Originally posted August 20, 2014 by Dan Cook on www.benefitspro.com.

Despite foreseeing record-breaking employee health care costs in the near term, major employers will continue to offer coverage to full and part-time workers. However, coverage for spouses and dependents could be targeted for cutbacks.

That’s the latest from a Towers Watson survey that found employers generally anticipate a 5.2 percent increase next year in health plan costs, which would put coverage cost per employee at an all-time high, Towers Watson said.

However, many employers are planning to make design changes to their plans. Should they occur, employers then project a 4 percent plan increase.

“Despite this cost trend, most (83 percent) employers consider health benefits an important element of their employee value proposition, and plan to continue subsidizing and managing them for both full-time and part-time active employees,” Towers Watson said. Virtually all of these large employers surveyed said they will continue to offer health benefits to employees, with few indicating they were ready to move coverage to a private exchange.

The results were gleaned from the company’s 2014 Health Care Changes Ahead Survey.

Large employers were asked about their health care-related cost concerns for the future. A major one is the excise tax that goes into effect in 2018 as part of the full rollout of the Patient Protection and Affordable Care Act.

“Nearly three-quarters (73 percent) of employers said they are somewhat or very concerned they will trigger the tax based on their current plans and cost trajectory,” Towers Watson said. “More than four in 10 (43 percent) said avoiding the tax is the top priority for their health care strategies in 2015. As a result of the excise tax and other provisions of the health care reform law, CEOs and CFOs are more actively engaged in strategy discussions.”

The objective is not to eliminate or even substantially reduce employee coverage, Towers Watson said, but to continue to manage costs as finely as possible without gutting coverage.

“The emphasis is on achieving or maintaining a high-performance health plan,” said Randall Abbott, senior consultant at Towers Watson. “And CFOs are now focused on a new gold standard: managing health cost increases to the Consumer Price Index. This requires acute attention to improving program performance.”

Other key findings from the study:

  • 81 percent of employers plan moderate to significant changes to their health care plans over the next three years, up from 72 percent a year ago;
  • 48 percent are considering tying incentives to reaching a specified health outcome such as biometric targets, compared with just 10 percent that intend to adopt it in 2015;
  • 37 percent are considering offering plans with a higher level of benefit based on the use of high-performance or narrow networks of medical providers, compared with just 7 percent in 2015;
  • 34 percent are considering telemedicine, compared with 15 percent in 2015, as employers encourage employees to use such telemedicine strategies as virtual physician office visits to improve access and efficiency of care delivery;
  • 33 percent are considering significantly reducing company subsidies for spouses and dependents (10 percent have already implemented such reductions, and 9 percent intend to do so in 2015);
  • 26 percent said they are considering spouse exclusions or surcharges if coverage is available elsewhere (30 percent have that tactic in place now, and another 7 percent expect to add it in 2015);
  • 30 percent of employers considering caps on health care coverage subsidies for active employees, using defined contribution approaches (13 percent have them in place today and another 3 percent planning them for 2015).

Employers continue to study private exchanges, although 77 percent “are not at all confident public exchanges will provide a viable alternative for their active full-time employees in 2015 or 2016.”

Still, 24 percent said private exchanges could provide a viable alternative for their active full-time employees in 2016. They are looking at three key factors to emerge that would push them in that direction:

  • Evidence they can deliver greater value than their current self-managed model (64 percent);
  • Adoption of private exchanges by other large companies in their industry (34 percent);
  • An inability to stay below the excise tax ceiling as 2018 approaches (26 percent).

“The most effective employers are continually evaluating new strategies for improving health plan performance,” Abbott said. “Examples include a steady migration to account-based health plans, action-based incentives, adoption of value-based payment methods with health plan partners and plan designs that drive efficiencies. Other options are technology-based solutions such as telemedicine, fitness devices or trackers, and social media to encourage employees to take a more active role in both their personal health status and how they use health care goods and services.”