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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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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 ...

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

    • United States Performance in an Era of Uncertainty201217th Annual Towers Watson/National Business Group on HealthEmployer Survey on Purchasing Value in Health Care
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • “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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • Emerging TrendsFigure 21. Redefining dependent subsidies As the economy continues to struggle and health0% 20% 40% 60% 80% care benefits increasingly squeeze merit raise budgets, many companies have made incrementalIncrease employee contributions in tiers with dependent coverage changes to plan designs in order to help manage the 47 16 rising cost of health care. In previous years, theseUse spousal surcharges or waivers (when other coverage is available) changes have included increases in point-of-care 24 13 cost sharing with employees and employee premiumIncrease employee contributions per each dependent covered contributions. Over the last year, we’ve seen a blend of both of those cost-sharing strategies, with slight 7 11 increases in both employee cost share and out-of-Eliminate/don’t offer a subsidy for the spousal portion of coverage (provide access only) pocket share (see Cost Trends, page 7). 0/31 In addition, a number of companies are looking 2012 Planned for 2013 closely at their subsidies and redefining the financial commitment made between employees and dependents (Figure 21). Nearly half of companies increased employee contributions in tiers with dependent coverage, and about a quarter of companies (24%) are using spousal surcharges, with another 13% planning to do so next year. A growing number of employers are considering adopting an approach in 2012 that increases contributions per each dependent covered (11%), although only 7% are doing so today.20 towerswatson.com
    • Connecting Directly With Providers Figure 22. Emphasis on quality and value in plan designs 0% 10% 20% 30% 40% 50%In the coming year, employers are making asignificant effort to adjust plan designs and use Differentiate cost sharing for selection/use of patient-centered physicians (patient-centeredincentives to improve provider quality and enhance medical home)the value of services used by members (Figure 22). 6 15For example, 25% of companies plan to differentiate Differentiate cost sharing for use of high-performance networks or centers of excellencecost sharing for the use of high-performance 18 25networks, and 18% plan to offer specialty treatment Offer specialty treatment networks (e.g., diabetics enroll with clinic dedicated to managingnetworks to provide dedicated treatment to diabetes and the other conditions of diabetics)employees with specific illnesses, such as diabetes. 10 18Likewise, value-based designs have been on the Offer incentives (or penalties) to providers for coordination of care, use of emergingrise, with one-third of companies (34%) potentially technologies or use of evidence-based treatmentsusing them by 2013, compared with only 15% today. 9 17Now companies are considering a new strategy: Use value-based benefit designs (e.g., provide different levels of coverage based on valueoffering direct incentives to providers for improved or cost of services)care coordination and the use of emerging 15 19technologies and evidence-based treatments. Use reference-based pricing in medical plan (e.g., offer a limited level of coverage for aWhile there is growing interest in reference-based procedure)pricing, only 6% of companies are using it today, the 6 12same percentage as last year. This lag in adoptionis probably due to the barriers companies face in 2012 Planned for 2013accessing the pricing information needed to put thisin place.Growing Emphasis on Financial Figure 23. Emphasis on financial management in medical programsManagement 0% 20% 40% 60% 80% 100%Companies are also taking a much closer look at the Add or expand medical utilization management programsfinancial management of their plans to curb waste 41 27by regularly reviewing plan eligibility and enrollment, Audit or review eligibility and enrollment in your health planand by auditing medical claim payments (Figure 23). 67 13Making sure care is appropriate is also a financialmanagement challenge for most plans. To this end, Audit medical claim payments41% of companies added or expanded their medical 56 17utilization management programs this year, and Use hard-dollar, return-on-investment calculations to support future decisionsanother 27% plan to do so next year. Companies are 46 22also taking steps to improve program evaluation byusing hard-dollar return on investment (ROI) 2012 Planned for 2013calculations to support decisions. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 21
    • Figure 24. Pharmacy Changing Pharmacy Landscape0% 20% 40% 60% 80% More than half of the companies (55%) we surveyedConduct a pharmacy benefit manager (PBM) vendor procurement or renegotiate financial are actively working to lower their pharmacy costsarrangements (e.g., ingredient costs, rebates) with current PBM by taking advantage of the expertise of a financially 55 21 accountable pharmacy benefit manager (PBM) toAdd or expand step therapy, prior authorization or quantity limit programs purchase drugs at the lowest possible cost, which 60 9 increasingly includes negotiating PBM performanceImplement carved-out specialty pharmacy from medical plan guarantees for generic dispensing rates. The opportunity for lowering costs by promoting generics 50 9 over brands has never been greater, given theImplement mandatory mail or strong incentive to use mail unprecedented number of drugs set to lose patent 49 8 protection over the next few years.Audit your PBM Nearly half of companies are implementing 41 15 mandatory mail order for chronic disease drugs,Negotiate PBM performance guarantees for generic dispensing rates by therapeutic class and about one-quarter are implementing restrictions 29 11 on certain brand-name drugs or excluding popularParticipate in a pharmacy purchasing coalition brand-name drugs from their formulary altogether 31 7 (Figure 24). Focused on improving their genericReduce pharmacy copays or coinsurance for those with chronic conditions (e.g., diabetes, dispersing rates, many companies today aim atblood pressure) having at least 80% generic usage. Companies are 21 16 also taking steps to add value-based design featuresRestrict or eliminate coverage of brand-name drugs in popular drug categories (e.g., proton to their programs. For example, 21% reducedpump inhibitors) pharmacy copays last year for those with a chronic 24 10 condition, and another 16% plan to do so in 2013.Modify definition of drug tiers by excluding popular brand-name drugs from the "formulary" tier While generics are growing in usage as a result of 22 8 all these efforts to lower costs, there is no federalUse reference-based pricing in pharmacy plan design mechanism for approving the generic manufacture 10 7 of specialty drugs (the common name for many groundbreaking and rapidly growing biologics, 2012 Planned for 2013 injectables and other pharmaceutical innovations). As these drugs become more important as elements of treatment for patients suffering from cancer, multiple sclerosis, rheumatoid arthritis, and other life-threatening or life-altering conditions and diseases, companies need to develop a comprehensive pharmacy benefit strategy. “The opportunity for lowering costs by promoting generics over brands has never been greater, given the unprecedented number of drugs set to lose patent protection over the next few years.”22 towerswatson.com
