United States   Performance   in an Era of Uncertainty201217th Annual Towers Watson/National Business Group on HealthEmplo...
United States2012Employer Survey on Purchasing Value in Health Care                                            Table of Co...
Executive Summary                     The 2012 Towers Watson/National Business              Total rewards is becoming a ke...
Key Themes Health care costs continue to grow — trend              Consistent performers are set up for long-term of 5.9% ...
Insurance Exchange openings will have a                   or engagement. They are using the data to reallocate            ...
Use of ABHPs is surging but must be part                 “Account-based health plans can be an importantof a broader strat...
About the Survey                     The 17th Annual National Business Group on Health/Towers Watson Employer Survey on Pu...
Cost TrendsActive Employees                                                                       employees, who see an in...
Figure 5. Medical and drug costs and employee premium share                                                               ...
Figure 8. Consistent performers versus median annual cost trends (after plan and contribution changes)2006 – 201110%     8...
Do the Math          Efficiencies support work force health objectives and remix          the reward portfolio     Health c...
Strategy and PlanningWhile insurance Exchanges have the potential                        importance of subsidized retiree ...
Figure 12. Likelihood organizations will take the following action in 2014 or                       Strong Employer Commit...
“Employer confidence has                                                                                            steadil...
Looking at Viable Alternatives to Current Retiree Medical Programs    Figure 14. Pre-65 retiree medical support for variou...
Looking ahead, many companies will provide a         Figure 15. Declining subsidies for retirees with health accounts grow...
Figure 16. Top focus areas of employer’s health care strategy in 2013                       Employee Well-Being Takes Cent...
Challenges AheadConsistent with findings in previous years, employee    Figure 17. Biggest challenges to maintaining affor...
Figure 18. Companies’ biggest obstacles to changing employees’ behavior                  Changing employees’ health behavi...
in care and help make clinical decisions regarding           Figure 19. Effectiveness of health plan vendorspreference-sen...
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care
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2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care

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The 17th Annual Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care tracks employers' strategies and practices, and the results of their efforts to provide and manage health benefits for their workforce. This report identifies the actions of high-performing companies, as well as current trends in the health care benefit programs of U.S. employers with at least 1,000 employees. Respondents were also asked about specific implications for their health care benefit programs attributed to the health care reform Patient Protection and Affordable Care Act (PPACA).

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2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care

  1. 1. United States Performance in an Era of Uncertainty201217th Annual Towers Watson/National Business Group on HealthEmployer Survey on Purchasing Value in Health Care
  2. 2. United States2012Employer Survey on Purchasing Value in Health Care Table of Contents Executive Summary 2 Key Themes 3 Cost Trends 7 Active Employees 7 Pre-65 and Post-65 Retirees 8 Consistent Performers Deliver Long-Term Results 9 Strategy and Planning 11 Strong Employer Commitment Through 2015 12 Confidence About the Long Term Fades 13 Employee Well-Being Takes Center Stage 16 Challenges Ahead 17 Asking for More From Health Care Vendors 18 Emerging Trends 20 Connecting Directly With Providers 21 Growing Emphasis on Financial Management 21 Changing Pharmacy Landscape 22 Building the Case for Transparency 23 Embracing Technology to Engage Employees 24 Expanding Use of Financial Incentives and Requirements 25 Account-Based Health Plans 30 Strategies for Building a Healthy and Productive Workforce 34 Health Improvement 35 Engagement 36 Accountability 37 Linking Provider Strategies 38 Technology 39 Healthy Environment 40 Metrics 41 Conclusion 42 Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 1
  3. 3. Executive Summary The 2012 Towers Watson/National Business Total rewards is becoming a key driver in the Group on Health Employer Survey on Purchasing employee value proposition at companies as Value in Health Care provides many strategic employers use the significant changes to the U.S. insights into the actions and plans of leading U.S. health care system as an opportunity to revisit employers. It also offers views of what the future their entire reward portfolio. In particular, they of employer-provided health care in the U.S. may are seeking to balance benefits with employees’ look like this year and in the coming three years. need for access to affordable health care, a secure retirement and a competitive salary. They This analysis comes at a time when employers are are also looking at the new roles both employees still facing a number of long-term challenges, such and vendors can play to help improve the overall as controlling growing costs, improving employee health of employees and better address high-cost engagement and accountability, and optimizing the areas, such as chronic disease and complex care total rewards mix. They are also determining how management. Finally, they are trying to manage they’ll comply with health care reform legislation the difficult task of controlling health care cost (the Patient Protection and Affordable Care Act, increases and lowering trend. or PPACA), with major implications scheduled to begin taking effect in less than two years, while Our survey of 512 participants with a collective keeping an eye on the game-changing impact $87 billion in total 2011 health expenditures of a Supreme Court challenge in June and a provides directional insights and details on their presidential election in November. current programs, strategies and planned actions. As we analyzed their responses, we were able to At the same time, employees continue to face identify a group of employers whose consistent a growing affordability gap as their out-of-pocket performance stood out: They have maintained health care costs rise at a higher rate than their cost increases at or below the Towers Watson/ income and the Consumer Price Index (CPI), and it National Business Group on Health (TW/NBGH) becomes more difficult to save for retirement. median for the past four years. The way these Amid the political, legislative and judicial employers manage their health benefit programs uncertainty, most employers are steadfast in their provides vital insights for everyone studying health commitment to keeping active health care benefits care trends today. The following overview of the as a central component of their employee value survey findings highlights key trends influencing proposition. Through 2015, most employers will health care benefits today as companies build remain focused on optimally managing the design more decisive health care strategies for the years and delivery of their programs, with a select ahead. number tailoring their designs to facilitate the availability of federal subsidies in the Exchanges (in 2014 under the PPACA) for a portion of their workforce.2 towerswatson.com
