years, yet fewer than half (41%) think their programs meet employees’ needs. Employers also ranked wellbeing as one of the most difficult priorities to address, perhaps reflecting the challenge of addressing all aspects of wellbeing: physical, financial, emotional and social. It is critical for employers to recognize the scope of this challenge as only 40% of employees think that the initiatives and resources offered by their employer to support their health and wellbeing meet their needs, according to 2019/2020 Global Benefits Attitude Survey.
Table 2. Most challenging priorities to address cover the span of wellbeing, pharmacy and affordability
1 Affordability and costs 63%
2 Health culture 45%
3 Pharmacy 39%
4 Employee wellbeing 37%
5 Health technology solutions 35%
6 Network strategy 25%
7 Measurement 21%
8 Plan design 21%
9 Vendor/carrier strategy 13%

Which areas do you expect to be the most difficult to improve over the next three years?

Sample: Companies with at least 100 employees
Source: 2019 Willis Towers Watson Best Practices in Health Care Employer Survey

These priorities are essential to building a sustainable health benefit strategy and putting employees at the center of that strategy. Approaching wellbeing from a more holistic perspective helps employers address the needs and preferences of today’s diverse, multigenerational workforce that can vary across physical, financial, emotional and social dimensions. Technology solutions supporting improved navigation and delivery of care along with a culture that prioritizes health and wellbeing contribute to an enhanced employee experience. And ongoing measurement helps ensure the continuous improvement of health and wellbeing programs essential to an engaged and productive workforce.

Best performers create their own financial advantage

Employers continue to show dramatic differences in their ability to manage their health care cost trends. Our research identified 44 companies that qualify as best performers based on their ability to manage cost trends and efficiency. Best-performing companies must exhibit the following two characteristics:

  • Efficiency: efficiency in 2019 that is 5% or greater (roughly 60th percentile and above) (Read “About efficiency” at right.)
  • Cost trend: two-year average trend after plan changes (2017/2018 and 2018/2019) that is at or below the national norm (4%) and two-year average trend before plan changes (2017/2018 and 2018/2019) that is at or below the national norm (5%)

We selected best performers from the 454 companies that completed the 2019 Willis Towers Watson Financial Benchmarks Survey and the 2019 Willis Towers Watson Best Practices in Health Care Employer Survey. The 44 best performers represent 10% of eligible companies reporting both favorable efficiency and cost trends before and after plan changes at or below the national average. We estimate best performers will pay $1,373 PEPY less than the typical company in our national survey ($11,887 in 2019 compared with the national average of $13,260 — an annual savings of more than $6.8 million at a company of 5,000 employees). They also maintain a two-year average cost trend after plan changes of 0.9% — 3.1 percentage points lower than the national average (4.0%). While plan design changes have helped to mitigate their cost increases, best performers also maintain a two-year average gross trend (before plan design changes) that is 3.1 percentage points lower than the national norm (1.9% versus 5.0%).

About efficiency

Willis Towers Watson adjusts the national benchmark to reflect differences between the PEPY costs of an organization and the database for each of these four key criteria:

  • Age/Gender: The age/gender profile of the population (Cost is directly correlated with age. The impact of gender on expected cost varies with age.)
  • Family size: The estimated number of members covered per employee, expressed in terms of adult cost equivalent (Larger-than-average family size usually increases costs per employee.)
  • Geography: The underlying cost for basic health care services in an area (Provider competition and more prevalent managed care plans may reduce costs in some areas. More enrollments in higher-cost areas usually increase costs.)
  • Plan value: The level of benefits covered under the medical plan (Plans reimbursing a higher percentage of medical expenses than the database average usually increase costs.)

The result of these adjustments is a benchmark that is customized to each company’s population. The custom benchmark is the database cost if the database looked like that company’s population with its plan designs. Efficiency represents the percentage that a company’s PEPY costs are above or below the custom benchmark with the most efficient plans reporting costs significantly below the adjusted national norm.

What can we learn from best performers?

Best-performing companies lead the way in developing high-performing health programs that manage costs and add value, in part by implementing superior network and provider strategies. Throughout the rest of this report, we identify specific strategies and tactics that best-performing companies use much more than the national average or other organizations — best practices focused on three core areas:

  1. Participation
    • Employee and dependent
  2. Subsidization
    • Program design value and subsidy level
  3. Efficiency
    • Vendor partner strategies
    • Health care delivery
    • Pharmacy management
    • Workforce health
    • Engagement and consumerism

Best-performing companies lead the way in developing high-performing health programs that manage costs and add value.

While many factors can explain the reasons for best performers holding the line on costs, these activities are likely an important part of their recent success, and many are emerging trends that could position them — and those that emulate them — for success in the future. While best performers are leading the way, there is significant opportunity for all companies to take actions to rein in costs and improve the performance of their health care programs.

icon showing computer with chart
Measuring total plan costs: Where do we get our data?

Total plan costs for this study are based on Willis Towers Watson’s annual Financial Benchmarks Survey, which includes detailed medical plan cost values on 2,168 companies with more than 10.4 million enrollees and total costs of over $132.3 billion. By incorporating the use of this deep and broad database in our annual Willis Towers Watson Best Practices in Health Care Employer Survey, we enhance our ability to provide detailed annual plan costs for over 20 industry groups.

For fully insured medical and pharmacy plans, the costs presented reflect premium rates. For self- insured plans, the costs reflect premium equivalencies, which include company contributions to medical accounts such as health reimbursement arrangements (HRAs) and health savings accounts (HSAs), health management program costs and program participation incentives paid by the plan, and administration costs. In total, nearly 75% of respondents to the Willis Towers Watson Best Practices in Health Care Employer Survey participated in the Willis Towers Watson Financial Benchmarks Survey.

Footnotes

1, 2 3, 4. Ibid., 1.


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