    • Building the Case for Transparency The case for transparency for employers and employees is rather straightforward: It helpsIt is a well-understood fact that health care does not employees choose the care they value and helpsfunction as an efficient market because consumers employers avoid unnecessary costs while stilldo not know price and quality before they purchase a providing the health care coverage their employeesservice such as an MRI or mammogram. The lack of need. Unfortunately, this ideal solution for possiblytransparency has led to massive price disparity for lowering total costs and improving access to betterthe same medical procedures across geographies, quality of care can only materialize when consumerswithin geographies and even within a single and employers gain access to this information.health plan. As a result, far too many employeesunknowingly pay excessive health costs at the mostexpensive providers with little assurance that those Figure 25. Emphasis on transparencyservices result in better outcomes. 0% 20% 40% 60% 80%As shown in Figure 25, a growing number Provide employees with health care service unit price informationof employers recognize the need to improve 15 22transparency in prices and hospital quality tochange an opaque health care market. Today, 15% Provide price and hospital quality transparency tools outside the health planof employers provide health care service unit price 13 23information to members, and another 22% plan to Require plans to provide complete extracts of claim data (e.g., including discountsdo so next year. In addition, more than one-third of and identifying providers)companies are requiring plans to provide complete 34 12extracts of claim data, in part to educate employees, Require vendors to share data for employee outreach and integrated reportingbut also so they can identify pricing differences 45 16within their population. Formally track quantitative outcomes from all vendors (e.g., participation, engagement, costs, lost productivity)While the health plans are the logical source of this 34 19information, some feel it is proprietary informationand cite confidentiality agreements with providers 2012 Planned for 2013that prohibit the release of negotiated rates. In anunintended consequence, some corporate clientshave turned to independent sources for what theyneed.In fact, 13% of companies have gone outside thehealth plan to provide price and hospital qualitytransparency tools to employees, and an additional23% of companies are planning a similar approachnext year. Health plans may need to change theirways — or rapidly evolve their own tools — toprotect their interests against this trend towarddisintermediation. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 23
    • Figure 26. Personalized health and technology Embracing Technology to Engage0% 20% 40% 60% 80% EmployeesCompetitions between business locations or employee groups Applying the most effective technologies to 33 12 15 personalize the health experience and establish social communities can be a successful way forEmployee testimonials and/or personal stories companies to promote a healthy workplace culture. 35 10 15 There is a growing interest among companies inSocial media tools including profiles, social networking, discussion forums and blogs using social media tools, online discussion groups 12 7 17 and gaming software to support their health andOnline discussion groups for work/life/health concerns (e.g., discussion groups for productivity strategy (Figure 26). For example, therare/unusual diagnosis, parenting a special needs child, support for sick baby care) survey shows social media tools are used by 19% 7 3 9 of companies today — up from 14% last year.Online games, individual or multiplayer participation This figure is expected to rise to 36% next year if 4 5 7 companies follow through with their plans. Technology can also be effective at promoting In use 2011 Implement in 2012 Planned for 2013 positive peer attitudes on health and healthy behaviors, which behavioral economics research showcases as a very effective strategy for motivating employee response and ultimately Extending Wellness Incentives to Spouses being a catalyst for behavior change. The use of Sixty-eight percent of employers are offering cash, premium credits and competitions to promote a healthy workplace is up account contributions to their employees to encourage participation nearly 40% compared with last year (33% versus in healthy lifestyle activities in 2012 — up from 58% in 2011. For the 45%) and is expected to rise by another 33% next typical company that offers incentives, the maximum amount of cash year. Likewise, many companies have been putting employees can earn is $300, the same as last year. Companies have a face on key messages and programs by creating been increasingly offering incentives to spouses and dependents. personal interactions between company leaders Among companies that provide incentives, 53% are offering them to or respected peers and the rest of the workforce. dependents today, versus 39% in 2010 and 46% in 2011. The highest Forty-five percent of companies use employee cash total that can be earned by both employees and dependents has testimonials and stories to create personal increased by $100 over each of the last three years to $700 today. connections across the workforce about health, which could expand to 60% in 2013.24 towerswatson.com
    • Expanding Use of Financial Incentives Figure 27. Wellness incentives: Use and tougher requirementsand Requirements PlannedCompanies have made considerable investments 2011 2012 for 2013in their health management programs over the last Use financial rewards for individuals whodecade. However, offering programs is not enough. participate in health management programs/ 54% 61% 21% activitiesEmployers recognize that action — employee healthdecisions and behaviors — is the true measure of Use penalties (e.g., increase premiums and/ or deductibles) for individuals not completingprogram success. Many companies are struggling to 19% 20% 22% requirements of health managementovercome lack of participation in wellness programs. programs/activitiesWhile more frequent communication and emerging Reward (or penalize) based on smoker,technologies can help, many companies are finding 30% 35% 17% tobacco-use statusfinancial incentives effective in getting employees to Reward (or penalize) based on biometrictake positive action. outcomes other than smoker, tobacco-use 12% 10% 23% status (e.g., achievement of weight control orAs shown in Figure 27, the use of financial rewards target cholesterol levels)has been steadily rising. In 2009, 36% of companies Require employees to complete a healthwere offering rewards, compared with 61% today, management program/activity (beyond simplyand another 21% plan to do so by 2013. This is 35% 44% 26% enrolling in a program) in