  4. 4. Key Themes Health care costs continue to grow — trend Consistent performers are set up for long-term of 5.9% expected success Average total health care costs per employee The median trend for employers that have are expected to reach $11,664 in 2012, up from maintained cost increases at or below the TW/ $10,982 in 2011. Employers are taking more NBGH median for the past four years (our consistent aggressive steps to manage these costs with performers) was 2.2%, compared with 6.1% for all greater emphasis on employee accountability, while respondents. The findings of this year’s analysis concurrently investing in the programs and emerging clearly show that the most successful companies technologies to support and cultivate a healthy and stand above their competitors by making significant productive workforce. To help hold the line on costs, strides in six core areas: employers are also working with their health plan • Health improvement vendors and altering plan designs to improve the • Engagement quality and efficiency of care received by members. • Accountability Affordability issues are a growing challenge • Linking provider strategies Trends remain double the rate of inflation. • Technology Employees’ share of premium costs increased 9.3% • Healthy environment between 2011 and 2012, with the dollar burden Employers confirm their commitment to rising from $2,529 to $2,764. In fact, employees providing health care benefits for active contribute nearly 40% more for health care than employees, but long-term confidence they did five years ago, compared with 34% for declines sharply employers. Likewise, out-of-pocket expenses Many employers are steadfast in their commitment increased over the last year from 16% to 18%. to their active health care benefits as a central That increase is partly due to subsidy shifts for component of their employee value proposition. dependents, as nearly half of companies increased Through 2015, most employers will remain focused employee contributions in tiers with dependent on optimally managing the design and delivery coverage. About a quarter of companies (24%) of their programs, with a select number tailoring are using spousal surcharges, with another 13% their designs to facilitate the availability of federal planning to do so next year. subsidies in the Exchanges for a portion of their • The total employee cost share, including workforce. Looking to the end of the coming decade, premiums and out-of-pocket costs, has climbed employers are much less confident that health care from 33.2% in 2011 to 34.4% in 2012. benefits will be offered at their organization. • Only 3% of employers are somewhat or very likely to discontinue health care plans for active“The out-of-pocket increase is employees with no financial subsidy in 2014 or partly due to subsidy shifts for 2015. • 45% are somewhat to very likely to offer an dependents, as nearly half of employer-sponsored health plan to only a portion of their population and direct ineligible employees companies increased employee to the Exchanges. contributions in tiers with • Today, 23% of companies are very confident that they will continue to offer health care benefits for dependent coverage.” the next 10 years, down from a peak of 73% in 2007. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 3
  5. 5. Insurance Exchange openings will have a or engagement. They are using the data to reallocate strong impact on retiree medical plans reward programs and budget in ways that ensure The availability of insurance Exchanges coupled the program delivers the highest potential value to with changes to Medicare will lead many employers employees for the lowest cost to the company. to exit sponsorship of retiree medical programs. • A top focus for nearly a quarter of employers is to However, many companies will provide a softer review health care benefits as part of their total landing for current retirees by offering them rewards strategy. account-based defined contribution alternatives that will make it easier to purchase insurance in the Employers are looking for success by individual marketplace. Active employees and new improving vendor transparency and hires will likely see a more significant shift in their accountability company’s role in their retiree health care coverage, Employers have been asking for more from their although the growth in account-based health plans health plan vendors — particularly in two areas: (ABHPs), which provide a tax-favorable savings helping engage employees in better managing opportunity, could provide an important and valuable their health, and providing greater transparency on vehicle for many of these employees. prices and quality. Although frustrations linger about the effectiveness of health plan vendors in these Four out of 10 employers view subsidizing health areas, plan services show signs of improvement in care benefits for retirees of no importance to their providing members with information to make clinical employee value proposition. decisions concerning preference-sensitive care, • 8% of employers with retiree medical programs identifying gaps in care and engaging members in plan to make changes to their subsidy in 2013, health improvement programs. and an additional 20% are considering making • 38% of employers say their vendors offer only to a changes in 2014 or 2015. slight extent — if at all — a center of excellence • While only 10% of employers with retiree medical (COE) network of facilities that provide the best programs currently offer a retiree medical account, outcomes and reasonable prices for procedures. 4% are planning to offer them by 2013, and • Just 12% of employers say their vendors engage another 18% are considering them in 2014 or members in health improvement programs to a 2015. great or very great extent. Putting health and other benefits in a total • While 34% of all respondents will require vendors rewards context is on the rise to provide complete extracts of claim data As employers revisit their entire reward portfolio and (including discounts and identification of providers) seek to balance benefits with employees’ need for in 2012, another 12% plan to do so in 2013. a secure retirement and a competitive salary, some • This year, 44% of employers will require vendors are quantifying the impact of changes to their reward to share data for employee outreach and programs, including health care benefits, on critical integrated reporting; another 16% plan to add that employee behaviors and actions, such as retention requirement in 2013. “Four out of 10 employers view subsidizing health care benefits for retirees of no importance to their employee value proposition.”4 towerswatson.com
