Towers Watson Employer Surveys Examine Rising Health Care Costs And Planned Responses To The ACA

September 3, 2013

 Two surveys conducted by Towers Watson, parent company of Extend Health, and reported on in August, provide insight into what leading U.S. employers are expecting in health care costs next year and how the ACA might affect their long-term health benefits strategies.

The first survey of 382 Towers Watson clients – U.S. employers across eight industries representing five million active full-time employees – revealed that employers expect health care costs to increase 5.2% in 2014, down modestly from the 5.9% projected increase for 2013. Towers Watson conducted the survey of employers across eight industries in July and August.

A companion survey of 420 employers representing 8.7 million employees, designed to gauge planned responses to the Affordable Care Act (ACA), was conducted in July. It revealed that 74% of respondents said that they view health benefits as “very important” to their employee value proposition while 98% reported that they have “no definite plan” to stop subsidizing them.

Employers also said the trend of shifting some costs to employees will continue. For 2013, 13% of respondents to the ACA-related survey said they plan to increase employee premium contributions for single-only coverage by 5 or more percentage points; for 2014, the percentage of employers with the same intention rose to 22%.

Planned increases in employee contributions for dependent coverage will rise at a higher rate. For 2013, 21% of employers said they plan to increase employee premium contributions for dependent coverage by 5 or more percentage points; for 2014, the percentage rose to 34%.

At the same time, a growing number of employers said it is “very likely” they will discontinue subsidizing benefits for retirees in 2014 and 2015: for pre-65 retirees in 2014, 1% indicated so, increasing to 14% in 2015. For post-65 retirees in 2014, 16% indicated so, rising to 26% in 2015.

The survey also showed that between now and 2015, employers are considering a wide variety of other ways to offset rising costs, including implementing employee wellness plans and offering incentives based on health outcomes. Employers also intend to change plan designs, and work with vendors to use price and hospital quality transparency tools and evaluate new financial terms and performance standards beyond cost and operational performance of the plans.

Employers expressed a reluctance to embrace public health care exchanges run either by the state or federal government and displayed a general “wait-and-see mentality” as ACA deadlines get pushed back and some details of the law’s implementation remain unclear.

Meanwhile, 60% of employers said that the ACA’s excise tax will have a “moderate” or “significant” influence on their health care strategies in 2014-15. The tax is a 40% penalty tax on the incremental value of group health insurance coverage based certain premium thresholds for single and family coverage, indexed for inflation, which goes into effect in 2018.

Given that the federal government has predicted that up to 60% of current employer plans would be subject to this tax, expect to see employers step up efforts to contain costs between now and then – before it’s too late.

For more on the Towers Watson survey results, click here for the full press release.

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