order to receivemore than a 69% increase between 2009 and reward (or avoid penalty)2012.6 Companies also recognize that improving Require employees to complete multiplehealthy lifestyles is a family affair. Offering wellness activities in order to receive reward (or avoid 32% 37% 25%incentives to spouses has two advantages: (1) Much penalty) (e.g., complete both a health risk appraisal and annual physical)of the cost in a typical employer plan is directlytied to dependents, primarily spouses, and (2) Require employees to complete the health risk appraisal and/or biometric screening tospouses can be key influencers of the overall family 35% 42% 26% be eligible for other financial incentives forhealth environment. As a result, companies have healthy activitiesincreasingly directed incentives to spouses as well Require employees to complete the health riskas employees (see Extending Wellness Incentives to appraisal and/or biometric screening to enroll 5% 5% 13%Spouses, opposite page). in a higher-value plan option6 Data from 2009 are based on the Towers Watson/National Business Group on Health 2011/2012 Staying@Work Survey: The Health and Productivity Advantage. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 25
    • “Low levels of employee engagement in their health management programs are a persistent challenge for many companies.” Designing Achievement-Based Outcomes Nearly all companies (90%) with an achievement-based program include weight/obesity as a requirement under the program, measured via body mass index (BMI) or waist-to-hip or body fat measurement. Three-quarters of companies include blood pressure, cholesterol and tobacco use as a requirement. Blood glucose level is used less often, by only 59% of companies. 26 towerswatson.com
    • In recent years, companies have taken more based. In fact, more than one-third of companiesaggressive steps to boost program participation use rewards (or penalties) to discourage tobaccoby using financial penalties, such as premium use, a trend that could rise to more than half bysurcharges or higher deductibles, to give employees 2013. There is growing interest in incentive designsadded motivation to complete a required health that pinpoint specific outcomes for weight controlmanagement activity. In 2009, only 8% of companies and cholesterol levels. However, few employers havewere using penalties.7 That has risen to 20% added these requirements to their arsenal over thetoday, which could more than double if companies last year.follow through with their plans. This trend clearly Instead, companies appear to be more comfortabletelegraphs that companies are raising the bar raising the bar on what it takes to earn an incentive.in their efforts to develop a workplace culture For example, 44% of companies are requiringwhere employees are accountable for managing employees to complete a health managementand improving their health, and for contributing to activity in order to receive an incentive — up fromenhanced workforce effectiveness and lower costs. 35% last year. Likewise, 20% more companiesCompanies are also rethinking their current incentive than last year are using health risk appraisalsdesigns and imposing tougher, more specific and biometric screenings as gateways to otherrequirements, including some that are outcome- incentives. Measurement Gap Around the ROI of Figure 28. Wellness program ROI Wellness Programs 0% 10% 20% 30% 40% Many companies have embraced the connection between employee well-being and lower health Strong, positive ROI care costs and improved workforce productivity. 4 Today, 87% of companies indicate they have Modest, positive ROI a workplace wellness program in place. 15 Undoubtedly, most companies view these as Small, positive ROI long-term investments. But are workplace 14 wellness programs showing a positive ROI? The reality is, most companies (61%) don’t know No positive ROI or don’t measure results (Figure 28). For those 6 that measure outcomes, 14% indicate a small Don’t measure positive ROI, and 15% cite a modest positive 24 ROI. Don’t know 377 Ibid. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 27
    • Following the Lead of Consistent Performers Figure 29. Top programs and activities added by consistent performers Most Implemented by Consistent in 2012 Performers in 2012 Percentage of consistent performers implementing tactic in 2012 0% 10% 20% 30% 40% The consistent performers took a number of significant steps in 2012 to improve the Measure gaps in care to make benefit program decisions efficiency of their health care programs 28 (Figure 29). In particular, the most successful companies extensively used data and metrics to Actively manage vendor-prepared communication/education on health care costs and living healthier lifestyles evaluate their programs and, over the last year, 24 increased their analysis of care gaps and use of independent estimates of savings and ROI. They Use independent estimates of savings and ROI to make benefit program decisions also optimized plan and PBM efficiency through 19 audits and fee renegotiation. In addition, 13% of Audit medical claim payments consistent performers added an account-based 16 health plan in 2012 to help manage costs and Communicate to spouses about the company’s healthy lifestyle initiatives to further develop a workplace culture where 15 employees are accountable for managing and improving their health. Audit your PBM 14 Low levels of employee engagement in their health management programs is a persistent Social media tools including profiles, social networking, discussion forums and blogs challenge for many companies. The most 14 successful companies are boosting their Offer an ABHP program communication by actively managing 13 vendor-prepared materials and expanding communication to include spouses. Consistent Use personalized reminders of need and timing for obtaining preventive procedures performers are also investing in communicating 13 health messages through new technologies, Conduct a pharmacy benefit manager (PBM) vendor procurement or renegotiate such as social media tools, and promoting financial arrangements (e.g., ingredient costs, rebates) with current PBM friendly team competitions among employees, 12 which can add significantly to a healthy Competitions between business locations or employee groups workplace culture. 12 Segment the population by health risk level, and offer targeted programs 1028 towerswatson.com