  6. 6. Use of ABHPs is surging but must be part “Account-based health plans can be an importantof a broader strategy to be effectiveAccount-based health plans can be an important element in an organization’s health benefitelement in an organization’s health benefitmanagement if the right incentives and employee management if the right incentives and employeeeducation are attached. Today, 59% of companieshave an ABHP in place, with another 11% expecting education are attached.”to add one by 2013. But ABHPs will not necessarilyresult in lower costs without significant enrollment. Expansion of employee incentives to improveOur results show that employers that take a health continuescomprehensive approach to ABHPs (e.g., increasing Although engaging employees to better manageemployee and provider accountability while at the their health is an ongoing challenge, companiessame time helping to cultivate smarter health care have expanded their use of financial rewardsconsumers) are the ones that have gained the to employees and their spouses to encouragegreatest advantage. Using a health savings account participation in health management programs.(HSA) can also effectively align with an employer’s These programs have become significant elementsretirement strategy by providing employees with a in the HR toolbox. In fact, more than two-thirds oftax-advantaged vehicle to pay for current costs while respondents offer incentives today. This is hardlyaccumulating wealth for retirement. surprising since competitive pressure and the pace of change have increased the demands on everyone• Total replacement ABHPs are also on the rise, at all levels of any company. Companies have also representing nearly 12% of companies with an been more willing to add penalties to their arsenal ABHP — up from to 7.6% in 2010. (used by 20% today), and some (10%) have adopted• ABHP enrollment has nearly doubled in the last achievement standards. It’s likely that achievement- two years — surging from 15% in 2010 to 27% based incentives will continue to grow as companies in 2012, and the move toward total replacement look to employees to change unhealthy life choices ABHPs is continuing. (lose weight and lower blood pressure), an important• About 10% of respondents say employees and priority. dependents enrolled in an ABHP are better at reducing lifestyle risks than those enrolled in non- • Nearly one-third of employers plan to adopt ABHPs. or expand the use of financial incentives to• Nearly four out of 10 companies currently encourage healthy behaviors as a main focus of consider their HSA for actives part of their retiree their organizational health strategy. Conversely, medical strategy, and another 20% are planning one-fifth believe lack of sufficient financial or considering such a strategy over the next three incentives to encourage participation in programs years. is a major obstacle to changing employee behavior related to health. • 43% of employers provide incentives to encourage participation in biometric screenings, and 30% offer incentives to engage in healthy lifestyle activities in the workplace. • Employers are embracing incentives to encourage use of high-performance networks. While only 9% currently use incentives for this purpose today, 23% are planning to use them in 2013. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 5
  7. 7. About the Survey The 17th Annual National Business Group on Health/Towers Watson Employer Survey on Purchasing Value in Health Care tracks employers’ strategies and practices, and the results of their efforts to provide and manage health benefits for their workforce. This report identifies the actions of high- performing companies, as well as current trends in the health care benefit programs of U.S. employers with at least 1,000 employees (Figure 1). Respondents were also asked about specific implications for their health care benefit programs attributed to the PPACA. The survey was completed by 512 employers, between December 2011 and January 2012, and reflects respondents’ 2011 and 2012 health program decisions and strategies and, in some cases, their 2013 plans. Respondents collectively employ 9.2 million full-time employees, have 8.0 million employees enrolled in their health care programs and operate in all major industry sectors (Figures 2 and 3). In 2011, respondents spent, on average, $10,982 per employee on health care, which equates to a collective $87 billion in total health care expenditures. Figure 1. Number of full-time workers employed by respondents 13% 27% 13% 1,000 to 2,500 16% 16% 2,500 to 5,000 20% 5,000 to 10,000 24% 10,000 to 25,000 27% 25,000+ 24% 20% Figure 2. Region where the majority of benefit-eligible workforce is located 13% 25% 25% National 23% Northeast 25% 14% South 25% Midwest 23% 13% West 14% Figure 3. Industry groups 8% Energy and Utilities 8% 16% Financial Services 14% 5% 10% General Services 16% 14% Health Care 10% IT and Telecom 24% Manufacturing 10% 24% 5% Public Sector and Education 14% Wholesale and Retail 14% 10%6 towerswatson.com
  8. 8. Cost TrendsActive Employees employees, who see an increasing share of their total rewards going to health care benefits.2Over the last five years, we have witnessed thelongest period of stability in health care cost Employers anticipate total health care costs willincreases since this survey began in 1995. Medical reach $11,664 per active employee in 2012, upcost trends have stabilized between 5% and 7% from $10,982 in 2011 — a 6.2% increase in totalsince 2007 after plan design and contribution costs over the period (Figure 5, page 8). The averagechanges (Figure 4). In 2011, costs rose 5.4% employer share of total costs also continues tocompared with 6.0% in 2010 and are expected to climb to unprecedented levels — $8,900 in 2012,increase by 5.9% in 2012. To put this stabilization compared with $8,453 in 2011.in context, it is important to realize that without Meanwhile, employees, on average, paid 23.0% ofchanges to plan design and increases in employee total premium costs in 2011 and are expected to paycontributions, average cost trends would have been 23.7% in 2012, as companies take steps to control8% in 2011 and anticipated to be only slightly lower their costs. In paycheck deductions, this translated(7.4%) next year. into an average employee contribution of $2,529While increases in health care costs have leveled to premiums in 