Health care benefit cost increases at large U.S. employers are expected to hold steady at 6 percent in 2017. The good news is that health premiums are not growing at a faster clip year after year, as they were a decade ago. The bad news is that the increase in health plan costs still outpaces general inflation in the U.S., which remains below 2 percent, and salary budget increases, which are holding at around 3 percent.
“While employers have been able to keep increases in check for the past few years, costs are still running at more than twice the rate of inflation and general wage increases, thereby threatening affordability,” said Brian Marcotte, president and CEO of the National Business Group on Health (NBGH), a membership association of primarily large U.S. employers.
“Controlling health benefits costs remains a high priority” for corporate management, Marcotte said on Aug. 9 when NBGH released the findings from its Large Employers’ 2017 Health Plan Design Survey at a press conference in Washington, D.C.. The survey was fielded among NBGH members in May and June, with responses from 133 large U.S. employers offering coverage to more than 15 million Americans.
According to the survey, the 6 percent increase projected for 2017 is identical to the increase employers would have experienced in each of the past two years had they not made changes to their plan design. But many employers expect to hold increases to 5 percent by making some changes to their plans.
And compared with plans available on the Affordable Care Act’s public exchanges, employer-based group coverage is a deal.
“Current estimates have health insurance premiums for the average public exchange plan increasing by at least 10 percent, about twice what large employers are projecting for next year,” said Marcotte. “This is a clear indication that the employer-based health care model continues to be the most effective way to provide health insurance coverage to employees and their families.”
Top Cost Drivers
Fueling the overall growth in the cost of health benefits is a surge in spending on pharmaceuticals–the newest, high-cost specialty drugs in particular.
Nearly a third of respondents (31 percent) indicated specialty pharmacy was the highest driver of health costs, up from 6 percent in 2014. Overall, respondents cited the following as among their top three cost drivers:
- Specialty pharmacy benefits (80 percent).
- High cost claimants (73 percent).
- Specific high-cost diseases and conditions, such as musculoskeletal claims (61 percent).
Tactics to Control Health Care Costs
Two-thirds of employers said that pharmacy management techniques are their most effective tools for controlling rising health care costs. Over half of employers (56 percent) reported that offering high-deductible consumer-directed health plans (CDHPs) as an option or as their only plan was one of their most effective tactics.
Top tactics to control health care costs
Percentage of respondents who cited the tactic as among their top three ways to control rising health benefit costs:
| Pharmacy management techniques (traditional and specialty) | 68 percent |
| CDHPs as an option or as the only choice | 56 percent |
| Wellness initiatives | 34 percent |
| Increased employee cost sharing | 34 percent |
| Disease/condition management | 30 percent |
Source: National Business Group on Health
Pharmacy Benefits
Prescription drug costs are expected to increase 7.3 percent overall in 2017. But most of this increase is due to specialty drug costs, such as biologics that require special handling. Specialty pharmacy costs are projected to surge 16.8 percent in 2017.
To manage all drug costs, employers plan to use a variety of tactics, such as requiring:
- Prior authorization before filling a prescription (95 percent of respondents).
- Quantity limits (91 percent).
- Step therapy, requiring less expensive drugs to be tried first (90 percent).
- Having the member pay the difference between generic and brand prices (62 percent).
- Closed formulary excluding certain brand name drugs (50 percent).
- Integrated medical and pharmacy data for more effective cost management (48 percent).
- Mandatory mail order for maintenance medications (45 percent).
- Four-tier or higher pharmacy plan design (34 percent).
- No co-pay for select generic medications (25 percent).
Techniques focusing on specialty drugs include:
- More aggressive use of management protocols for specialty medications (74 percent).
- Specialty medications must be obtained through a specialty pharmacy (69 percent).
- Pharmacy plan designed with a specialty tier with greater cost sharing (38 percent).
Consumer-Directed Plans
The adoption of CDHPs continues to slowly increase among large employers, mainly because there is not much more room for growth, the survey showed. In 2017, 84 percent of large employers will offer at least one CDHP, up incrementally from 83 percent in 2016. The percentage of employers that will offer only CDHPs to their employees will increase slightly from 33 percent to 35 percent.
In 2017, health savings accounts (HSAs) will be offered by 92 percent of employers that provided any type of high-deductible CDHP, up from 87 percent in 2016. A third (34 percent) of employers with a CDHP will link these plans to a health reimbursement arrangement (HRA), the same as in 2016.
Only 15 percent of employers offering a CDHP with an HSA don’t contribute any funds to these accounts. Among the other 85 percent, the median amounts employers contribute to HSAs (assuming an employee completed any necessary requirements) are $600 for employee-only coverage and $1,100 for family coverage. HRAs are funded solely by employers, with the media contribution being $725 (employee-only) and $1,325 (family coverage).