    • Top Plans Considered by Consistent Figure 30. Top programs and activities being considered by consistent performersPerformers for 2013 in 2013 Percentage of consistent performers planning to adopt the tactic in 2013As companies plan for 2013, the most 0% 10% 20% 30% 40%successful companies have made transparencya top objective (Figure 30). Nearly one-third Provide employees with health care service unit price informationof the consistent performers are planning to 29provide employees with unit price information Provide price and hospital quality transparency tools outside the health plannext year, and many will partner with vendors 29other than their health plans to do so.However, challenges in accessing the data Reduce number of plan options 26could ultimately limit the implementationand effectiveness of these tools. Consistent Telemedicine for professional consultationsperformers are looking to help members make 23more informed choices by adopting decision- Differentiate cost sharing for use of high-performance networks or centers of excellencemaking support tools next year (21%). 23In the coming year, consistent performers are Offer incentives (or penalties) to providers for coordination of care, use of emergingalso planning to take steps to improve provider technologies or use of evidence-based treatmentsquality by offering specialty treatment or narrow 23networks, and providing incentives for the use Offer specialty treatment networks (e.g., diabetics enroll with clinic dedicated toof evidence-based care. New technologies managing diabetes and the other conditions of diabetics)and enhanced telecommunications are also 21changing the way care is delivered. High-performing companies are looking closely at Competitions between business locations or employee groupsthe emergence of telemedicine as a way to 21improve access and efficiency of care delivery Add or expand medical utilization management programsto members. 21There are many specific factors that contribute Decision-making support toolsto the superior results of consistent performers. 21There is a lot to learn from these companies by Use spousal surcharges or waivers (when other coverage is available)looking at what they have been doing and where 21they are headed. On page 34, Strategies forBuilding a Healthy and Productive Workforce, we Use hard-dollar, return-on-investment calculations to support future decisionsshow that the most successful companies use 21a combination of tactics in seven main areas tohold the line on cost increases while engagingemployees to adopt habits for a healthylifestyle. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 29
    • Figure 31. Take-up in ABHPs on the rise Account-Based Health Plans 7070% In general, ABHPs can be a valuable tool in helping 59 employers stave off the impact of the scheduled60% 54 2018 excise tax by reducing plan costs per 53 51 employee. The momentum in the adoption of ABHPs,50% 47 temporarily suspended last year as companies 39 reassessed the implications of reform legislation,40% has returned. Currently, 59% of companies have an 33 ABHP in place — up from 53% last year (Figure 31).30% Another 27% of companies without a program today 21 (11% of all respondents) are expected to adopt an20% ABHP in 2013. 1110% As we have shown in previous years, companies 5 2 able to successfully migrate employees into an 0% ABHP can achieve significant savings. Our research 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* shows again that companies with at least 50% of employees enrolled in an ABHP report that their*Planned for 2013 total costs per employee are more than $1,000 lower than companies without an ABHP ($10,673 versus $11,714). Nonetheless, an ABHP alone, even with high employee enrollment, does not What’s an ABHP? guarantee long-term success. Companies with more We define an account-based health plan (ABHP) as a plan with a than half of their employees enrolled in an ABHP deductible offered together with a personal account (i.e., health savings report a two-year average trend of 5.4% — nearly account or health reimbursement arrangement) that can be used to pay identical to the TW/NBGH norm of 5.5%. We see a a portion of the medical expense not paid by the plan. ABHPs typically significant difference, as shown in the next section, include decision support tools that help consumers better manage their in those companies that take a comprehensive health, health care and medical spending. approach to (1) increasing employee and provider accountability, and (2) helping to cultivate smarter health care consumers. These companies prove most successful at holding the line on costs. These plans also benefit employees in both the short and long term by helping them pay for current costs while giving them a tax-effective vehicle to accumulate wealth for retirement. This is particularly important as companies redefine their financial commitment to their retiree medical programs by shifting toward a defined contribution approach. ABHP employee enrollment has been increasing at a moderate pace for most of the last decade. This past year, there was a significant spike in enrollment (Figure 32) at companies offering an ABHP: 27% of eligible employees enrolled — a 35% increase over last year and an 80% increase since 2010. The number of companies willing to migrate their entire workforce to an ABHP has also picked up steam. Today, nearly 12% of companies with an ABHP are total replacement — an increase of more than 50% over the last two years.30 towerswatson.com
    • Figure 32. ABHP enrollment rates spike70% 55 54 63.660% 52 56.550% 45.540% 43.0 38.8 35.130% 27.2 27.020% 20.0 14.0 15.010% 10.0 12.0 10.7 11.8 8.0 7.6 0% 4.9 5.4 5.0 5.4 2006 2007 2008 2009 2010 2011 2012 Median ABHP enrollment Percentage with Percentage with enrollment over 20% 100% enrollment Note: Estimates are based on companies that offer an ABHP in various years: 2006 is based on the 12th annual National Business Group on Health/Towers Watson Survey; 2007 is based on the 13th annual survey; 2008 is based on the 14th annual survey; 2009 is based on the 15th annual survey; 2010 is based on the 16th annual survey, and 2011 and 2012 are based on the 17th annual survey (current).To encourage enrollment, many companies set Figure 33. Change in employees’ contributions to an ABHP compared toemployee premium contributions for ABHPs non-ABHPs over the last three yearssignificantly lower than their traditional copay plans. 0% 10% 20% 30% 40%For nearly 60% of companies, employees pay ABHPpremiums that are at least 20% less than those Increased a lot — the difference between employee contributions to your ABHP and non-ABHP has become largerfor non-ABHP plans, and almost 40% of those 16companies set contributions at more than 50% less.As shown in Figure 33, the gap between employee Increased a littlecontributions to the ABHP and the non-ABHP has 32been widening, making the ABHPs more attractive No changeto employees. In fact, companies with an ABHP 36are three times more likely to indicate that the gapbetween ABHP and non-ABHP contributions has Decreased a little 13become larger over the last three years rather thansmaller (48% versus 16%). Decreased a lot — the difference between employee contributions to your ABHP and non-ABHP has become smaller 24 3 Note: Based on companies that offer an ABHP in 2012; excludes companies with total replacement ABHPs 37 Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 31