2011, which is expected to rise tooff at historically low levels, they are nonetheless $2,764 in 2012 — a 9.3% increase in one year.growing at about twice the rate of the general CPI. Employers’ costs also continue to rise. On average,Equally important to note, health care cost trends they pay 34% more than they did five years ago,have outpaced wage growth for more than a decade. while employees contribute nearly 40% more (FigureIn fact, wages have been rising between 2.0% and 6, page 8). For some employees, the question of3.5% annually for much of the last decade, dipping affordability becomes even more evident as theirto 1.5% over the last three years.1 The slower pace paycheck deductions for health care premiums riseof health care cost trends, then, does not diminish while their wage increases shrink in order to fundthe growing affordability challenge for active higher health care costs.Figure 4. Health care cost increases have leveled off*15% 14.7 13.010% 10.3 10.6 9.0 9.7 8.0 8.0 8.0 8.0 7.4 8.5 8.0 7.5 7.0 6.0 6.0 6.0 5.9 5% 5.4 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012** Health care trend Health care trend CPI-U -5% after plan and before plan and contribution changes contribution changes Note: Median trends for medical and drug claims for active employees. CPI-U extracted from the Department of Labor, Bureau of Labor Statistics. * A company’s medical benefit expenses for insured plans include the premium paid by the company. For a self-insured plan, these expenses include all medical and drug claims paid by the plan, company contributions to medical accounts (FSA/HRA/HSA) and costs of administration minus employee premium contributions. The annual change in costs is based on costs for active employees after plan and contribution changes. Respondents are asked to report trends directly in the survey. ** Expected1 Wage and salary increases are based on the Bureau of Labor Statistics, U.S. Department of Labor, Employment Cost Index.2 See Steven A. Nyce and Sylvester J. Schieber, “Treat Our Ills: Killing Our Prospects,” Towers Watson Research Paper. towerswatson.com/research/5216. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 7
  9. 9. Figure 5. Medical and drug costs and employee premium share Moreover, in addition to premium increases, companies anticipate that employees’ out-of-pocket Total PEPY costs Net PEPY costs expenses will rise to 18% of total allowed charges Percentile 2011 2012* 2011 2012* in 2012, compared with 17% in 2010 and 16% in Mean $10,982 $11,664 $8,453 $8,900 2011. The unexpected 1% dip last year appears 10th $7,636 $8,070 $5,707 $5,908 to be an anomaly. It likely reflected employers’ reluctance to significantly change plan design amid 25th $8,928 $9,367 $6,925 $7,238 the uncertainty of the economy and the health 50th $10,619 $11,134 $8,318 $8,618 care reform legislation of 2010. Over the last year, 75th $12,597 $13,478 $9,997 $10,544 however, companies have stepped up actions to 90th $14,256 $15,297 $11,301 $12,121 position their programs for long-term success,Note: Costs include medical and drug claims for active employees. Total per-employee per-year (PEPY) costs include both especially with the PPACA’s excise tax scheduled toemployer and employee shares. Net PEPY costs are less employee contributions. take effect in 2018. Evidence of this trend to try to*Expected control costs can be seen in the rise of ABHPs and increased employee enrollment (see Account-BasedFigure 6. Total employee/employer health care costs Health Plans, page 30).2007 Total cost = $8,597 2012 Total cost = $11,664 Altogether, the share of total health care expenses paid by employees, including premium and out-of- pocket costs, is expected to be 34.4% in 2012, up from 33.2% in 2011.3 This means that for every $1,000 in health care expenses in 2012, employees pay $344 for premiums and out-of-pocket costs, and employers pay the remaining $666. Pre-65 and Post-65 Retirees Retirees face even greater affordability challenges, paying a considerably larger share of coverage costs than active employees. Once retirees reach $6,620 Employer paid $8,900 Employer paid age 65 and become eligible for Medicare benefits, $1,977 Employee paid $2,764 Employee paid affordability improves: They pay, on average, $2,000 per year for single-only coverage and $5,200 for family coverage (Figure 7).Figure 7. Annual premiums and rates of increase for retiree-only and family However, retirees under age 65 pay more thancoverage for 2012 twice that — nearly $4,226 per year in premiums Annual total Retiree premium for single-only coverage and over $10,500 per year premiums share Rates of increase for family coverage. Absent some form of subsidy, Retiree Retiree such as an employer plan, many of these employees only Family only Family 2011 2012* may find it difficult to retire and secure affordable Retirees coverage. Even with an employer subsidy, some may under $8,419 $20,028 50.2% 52.8% 6.8% 5.9% still find it too costly. age 65 Retirees The realization that their subsidy is not enough to age 65 $4,511 $11,184 44.3% 46.0% 4.7% 4.4% enable retirees, especially those pre-65, to afford and older coverage is leading some companies to reassess *Expected the value of their retiree medical as well as the role retiree health benefits play in their total benefit mix. The opening of the health care insurance Exchanges in 2014, which could provide access to comparable health care at much lower rates, may prove a more cost-effective alternative for the company and its retirees (see Looking at Viable Alternatives to Current Retiree Medical Programs, page 14). 3 Total health expenses include employer and employee portions of the premiums, administration costs and employee out-of-pocket costs (including deductibles, copays and coinsurance).8 towerswatson.com
  10. 10. Figure 8. Consistent performers versus median annual cost trends (after plan and contribution changes)2006 – 201110% 8% 8.0 7.0 6% 6.0 6.0 6.0 5.4 4% 2.6 2.7 2% 2.1 2.1 1.4 1.7 0% 2006 2007 2008 2009 2010 2011 Median of all companies Consistent performers Note: Median trends for medical and drug claims for active employees, net of employee premium contributionsConsistent Performers Deliver Long-Term cost increases are in the top 25% — have a medianResults 10% cost trend.Organizations continue to show dramatic differences in As shown in Figure 9, consistent performers aretheir ability to manage their health care cost trends. A noticeably ahead in terms of cost management.group of organizations that we refer to as “consistent In 2011, the cost difference between consistentperformers” has been successful in maintaining health performers and low performers was more than $2,200care cost trends at or below the TW/NBGH norm for per employee. For the average consistent performereach of the last four years. with 10,000 employees, this equates to a $22 million cost advantage. Likewise, employees working for aOur research this year