HSAs are employee owned, whereas funds in an HRA generally revert to the employer on termination of employment.
Median amount employers are contributing to health accounts
Among employers that will contribute to HSAs or HRAs in 2017, the maximum annual amount employees/families will be able to receive:
| HSA | HRA | |
| Employee-only | $600 | $725 |
| Family coverage | $1,100 | $1,325 |
Source: National Business Group on Health
Cost Sharing
Across all plan types, the median in-network deductible for 2016 is $1,425 for employee-only coverage and $2,900 for family coverage.
In 2016, large employers paid roughly 78 percent of the premium costs for employees and their families, and the employer percentage of contribution to the premium has remained fairly consistent over the last five years.
Median employee cost-sharing amounts for 2016
| Cost-Sharing | All Plan Types | PPOs | CDHPS |
| In-network deductibles | |||
| Employee-only | $1,425 | $600 | $1,600 |
| Family coverage | $2,900 | $1,225 | $3,200 |
| In-network out-of-pocket maximums | |||
| Employee-only | $3,750 | $3,500 | $4,000 |
| Family coverage | $7,000 | $6,925 | $7,200 |
Source: National Business Group on Health.
When employer contributions to an HSA or HRA linked to a CDHP are factored in, the “effective” CDHP deductible/out-of-pocket costs for employees becomes considerably lower.
Telehealth
Ninety percent of large employers will make telehealth services available to employees in states where it is allowed in 2017, a sharp increase from 70 percent this year and 46 percent in 2015. By 2020, virtually all respondents will offer telemedicine, the survey showed.
But telehealth behavior health services, such as mental health counseling, are less universal, offered by 34 percent of large employers.
“Employers that have been ahead of the curve in offering telemedical services are just at the forefront of recognizing how telebehavioral health can help employees access much-needed mental health services,” said Julian L. Cohen, president of Teladoc Behavioral Health, a telemedicine provider based in Lewisville, Tex. “Today, it’s still considered new but our expectation is that many more telehealth packages will include mental health in the near term.”
A telemedicine platform is particularly suited to providing behavioral health services “due to the stigma long-associated with mental health or geographic barriers to care,” Cohen said. “The talk therapy principally used in mental health care today is extremely well suited to phone and video-based teleplatforms.”
In other telehealth findings:
- Much of the growth is driven by insurers including telehealth as part of their services, but 31 percent of large employers are directly contracting with telehelath vendors.
- While utilization rates in 2015 averaged just 1 percent of eligible employees, those numbers are steadily increasing. In the first half of 2016, 3 percent of employees had used the benefit, when available.
Private Exchanges
Interest in private exchanges may have peaked in 2014, when 35 percent of large employers said they were considering the use of private exchanges to provide health care choices to active employees (2 percent had moved to a private exchange), the survey showed. In 2016, only 10 percent were considering private exchanges for active employees, while 4 percent had made the move.
However, 26 percent of large employers will have shifted retirees receiving employer-provided health care to a private exchange in 2017, while another 28 percent are considering moving retirees in 2018-2019.
“The private exchange model is still evolving and most employers are not willing to take a leap of faith” with active employees, Marcotte said. They are yet to be convinced that private exchanges can provide sustained, reduced costs and engage employees in better health care decision-making.
If private exchange providers can allay employers’ fears and make a convincing case for the model’s sustained value, defined contribution health care may yet live up to its early hype.
Among other health plan design trends noted in the report:
- Spousal surcharges leveling off. One in three large employers (33 percent) will have surcharges in place for spouses who can obtain coverage through their own employer, roughly the same as this year. A few employers will exclude spouses entirely when other coverage is available through an employer.
- Expanded options at Centers of Excellence. The use of health care Centers of Excellence—requiring or providing incentives for employees to have common procedures performed at high-rated medical centers that specialized in these services—will grow from 79 percent this year to 85 percent in 2017. The largest increases will be for bariatric surgery (up 15 percentage points), and transplants and fertility treatments, both up 8 percentage points.
- Tools to manage care. 80 percent of respondents plan to offer nurse coaching for care and condition management while 72 percent will offer nurse coaching for lifestyle management. Nearly two-thirds (65 percent) will provide employees with self-servicedecision-support tools to help them become better health care consumers.
| Another View on Rising Costs Health cost increases can vary by region and workforce demographics. For instance, the Federal Reserve Bank of New York recently surveyed executives in the manufacturing and services sectors in New York State, Northern New Jersey and Fairfield County, Conn. Among the findings:
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