    • Figure 34. ABHPs as the only plan option is on the rise For account-based programs, HSAs continue to expand at a steady pace (Figure 34). Nearly twice 2007 2010 2012 2013* as many companies have an HSA today than they ABHP with HRA 20% 20% 23% 29% did five years ago (25% versus 48%), with an ABHP with HSA 25% 38% 48% 60% expected increase of 12% in 2013. In addition, Contribute funds to an HSA 15% 30% 39% 50% 39% of companies contribute funds to the HSA in 2012, and another 11% are planning to do so next Total replacement ABHP to at least one employee 5% 8% 8% 14% year. This can help boost enrollment and alleviate group the affordability challenges with these plans. On Offer an ABHP as our the other hand, the percentage of companies with a — 11% 17% 29% default plan option health reimbursement arrangement (HRA) has been Offer an ABHP as our only flat over the same period. — — 7% 17% plan option While HSAs are becoming more popular, average Note: Based on all companies with or without an ABHP *Includes companies indicating “planned for 2013” HSA enrollment lags considerably behind the older HRAs. In fact, HSA enrollment is only half that of HRAs in 2012 (16% versus 31%), likely because HSAs are a newer savings vehicle, taking effect in Figure 35. Health behaviors/outcomes for employees and dependents enrolled 2004. While we see significant growth opportunity in an ABHP compared to non-ABHPs for HSA enrollment in the years ahead, companies Worse in About the Better in will want to consider which account is right for their ABHP same ABHP Not sure workforce composition. They need to take into Getting recommended account the range of affordability issues that could preventive screening 1% 27% 15% 56% procedures make an HSA less valuable to employees — notably lower-paid employees — and new restrictions on Having an annual physical 1% 26% 14% 58% HSAs. Beginning in 2011, for instance, over-the- Using ER for non-emergent 1% 11% 29% 59% counter medications cannot be paid with HSA conditions dollars without a doctor’s prescription. Avoiding inappropriate care 0% 13% 23% 64% Participating in healthy In general, ABHPs have become mainstream, and 0% 19% 15% 65% companies are migrating a greater share of their lifestyle activities Reducing biometric risks workforce into these programs. If companies follow (e.g., blood pressure, 1% 17% 11% 72% through with their current health plan strategy, this cholesterol) could mean that 17% of companies would offer an Reducing lifestyle risks ABHP as their only plan option in 2013. In addition, (e.g., body mass index, 29% of companies would offer an ABHP as their 1% 16% 10% 73% tobacco use, nutrition, default plan option to further increase employee physical activity) enrollment. Note: Based on companies that offer an ABHP in 2012 An important question is whether ABHPs are having a positive or negative effect on employees’ utilization of health care services and ultimately“In general, ABHPs have become mainstream, on improving health outcomes. As shown in Figure and companies are migrating a greater share of 35, there are significant information gaps about health behaviors and outcomes for employees and their workforce into these programs.” dependents enrolled in an ABHP compared with non- , ABHPs. This could be a sign that many companies lack access to data or measurement capabilities to assess differences in member behavior. For those companies that have measured these differences, many employers indicate their ABHPs are outperforming their non-ABHPs, particularly in reducing the use of inappropriate care and curbing unnecessary visits to the emergency room. 32 towerswatson.com
    • PPACA Winners: Part-Time WorkersThe health care reform law has the potential As companies look to redefine their part-timeto completely change the approach companies benefits, there are a variety of options to consider.take to providing health care coverage to Survey results indicate that very few companiespart-time workers. After the opening of the have made changes to their part-time programs.Exchanges in 2014, the health insurance But a number of companies are planning to takemarket will greatly improve for part-time action over the next two years. Notably, 43% ofworkers, with government subsidies providing companies have or are planning to change themore affordable alternatives to employer- definition of “part time” to comply with PPACAsponsored coverage. requirements by 2014. Among those with a high concentration of part-time workers, 54% say theyCoverage for part-time workers today varies will comply with the government standard.widely by industry. Industries that traditionallyhave a higher concentration of part-time workers Overall, only 18% of companies have already— such as retail, wholesale and hospitality — eliminated, or are considering eliminating, part-are more likely to offer health care coverage time health care coverage by 2014, although 25%to part-timers than companies with lower of companies that use a high number of part-concentrations (Figure 36). However, those time workers plan to do so. Companies are alsothat rely more on part-time employees typically looking to manage part-time workers’ hours moreprovide them with more limited coverage or closely. Nearly 40% of companies that traditionallylower subsidies — sometimes significantly use a high number of part-time workers expectlower — than full-time employees. In fact, more to limit them to less than 30 hours per weekthan half (55%) of these companies with the by 2014 to escape having to pay benefits. Atmost part-timers contribute at least 20% less to this point, few companies (7%) are planning tothose workers versus full-timers, and 40% offer overhaul their workforce structure by hiring fewersubsidies to part-time employees that are at part-time employees.least 30% less than those offered to full-timers.In a notable departure from tradition, the new Figure 36. Offering of health care benefits to part-time employeeslegislation will change the definition of “part 0% 10% 20% 30% 40% 50%time” for health benefits to anyone who worksan average of 130 hours per month, rather Yes, with the same options as full-time employeesthan the current standard of minimum hours 43 38per week. This could have a dramatic effect onindustries that use a large number of part-time Yes, but with more limited coverage or subsidy than full-time employeesworkers and dramatically increase the number 19of employees who receive health care coverage. 38Companies looking to avoid the related cost No, we do not offerincrease for benefits may need to monitor more 37closely the hours worked by their staff. 25Today, on average, 61% of employers require Industries with low concentration Industries with high concentrationan employee to work a minimum of 20 hours of part-time workers of part-time workersper week to be eligible for health care benefits.Fourteen percent set a minimum below 20 Note: High part-time concentration includes companies in the following industries: health services, hospitality, entertainment, professional services, retail and wholesale trade.hours, and 25% set the minimum above. Thirtyhours per week is the next most commonthreshold, used by 13% of companies. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 33