identified 43 companies that consistent performer also fair much better than theirqualify as consistent performers.4 Figure 8 shows that counterparts at low-performing companies, payingthe ability to keep cost increases low over an extended nearly $400 less per year in premiums. In additionperiod of time distinguishes these companies to the obvious advantage of reducing health carefrom other organizations. In fact, the median trend costs for themselves and their employees, providingacross the last four years was 6.1%, versus 2.2% for affordable health care is key to a company’s abilityconsistent performers. to provide a competitive reward package, succeedBy contrast, some companies have experienced in the long term in supporting their employee valuegreater challenges in managing their cost increases. proposition, and meet attraction and retention goalsLow-performing companies — whose two-year average (see Do the Math, page 10). Figure 9. Annual costs and increases by performance group Difference Consistent All company Low performers Consistent vs. performers average low performers Total PEPY, 2011 $9,619 $10,982 $11,876 –$2,257 Net PEPY, net contributions, 2011 $7,407 $8,453 $9,273 –$1,866 Employee contribution, 2011 $2,212 $2,529 $2,603 –$391 Employee share of contributions, 2011 23.4% 23.0% 21.9% 1.5 % pts. Two-year average trend, net contributions 2.1% 5.5% 10.0% –7.9 % pts. 2011 trend, net contributions 2.1% 5.4% 10.0% –7.9 % pts. 2011 trend, before changes 4.9% 8.0% 10.7% –5.8 % pts.Note: Consistent performers comprise 43 companies (out of 208) that have maintained trends at or below the Towers Watson/NBGH median trend for each of thelast four years. Low performers are based on the highest quartile of two-year average trend.4 A company had to complete this year’s survey and the 2010 or 2011 Towers Watson/NBGH survey to be eligible to be a consistent performer. The number of consistent performers is based on 208 eligible companies, which translates to 21% of companies reporting an annual trend at or below the all-company median for each year from 2008 to 2011. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 9
  11. 11. Do the Math Efficiencies support work force health objectives and remix the reward portfolio Health care reform is a total business issue that influences implications — will no doubt have an advantage over their benefits, the overall reward deal, workforce planning, competitors as the economy improves and the implementation administration and finances. This is an important time of health care reform becomes clearer. for employers to revisit their total rewards philosophy and As Figure 10 illustrates, affordable health care not only lowers strategy, and understand the kinds of changes that may be costs but can also be an important advantage to optimize necessary to meet their business and growth goals, shifting employee rewards. In this example, the high-performing talent requirements and the financial pressures they continue company would have, on average, nearly $7,000 more per to face. Our survey results indicate that 30% of companies employee per year by 2018 to spend on other aspects are taking steps to examine their health care benefits, of the reward portfolio apart from health care benefits — employee subsidies and out-of-pocket costs (including health notably increases in cash pay — and gain a key competitive management, and worksite and prevention programs) in a advantage. There is no question, then, that companies able to total rewards framework for various population segments hold the line on health care costs can get out in front of their (e.g., pay groups). Another 29% are planning to do so in competition in attracting and retaining top talent. 2013. Organizations that are currently conducting this kind of comprehensive analysis — factoring in broader cost and talent Figure 10. Linking performance to total rewards By 2018 Today High performers Low performers 11.0% 10.3% 17.4% 11.0% Active medical 10.3% Active medical 17.4% Active medical as share of as share of as share of direct comp direct comp direct comp $79,810 $73,059 $54,335 $15,418 $8,425 $9,678 Employer’s Cash Employer’s Cash Employer’s Cash health care pay health care pay health care pay costs costs costs Medical trend: 2% Medical trend: 10%10 towerswatson.com
  12. 12. Strategy and PlanningWhile insurance Exchanges have the potential importance of subsidized retiree medical benefitsto transform the health insurance market for to a company’s employee value proposition. If theconsumers, many large employers anticipate health PPACA works as intended, the health insurancebenefits will remain a core component of the value market in 2014 and beyond will become anproposition for active employees beyond 2014. As attractive alternative and further push companiesFigure 11 shows, 90% of companies indicate that to exit sponsorship of their pre-65 programs.will be the case in 2014 and beyond — virtually More than ever, companies recognize that a healthyunchanged from 2012. However, the percentage workforce can have an important effect on theirof companies indicating the strongest response organization and bottom line. Over the last decade,(“very important”) dropped 13 percentage points companies have made significant investments inbetween 2012 and the period after the opening of programs and activities to improve workforce health,the Exchanges in 2014, which could reflect some and keep employees at work and doing their jobsuncertainty about their commitment longer term. as effectively as possible. All signs point to theseCompanies have been steadily reducing their programs remaining an essential part of companies’financial commitment toward retiree health care employee value proposition in the future, surpassingbenefits. The results show a further decline in the even their financial stake in active medical programs.Figure 11. Importance of employer subsidies and health and productivity tocompany’s employee value proposition in 2012 and beyond0% 20% 40% 60% 80% 100%Subsidized health care benefits for active employees201211 5 22 712014 and beyond1 9 32 58Subsidized health care benefits for retirees2012 40 17 21 10 122014 and beyond 47 21 17 10 6Improved workforce health and productivity20121 11 26 622014 and beyond1 7 26 65 1 − Not at all important 2 3 − Somewhat important 4 5 − Very important Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 11
