VIEWPOINT | TRENDS IN HEALTH CARE COST MANAGEMENT

Health care costs average about $11,000 per year in the U.S., and they continue to rise. But the impact on companies can vary by 20% or more depending upon how well they manage their benefit programs, according to new research by Towers Watson, the global professional services company.

The firm's 17th annual Health Employer Survey on Purchasing Value in Health Care identifies trends in benefit programs and identifies best practices typical of high-performing companies. Highlights are presented by Cathy Tripp, senior consultant, and Beth Lieberman, Michigan office leader for Health Care & Group Benefits.

How have health care costs varied?

Lieberman: Health care costs in the U.S. have gone up nearly 40% between 2007 and 2011, and they are expected to rise almost 6% this year. The rate has slowed, but average growth is still about twice the Consumer Price Index and it has outpaced wage growth for more than 10 years.

Towers Watson estimates the average total health care costs per employee in the U.S. will reach nearly $11,700 this year. The employee's share of that total will jump more than 9% to an average of about $2,800 this year.

On average, health care costs have increased 6.1% per year over the past four years among the companies we surveyed. However, "Consistent Performers" had a four-year average trend rate that was only 2.2%

What accounts for the difference?

Lieberman: The most successful companies are able to engage their employees by making them more aware of health care costs, encouraging them to live healthier lives and giving them choices in how they structure their coverage. These companies also establish healthier work environments and use technology, including social media tools, to support their strategies.

Many employers are working more closely with their health plan vendors to improve end-to-end care management. About 30% have consolidated their health plan vendors within the past two years, and another 11% expect to do so in 2013.At the same time, 22% of the companies we surveyed have combined their health and productivity programs with their health plan, and another 15% say they will do so next year.

Why not simply choose cheaper plans?

Tripp: There's a false economy in focusing only on the price of coverage. Lower-cost benefit plans typically shift more of the cost at the point of care to the employees. Even lower-cost benefit plans will continue to escalate at current trend levels unless you address the underlying cost drivers. Keys other than age and demographics include the health habits of the population and the place, frequency and quality of care received.

The other consideration for employers is how competitive their plans are compared to their peers. Offering uncompetitive health care benefits during the current "war on talent" in the technical and professional sectors is an obvious disadvantage.

In our survey, only 3% of employers said they would discontinue coverage in 2014-2015. But they are less certain about their plans a decade from now. Only 23% were confident they would still offer the same coverage compared with 73% who thought so in 2007.

How are smart employers coping?

Tripp: Consolidating plans is a big trend across all industries. Instead of offering six plans and open enrollment every year, many employers have gone to a single plan that includes opportunities for employees to manage their own health as a way to lower premiums, fund their HSA or HRA accounts or lower their deductibles. They may offer a lower premium or deductible as a reward for healthy behavior such as being tobacco free. In the manufacturing sector, one trend we're seeing is employers adding aggressive surcharges for spouses who have access to their own coverage.

Lieberman: Companies also are managing the financial side of their plans more closely. They're auditing medical claim payments and reviewing plan eligibility and enrollment. Two in five companies we surveyed said they are expanding this type of oversight this year, and 27% says they plan to do so in 2013.

There's also a growing use of social media tools from online discussion groups to gaming software to support their health care strategies. Use of these tools among companies we surveyed rose from 14% in 2011 to 19% this year and appears likely to reach 36% in 2013.

How can employers begin tuning up their health care programs?

Tripp: Step one is to look at your own data and find out where the costs are. Most employers have already adjusted plan designs and premium price tags. Most have a tobacco surcharge. Now they have to figure out how to coax or penalize employees and their covered family members to adopt healthier habits.

Employee involvement is a big factor. The premiums and out-of-pocket costs they pay have grown 40% in five years, so employees are well aware that their cost for health care coverage is going up much faster than their own income. But many employees still don't know the price and quality of services they purchase before they have the care delivered. Only 15% of employers provide unit price information today, but another 22% plan to do so in 2013.

To learn more, please contact Beth Lieberman at (248) 936-7607 or beth.lieberman@towerswatson.com. Click HERE to download a copy of this year's Health Employer Survey on Purchasing Value in Health Care. For more about Towers Watson, please visit towerswatson.com.