    • Strategies for Building a Healthy and Productive Workforce With economic challenges persisting and landmark To achieve the right outcomes, the most successful reform scheduled to transform the health care companies recognize the inextricable link between landscape, there has never been a more critical time their health benefits and workforce health and for employers’ health benefit programs to operate productivity, and they integrate the link in every efficiently. The findings of this year’s analysis clearly aspect of their health plan strategy. How do the most show that the most successful companies separate successful companies get ahead? Simply stated, themselves from their competitors by making these companies have universally made greater significant strides in six core areas: strides in each of the six main areas and use health care metrics to gauge their impact on two critical • Health improvement success factors: cost reduction and improvements in • Engagement workforce health and productivity. As shown in Figure • Accountability 37, the consistent performers have made greater • Linking provider strategies strides than low performers in each of the core • Technology tactical areas, especially these two: (1) investing in a • Healthy environment comprehensive set of programs to engage employees in living healthier lifestyles, and (2) altering benefit plan designs to increase employee and provider accountability. Figure 37. Key drivers of performance Percentage difference Summary of program use in program use* Consistent performers Low performers Consistent to low Engagement 33% 20% 63% Accountability 34% 21% 62% Technology 33% 23% 47% Healthy environment 40% 27% 46% Linking provider strategies 30% 21% 40% Metrics 43% 33% 30% Health improvement 48% 37% 29% * Difference in program is the increased percentage that consistent performers are using the tactics in each of the seven areas compared to low performers. For example, consistent performers are using 63% more of the activities around employee engagement than low performers.34 towerswatson.com
    • Health Improvement Figure 38. Health improvement 0% 20% 40% 60% 80% 100%At the core of a healthier workforce is a company’scommitment to provide employees with the tools Use member interaction with health management programs to promote using aand resources they need to lead healthy and primary care doctorproductive lives (Figure 38). Consistent performers 30 14actively communicate messages that helpemployees make wise, active choices about their Provide members information to help make clinical decisions regarding preference-sensitivebenefits and well-being, spanning the gamut from care (such as back surgery, breast surgery, prostate surgery) 12broad-based messages to the entire population, to 6targeted and personalized messages to individuals.These companies also recognize the importance Integrate multiple vendors to improve the delivery of information to our membersof integrating the information and tools from their (e.g., vendor summits) 37health plans and other vendors to streamline 24delivery, and simplify and improve the qualityof health improvement materials. While health Employees receive education to be more informed/active consumers of health caremanagement programs are more commonplace 35 23today than they were a decade ago, the consistentperformers have made greater investments in Consolidate health plan vendorslifestyle behavioral change programs, such as weight 37management and smoking cessation. 25 Provide information and resources for defined populations (i.e., population-based health education) 33 26 Offer weight management program 79 70 Offer smoking cessation program 84 77 Company offers programs such as EAP to help employees deal with stress outside work (e.g., family issues, commuting, work/life balance, financial pressures) 74 67 Consistent performers Low performers Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 35
    • Engagement also been more likely to introduce achievement- based standards to earn financial rewards (or avoid Companies are asking employees to take on more penalties), including designs that pinpoint specific responsibility for managing and improving their outcomes for weight control, cholesterol level and health. To encourage employees to accept this tobacco use. The most successful companies challenge, consistent performers boost employee recognize that engaging spouses and winning their involvement by offering financial incentives to hearts and minds can help to accelerate the change participate in various healthy lifestyle programs in their employees’ lifestyles. Consistent performers (Figure 39). These companies are using incentives achieve this by directly communicating with spouses to encourage employees with a chronic condition about the company’s healthy lifestyle activities and to speak to a health coach or join a disease by providing them with the same opportunity to earn management program. These companies have financial rewards. Figure 39. Engagement 0% 10% 20% 30% 40% 50% Reward (or penalize) based on biometric outcomes other than smoker, tobacco-use status (e.g., achievement of weight control or target cholesterol levels) 12 3 Incent participation in disease/condition management programs (e.g., asthma, diabetes, heart disease) 33 14 Incent the use of a health coach to modify high-risk lifestyles (more comprehensive assessment and advice than nurse line) 33 15 Incent participation in weight management program 42 22 Reward (or penalize) based on smoker, tobacco-use status 33 20 Incent participation in smoking cessation program 47 30 Communicate to spouses about the company’s healthy lifestyle initiatives 40 27 Segment the population by health risk level, and offer targeted programs 35 24 Provide financial incentives to spouses 40 31 Competitions between business locations or employee groups 44 38 Consistent performers Low performers36 towerswatson.com
    • Accountability Figure 40. Accountability 0% 20% 40% 60% 80%Consistent performers have been taking measuredsteps to increase employee accountability for their Expand number of coverage tiershealth and care by changing program designs to 21drive employees to more cost-effective health care 6services (Figure 40). For example, these companies Offer an ABHP as our default plan optionare more than twice as likely as high-cost companies 28to reduce cost sharing for the use of high-perfor- 13mance networks or centers of excellence. The Differentiate cost sharing for use of high-performance networks or centers of excellenceconsistent performers have also been particularly 23focused on driving value through their pharmacy 11program by modifying drug tiers to exclude popular Structure employee premiums based on employee compensation levelsbrand drugs, adding or expanding step therapy, and 23requiring mandatory mail order. 13Consistent performers have also taken a harder- Modify definition of drug tiers by excluding popular brand-name drugs from the “formulary” tierline position with their ABHP strategy by using 29these plans as default options and offering 17higher deductibles with an HSA. In addition, these Use spousal surcharges or waivers (when other coverage is available)companies have been more aggressive in revising 30their financial commitment toward specific groups, 20particularly dependents. Actions taken includeexpanding the number of coverage tiers, using Increase employee contributions in tiers with dependent coverage 49spousal surcharges and increasing contributions 38in tiers with dependent coverage. Likewise, theconsistent performers have also been more likely Add or expand step therapy, prior authorization or quantity limit programsto address affordability issues by tying employee 63 49contributions to compensation levels. Offer ABHP with HSA 53 43 Implement mandatory mail or strong incentive to use mail 52 44 Restrict or eliminate coverage of brand-name drugs in popular drug categories (e.g., proton pump inhibitors) 28 24 Consistent performers Low performers Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 37