  13. 13. Figure 12. Likelihood organizations will take the following action in 2014 or Strong Employer Commitment Through2015 with their active health care programs 20150% 20% 40% 60% 80% 100% While many employers are considering their optionsDiscontinue health care plans for active employees and direct employees to the Exchanges after the Exchanges open in 2014, the majoritywith no financial subsidy of large companies today remain committed to 77 19 3 the optimal design and delivery of their healthReplace health care plans for active employees and direct employees to the Exchanges care programs (Figure 12). But there is a rangewith a financial subsidy of opportunities for employers to consider that 55 34 11 extends beyond a simple pay-versus-play decisionOffer an employer-sponsored plan to only a portion of the population and direct ineligible (see A Spectrum of Responses to Reform, below).(e.g., part-time, temporary) employees to the Exchanges For example, nearly one in five companies is 29 26 27 11 7 likely to offer health care coverage to a subsetOffer active employees health benefits meeting the PPACA requirements for “minimum of its workforce and direct the remainder of itsessential coverage” and structure contributions to facilitate availability of federal subsidies employees to the insurance Exchanges. In the end,in the Exchange for low-wage earners few companies plan to either discontinue their 27 32 29 8 4 health care programs or shift strategy to a definedOptimally manage design and delivery to sustain an employer-sponsored plan and minimize contribution option by 2014 or 2015. All signspenalties under the PPACA indicate that companies will continue to focus on22 11 30 55 the most effective ways to control rising costs and improve employee health and well-being. 1 − Not at all likely 2 3 − Somewhat likely 4 5 − Very likely A Spectrum of Responses to Reform Health care reform presents unique challenges and their own costs in 2014 and beyond, while at the same opportunities for employers that sponsor health benefit time directing employees to advantageous coverage options plans for their employees and retirees. In particular, the — either within the employer’s plan or in health insurance prospect of an individual coverage mandate, the opening of Exchanges. insurance Exchanges and the availability of federal premium Employers need to select the approach that aligns with subsidies for low-income workers in 2014 require employers their total rewards philosophy and strategy, and provides to decide whether to play (sponsor a health benefit plan that optimal value in terms of both cost and talent. Other factors meets specific minimum requirements) or pay (forgo plan to consider include the demographic composition of their sponsorship, pay a penalty and require employees to secure workforce, the consequences of alternate approaches (e.g., coverage for themselves through the Exchanges). federal penalties and/or subsidies) and the choices made by But the decision is more complex than simply play versus pay. other employers in their industry. There is a spectrum of approaches to help employers optimize Play Spectrum of Opportunity Pay Optimal play Play and redirect Selective play Pay and redeploy Pay and exit Continue as a plan Restructure contributions Limit eligibility to Discontinue plan Discontinue plan sponsor for all to qualify low-paid employer-sponsored plan, sponsorship and provide sponsorship with no employees. employees for federal and direct ineligibles to some financial top-up for financial accommodation subsidies. Exchanges. employees. for employees.12 towerswatson.com
  14. 14. “Employer confidence has steadily deteriorated since 2007, despite health care cost trends hovering at historically low rates during the same period.”Confidence About the Long Term Fades Figure 13. Employers’ confidence that health care benefits will be offered at their organization a decade from now continues to erodeEconomic conditions, frustration with highcost levels and limited success in encouraging 80%employees to adopt healthier lifestyles have been 73persistent challenges for companies. Against thebackdrop of health care reform, companies have 60% 62never been more uncertain about the future of their 59 57health care programs over the long term.For nearly a decade, Towers Watson has been 40% 43tracking employers’ confidence in their ability to 38sponsor health care benefits for active employees10 years into the future. Employer confidence has 23 20%steadily deteriorated since 2007, despite healthcare cost trends hovering at historically low ratesduring the same period. With the health caremarketplace changing rapidly and parts of health 0% 2003 2005 2007 2008 2009 2010 2011care reform already starting to take effect, employer Note: High confidence represents responses of “very confident.”confidence is at its lowest point (23%) since webegan tracking this data (Figure 13). That coulddramatically change if there is any interruption inthe implementation of the various components ofthe PPACA. However, companies are much moreconfident about the next five years than they areabout 10 years from now. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 13
  15. 15. Looking at Viable Alternatives to Current Retiree Medical Programs Figure 14. Pre-65 retiree medical support for various subgroups of the Many employers are looking at health care workforce for 2012, and expected for 2014 or 2015 reform and the opening of the insurance 0% 20% 40% 60% 80% Exchanges in 2014 as a viable alternative to their current retiree medical programs. For two Uncapped Financial Support — Access to and financial support of employer-sponsored decades, companies have been reassessing retiree health care benefits 7 their financial commitment to these programs 5 and, as a result, employer subsidies have been steadily eroding. The ongoing health care 20 13 cost challenges have reached a point where employees considering retirement, especially Capped Financial Support — Capped financial support (access to an those under 65 and still ineligible for Medicare, employer-sponsored health plan, but with a cap on company costs) 12 find retiree health care coverage unaffordable 7 even when subsidized by their employer. 29 If the health Exchanges launch as intended 22 in two years, the health insurance market will Account Only/Defined Contribution — Financial support, but no access to an become more attractive for pre-65 retirees, employer-sponsored health plan (e.g., retiree medical account) allowing companies to exit sponsorship of 2 these programs. The additional subsidies 7 provided by the elimination of the Medicare 1 Part D prescription drug benefit donut hole and 13 the potential emergence of new solutions may make it easier for employers to transition from Access Only — No financial support, but provide access to an employer-sponsored health plan their traditional role of providing direct financial 21 support and plan sponsorship to simply 15 providing account-based alternatives. 9 Results of this year’s survey indicate that 8 employer sponsorship of these programs will No Financial Support or Access — No financial support and no access to continue to decline over the next three years. employer-sponsored health plan As shown in Figure 14, half of the companies 58 offer subsidies to current retirees under age 65, 66 while only 21% will provide new hires with some 40 form of financial support. 44 New hires: New hires: Current retirees: Current retirees: 2012 2014 or 2015 2012 2014 or 201514 towerswatson.com
  16. 16. Looking ahead, many companies will provide a Figure 15. Declining subsidies for retirees with health accounts growingsoft landing for current retirees by offering an in popularityaccount-based defined contribution alternative. 0% 10% 20% 30% 40% 50% 60% 70%In fact, account-only coverage for pre-65 Have dollar cap on benefitsretirees is expected to increase to 13% by 48 3 112014 or 2015 from only 1% today. Althoughthe results are not shown here, employers are Include HSA for actives as part of retiree medical strategyalso planning to shift to a defined contribution 39 6 14approach for their current Medicare retirees in Make changes to plan subsidy (e.g., cost sharing)the next two years. 26 10 23New hires will likely see more significant erosion Convert current Medicare Rx Coverage from RDS Program to Group Part D Plan (Employer Group Waiver Plan [EGWP])in their company’s retiree health benefits, as 13 18 26nearly three-quarters of companies will provideno financial support or access to an employer- Convert current subsidy to a retiree health accountsponsored retiree health plan by 2014 or 2015. 15 7 35However, the growth in account-based health Outsource program administration (i.e., facilitate access to group/individual planscare programs will likely emerge as a valuable, through a Medicare contractor)tax-effective way for active employees to pay for 19 9 28medical expenses during their working years Eliminate employer-managed drug coverage for post-65 retirees and rely on Part D plansand to save for medical expenses in retirement. 21 7 25In fact, 39% of companies currently consider Offer retiree medical savings accounttheir HSA for actives part of their retiree 13 4 21medical strategy, and another 20% are planning Audit retiree drug subsidy program administratoror considering such a strategy over the next 15 4 9three years (Figure 15).Health care reform legislation and changes in Action taken/ Planning Consideringthe Medicare marketplace also provide a strong Tactic used in 2012 for 2013 for 2014 or 2015incentive for employers to change their retireedrug programs. The majority of companies Note: Based on respondents that provide financial support or access to coverage in 2012 and excludes responses of “not applicable”(57%) plan to or are considering convertingtheir current Medicare drug coverage from theRetiree Drug Subsidy (RDS) program to anEmployer Group Waiver Plan (EGWP) over thenext three years. Likewise, 53% of companiesplan to consider or are already consideringdropping their employer-managed drug coveragefor Medicare-eligible employees and relying onPart D plans. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 15
  17. 17. Figure 16. Top focus areas of employer’s health care strategy in 2013 Employee Well-Being Takes Center0% 10% 20% 30% 40% 50% StageDevelop a workplace culture where employees are accountable and supported for their Although staying abreast of and complying withhealth and well-being health care reform will remain in focus in 2013, 40 companies will increasingly emphasize improvingStay up to date and comply with the PPACA workforce health and productivity in the years 34 ahead. This highlights a growing recognition among organizations that health and productivity strategiesEducate employees to be more informed consumers of health care (e.g., price transparency, are a critical success factor in a fiercely competitivequality care information, treatment decision support) 33 and highly connected world, regardless of the future of health reform. These strategies extend beyondAdopt/expand the use of financial incentives to encourage healthy behaviors physical and mental health to encompass the work 32 environment, culture and interpersonal relationshipsDevelop/expand healthy lifestyle activities that connect employees to the mission and goals of 24 the organization.5Review health care benefits as part of total rewards strategy As shown in Figure 16, 40% of companies say that 24 cultivating employee health and well-being is a central part of their health care strategy in 2013.Expand enrollment in account-based health plans Likewise, 33% of companies will take steps to 21 educate and support more informed health careDevelop a new health care strategy for retirees (including potential exit) decisions through enhanced tools that promote 18 price transparency and quality of care. But success ultimately lies in employees making smarterMake long-term changes to avoid excise tax ceiling 14 lifestyle choices and improving health behaviors. To help drive results, many companies will takeDevelop a new health care strategy for active employees (including potential exit) steps to ensure that employees are accountable 13 for improving, managing and maintaining workforceReview competitors’ actions health by adopting and expanding the use of 12 financial incentives (32%) and taking more aggressive steps to enroll employees in account-Place more emphasis on effective condition management based health plans (21%). 11Prepare for development of insurance Exchanges 9Adopt/expand the use of new technologies to improve employee engagement and changesocial workplace norms 6Incent employees to use higher-quality providers of care 4Place more emphasis on the mental health (e.g., stress and anxiety) of employees 1 5 For a more detailed discussion, see Towers Watson/National Business Group on Health 2011/2012 Staying@Work Survey: Pathway to Health and Productivity.16 towerswatson.com
  18. 18. Challenges AheadConsistent with findings in previous years, employee Figure 17. Biggest challenges to maintaining affordable benefit coveragehealth habits is the top challenge employers face in 0% 10% 20% 30% 40% 50% 60% 70%managing their health care costs (Figure 17). Thispersistent problem is a focus of many companies’ Employees’ poor health habits 61health care strategies today and, as noted in theprevious section, will continue to be in 2013. High-cost catastrophic casesBut these top challenges highlight the difficulty 44employers are having in managing costs across the Underuse of preventive servicesentire health continuum, from the use of preventive 30services (30%) to the high cost of catastrophiccases (44%) and the escalating cost of specialty Escalating cost of specialty drugsdrugs (29%). 29 Poor employee understanding of how to use the plan 24 Poor (or lack of) information on provider costs 23 Overuse of care through employees seeking inappropriate care 18 Higher costs due to new medical technologies 15 Cost of compliance and administrative complexity under the PPACA 15 Changes in workforce demographics 12 Overuse of care through providers recommending too many services 12 Poor (or lack of) information on provider quality 10 End-of-life care 3 “Consistent with findings in previous years, employee health habits is the top challenge employers face in managing their health care costs.” Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 17