    • Linking Provider Strategies taken steps to improve access by offering onsite health services and onsite pharmacies. Consistent Access to high-quality, cost-effective health care performers are actively managing their PBMs by solutions is an essential part of consistent negotiating performance guarantees, reworking performers’ health care strategy. In many regards, financial arrangements and aligning plan design to consistent performers are pioneers in their quest drive higher levels of generic drug use. Likewise, to improve the quality of care within their health consistent performers are taking steps to boost program by participating in pilot programs for transparency of health care prices and quality so patient-centered medical homes and by leading the employees can be more informed in choosing health way in an emerging trend to contract directly with care services. providers (Figure 41). These employers have also Figure 41. Linking provider strategies 0% 20% 40% 60% 80% Participate in a community-based pilot program (e.g., patient-centered medical home, ACO) 16 9 Contract directly with physicians, hospitals and/or health systems 12 7 Offer onsite health services in at least one location (e.g., clinic that provides primary and/or urgent care) 42 29 Negotiate PBM performance guarantees for generic dispensing rates by therapeutic class 42 29 Offer onsite pharmacy 16 12 Implement carved-out specialty pharmacy from medical plan 67 52 Provide price and hospital quality transparency tools outside the health plan 20 15 Conduct a pharmacy benefit manager (PBM) vendor procurement or renegotiate financial arrangements (e.g., ingredient costs, rebates) with current PBM 60 52 Audit medical claim payments 65 56 Audit your PBM 42 37 Consistent performers Low performers38 towerswatson.com
    • Technology in care (Figure 42). While social media has been slow to take off with benefit and HR managers as aThere is enormous advantage in using rapidly way to connect with employees about health care,evolving technologies to transform virtually all consistent performers are early adopters of onlineaspects of the health care system from care delivery games and social media tools. But as the socialand financial management to engaging employees media environment increasingly evolves, with morein healthier lifestyles. Consistent performers are trusted sites tailored to engage employees aroundembracing these new technologies to provide their health, it’s likely that many more employerspersonalized information when needed for primary will embrace this vehicle to support their health andcare visits, send reminders about obtaining productivity strategies.preventive procedures and identify potential gapsFigure 42. Technology0% 20% 40% 60% 80%Offer and incent the use of personal health records (electronic records through medical planor other vendor) 10 3Offer online games, individual or multiplayer participation 12 5Use personalized reminders of need and timing for obtaining preventive procedures 47 23Social media tools including profiles, social networking, discussion forums and blogs 23 15Provide online messages to support primary care utilization linked to web-baseddecision support tools 14 9Offer decision-making support tools 65 52Have website sponsored/hosted by the company that provides health resources(not limited to benefit information) 62 51Regularly measure gaps in care to make program management decisions 63 53 Consistent performers Low performers Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 39
    • Figure 43. Healthy environment Healthy Environment0% 20% 40% 60% 80% Consistent performers recognize that employeesUse environmental audits to assure health messages are aligned with workplace health need a supportive workplace structure to becomeand safety more accountable for, and improve, their health and 16 well-being. The most successful companies have 7 taken steps to alter the physical work environment,Senior leaders support flexible scheduling to encourage employee participation in health including offering exercise facilities and taking amanagement programs/activities hard-line approach to smoking by banning it inside 26 or around campus facilities (Figure 43). Likewise, 13 senior leaders at these companies support flexibleUse employee testimonials and/or personal stories scheduling to help alleviate the time pressure many 58 employees experience. Consistent performers also 36 recognize that ongoing operational support is equallyUse key influencers and viral messaging to communicate through the networks of the company important. This includes using environmental audits 26 to ensure health messages are aligned with other 16 workplace health initiatives and actively managingActively manage vendor-prepared communication/education on health care costs and vendor-prepared communication and education.living healthier lifestyles Behavioral economics research has shown that 70 hidden persuasion and peer pressure can be highly 49 effective in motivating employees. ConsistentOffer and incent participation in healthy lifestyle activities at the workplace performers have embraced a number of these(e.g., walking programs) techniques, such as using key influencers, employee 28 testimonials and sponsoring workplace activities. 22Create a work environment to encourage exercise (e.g., providing exercisefacilities and organizing exercise events) 33 26Brand the program for use in all communication related to healthy lifestyle activities 72 57Ban smoking inside buildings or on campuses 72 60 Consistent performers Low performers40 towerswatson.com
    • Metrics their health plan information with health risks, program participation and employee assistanceAs this research has shown in previous years, program data. These companies tend to use a dataconsistent performers use a data-driven approach warehouse vendor to help facilitate the integration ofto making ongoing and regular improvements in their program data. Consistent performers not onlytheir health care program. Consistent performers put greater emphasis on assessing the impact oftap into a wide range of company-specific data, their programs but also use integrated analyses insuch as human resource information systems making decisions about their health care programs(HRIS) information and medical claims (Figure 44). and target programs to specific subgroups.They incorporate quality information to support Applications also include estimates of programbenefit or program management decisions for the savings and ROI analyses.upcoming year. Consistent performers also usedata to make important connections by integratingFigure 44. Measurement0% 20% 40% 60% 80%Integrate employee assistance program data with health care claim data 29 18Use data to target programs to specific subgroups or locations within the workforce 36 26Use data warehouse 57 44Use company-specific data (e.g., HRIS, medical claims) when selecting health coverageand/or program offerings for the upcoming plan year 52 42Regularly measure provider quality indicators to make program management decisions 51 42Use hard-dollar, return-on-investment calculations to support future decisions 42 35Integrate health risk appraisal data with health care claim data 40 34Integrate employee participation in health management programs with health care claim data 45 39 Consistent performers Low performers Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 41