  19. 19. Figure 18. Companies’ biggest obstacles to changing employees’ behavior Changing employees’ health behaviors has been arelated to their health major obstacle for many companies. Above all, the0% 10% 20% 30% 40% 50% 60% lack of employee engagement (i.e., low program participation) is cited by 57% as the biggestLack of employee engagement (i.e., low participation or interest in programs) obstacle to managing employee health (Figure 57 18). In a business environment where employeesToo many other demands on employees are increasingly asked to do more (often with 34 less), it is not surprising that more than one-third of companies (34%) indicate that too many otherLack of evidence about which practices work best demands on employees is a barrier to improving 23 healthy behaviors. Without a strong business case,Lack of adequate budget to support effective health management programs it can be difficult to develop strong support within 22 an organization. To that end, companies highlightLack of sufficient financial incentives to encourage participation in programs the lack of evidence as a major obstacle (23%) 20 to changing employee behavior. This ultimately can make it difficult to attain an adequate budgetLack of organizational structure to support it for additional programs (22%) and for financial 18 incentives to encourage program participation (20%).Not enough time on the part of employees 18 Asking for More From Health Care VendorsLack of adequate internal staff 17 There is growing recognition among employers that forging a strong connection with their health plan(s)Lack of senior management support and other vendors, actively supporting programs 16 aimed at engaging employees, and promotingLack of appropriate tools to be successful patient safety and quality improvement can be very 16 effective in managing their health care costs andPoor or inadequate communication of health management programs building a healthy workforce. 13 To that end, an increasing number of employersLack of actionable data have been taking steps to consolidate their plans 13 and health management programs with their health plan vendors to achieve greater end-to-end carePoor coordination with partners (e.g., vendors, health plan) management and improve active oversight. Our 9 survey results indicate that nearly one-third (30%)Regulatory limitations and uncertainty surrounding wellness incentives of companies have consolidated their health plan 5 vendors in the last two years, and another 11% plan to do so next year. Likewise, 22% of companies have 7 consolidated their health and productivity programs with their health plan, and 15% plan to do so in 2013. Are companies satisfied with the performance of their health plan vendors? In many regards, employer ratings are mixed, particularly in the areas where their vendors are in the best position to intervene (Figure 19). On a positive note, employers rate their vendors more favorably on case management and to a lesser extent on the design of center-of-excellence networks and screening claimants to offer targeted health management interventions. Vendors receive less favorable ratings on their ability to use data to determine appropriate treatment plans for chronic conditions, identify gaps18 towerswatson.com
  20. 20. in care and help make clinical decisions regarding Figure 19. Effectiveness of health plan vendorspreference-sensitive care. However, there are signs 0% 20% 40% 60% 80% 100%that plan services are improving in each of theseareas (Figure 20). Providing case management 20 41 39Companies say their biggest disappointment is the Offering a center of excellence (COE) network of facilities that provide the best outcomesinability of their health plan vendors to drive behavior and reasonable prices for procedureschange that would result in more efficient use of 38 32 30the health care system and healthier lifestyles. Screening claims to find claimants and inviting them to participate in health managementThese frustrations likely tie back to employees’ programslack of engagement in their health. Many employers 40 32 27recognize this as a significant challenge for their Making tools available to employees and providing assistance in using themorganization and have made it the cornerstone of 31 45 24their health care strategy this year and next. Integrating data to determine appropriate treatment plans for chronic conditions andLooking ahead, health plans are in a good position catastrophic casesto actively manage chronic and catastrophic cases, 47 37 16and provide greater transparency on prices and Offering members information to help make clinical decisions regarding preference-sensitivequality in order to help employees make more care (such as back surgery, breast surgery, prostate surgery)informed decisions about their health care. Many 51 33 16employers are eager for their health plans to Identifying members who are not getting evidence-based care and intervening to correctintegrate into their health care strategy a new “gaps” in careset of solutions emerging with the advance of 53 31 16new technologies and next-generation health Engaging members in health improvement programscare delivery models, such as Accountable Care 52 35 12Organizations (ACOs). While health plans are making Changing member behavior related to making healthy lifestyle decisionsstrides, they are increasingly challenged with price 67 26 7transparency tools that lead to disintermediation, as Changing member behavior to drive more efficient use of health care servicescompanies contract directly with providers and adopt 68 26 6new solutions with other vendors that cut the healthplan out of the equation. The next section examines Unfavorable Neutral Favorablea number of emerging trends in these areas.Figure 20. Effectiveness of health plan vendors improves Unfavorable Favorable 2011 2012 Difference 2011 2012 Difference Offering members information to help make clinical decisions regarding preference-sensitive care (such as 68% 51% –17 % pts. 7% 16% 9 % pts. back surgery, breast surgery, prostate surgery) Engaging members in health improvement programs 63% 52% –11 % pts. 8% 12% 4 % pts. Identifying members who are not getting evidence-based 63% 53% –10 % pts. 9% 16% 7 % pts. care and intervening to correct “gaps” in care Integrating data to determine appropriate treatment 55% 47% –8 % pts. 11% 16% 5 % pts. plans for chronic conditions and catastrophic cases Changing member behavior to drive more efficient use of 75% 68% –7 % pts. 4% 6% 2 % pts. health care services Changing member behavior related to making healthy 74% 67% –7 % pts. 5% 7% 2 % pts. lifestyle decisions Screening claims to find claimants and inviting them to 43% 40% –3 % pts. 21% 27% 6 % pts. participate in health management programs Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 19

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