    • Conclusion Although trends have stabilized somewhat since and productivity of employees is essential to both 2007, total health care costs continue to rise for controlling costs and improving organizational both employers and employees. The pressure productivity. is on employers to aggressively manage their Regardless of the future of health care reform, health care programs to both keep trend as low providing a cost-effective health benefit plan will as possible and ensure the best return on their remain a differentiator for many companies when investment — and that of their employees. In it comes to attracting and retaining top talent. The addition, companies that put their health benefits following practices, gathered from our research and in a broader total rewards context can better work with clients, are some that employers can use understand the effect that increasing health now to maximize plan effectiveness, control costs, care costs have on other parts of the reward mitigate risks and help employees manage their own program, gain deeper insight into employee health. benefit preferences and manage their programs accordingly. In addition, improving the health42 towerswatson.com
    • Know your numbers View ABHPs as part of a broader healthConsistent, proactive management of your benefit benefit strategyplans begins with a clear understanding of your ABHPs can help control both employer and employeedata — from costs, to usage rates, to organizational costs, but effectiveness is not guaranteed,health metrics, to the drivers of annual cost trends. especially if enrollment is low. Encourage enrollmentSome health care vendors resist providing figures in HSAs or HRAs to align incentive strategies andon prices and hospital quality, but independent save for medical costs in retirement. You can alsosources can help employers verify and understand make the best possible use of ABHPs by increasingthese costs. These data provide both a road map for provider accountability and educating employees onareas of improvement and a baseline for measuring ways to be better health care consumers.change. Partner with vendorsFollow the lead of consistent performers Develop stronger relationships with your healthConsistent performers are successful at managing care vendors, and seek their help in increasingtheir costs over the long term and keeping employee engagement and improving quality of care.their trend well below average. In 2012, they Consolidating vendors and plans can make it easiertook a number of steps to improve efficiency, to achieve workforce management goals. Lookingincluding using data and metrics to understand ahead, they can be valuable partners in introducingthe performance of their health plans, analyzing new technologies and next-generation health carecare gaps to make benefit program decisions, delivery models.determining ROI and cost savings, negotiating Use social media and incentives to increasefinancial arrangements with their pharmacy benefit employee accountabilitymanagers and regularly auditing claims. Many also Survey respondents report that poor employeedevelop a workplace culture that holds employees health habits are the biggest challenge toaccountable for managing their health. maintaining affordable benefit coverage, andPut health care benefits in a total rewards their top focus is developing a culture of health.context In addition to working with vendors to improveMany employers have a total rewards approach to employee health, consider social media andbenefits and compensation that focuses on using incentives to drive change. Online discussion groupsrewards to improve employee engagement and drive and games, team-based and individual competitions,organizational performance. Employers that take this and other so-called behavioral health techniquesapproach can make decisions about health benefit can be effective. And consider moving beyondplan design and cost sharing within the context of incentives for participating in biometric screening.their retirement benefit program, base salary and Instead, or in addition, provide meaningful rewardsbonus philosophy as well as nonfinancial benefits, for employees who meet health improvement goals,such as training and development. By making such as losing weight or smoking cessation.these trade-offs transparent, employers can helpemployees understand how continued increases inhealth benefit costs affect reward benefits. Performance in an Era of Uncertainty | Towers Watson/National Business Group on Health 43
    • Consider changes in plan design Many companies are also taking the opportunity Some employers are rethinking their current plan to look at post-65 retiree plans due to Medicare design to align it with health care reform’s emphasis changes and the upswing in Medicare coordination. on employee accountability. They may have been Now is the time to review your retiree health reluctant last year, given all the uncertainty about program in light of your total rewards philosophy the PPACA, but they are learning that small plan and reconsider your role in providing this benefit. changes, such as high-performance networks At the same time, encouraging active employees’ and reference-based pricing, can add up to big participation in an HSA or HRA can help them save cost savings for both employer and employee. In now for future medical costs. exchange, they are aiming to improve the value of Keep abreast of regulatory changes other aspects of their total rewards that employees Health care reform and its many regulations are value as much as health benefits and gain an ever changing, and the jury is still out on the final advantage over competitors. Other plan changes disposition of the PPACA. Since it was enacted, under consideration include spousal surcharges the Departments of Labor and Health and Human or waivers, and increasing employee contributions Services have issued regulations and clarifications in tiers with dependent coverage or per covered to the law, many of which affect employers. If the dependent. PPACA stands, major changes, such as the excise Rethink retiree health tax (set for 2018) and the health Exchanges (to As the cost of health plans becomes prohibitive for be implemented in 2014), could have a profound pre-65 retirees, employers are looking for better effect on your organization’s total rewards approach, solutions. The expected implementation of the recruitment and retention, and change management health Exchanges in 2014 could provide an answer. issues.44 towerswatson.com
    • About the National BusinessGroup on HealthThe National Business Group on Health is the nation’s onlynonprofit membership organization of large employers devotedexclusively to finding innovative and forward-thinking solutionsto their most important health care and related benefits issues.The Business Group identifies and shares best practices inhealth benefits, disability, health and productivity, related paidtime off and work/life balance issues. NBGH membersprovide health coverage for more than 50 million U.S. workers,retirees and their families. For more information about theNBGH, visit www.businessgrouphealth.org.About Towers WatsonTowers Watson is a leading global professional servicescompany that helps organizations improve performance througheffective people, risk and financial management. With 14,000associates around the world, we offer solutions in the areasof employee benefits, talent management, rewards, and risk andcapital management.Copyright © 2012 Towers Watson. All rights reserved.TW-NA-2011-22853towerswatson.com