Employers Strive To Lower Health Care Costs

A growing number of employers are striving to control rising health care costs and help motivate workers to take charge of their health, according to a survey by human resources consultancy Towers Watson and the National Business Group on Health (NBGH), a non-profit association of large U.S. employers.

The survey of 507 large U.S. employers found that 83% of companies have already overhauled or expect to make major changes to their health care strategy within the next two years, up from 59% in 2009. Researchers noted that these changes in strategy come at a time when median health costs are continuing to increase at more than twice the rate of inflation. They added that costs are expected to increase 6.5% this year, down slightly from 7% in 2009.

“The downturn has amplified the pressure on companies to find ways to support effective health management programs under budget constraints,” said Ron Fontanetta, senior consultant at Towers Watson. “For employers, the current environment is a clarion call to adjust their health plan strategy, reassess vendor relationships, and aggressively address the challenge to encourage workers to become better advocates for their own health.”

Results indicated that many employers believe that workers’ health habits contribute to rising costs. When asked to identify the main challenges in maintaining affordable health care coverage, more than two-thirds of respondents (67%) cited employees’ health habits as a top challenge to maintaining affordable coverage. When asked what obstacles they encounter when trying to change employees’ health-related behavior, more than half (58%) cited lack of employee engagement in wellness programs, followed by lack of financial incentives to encourage participation (31%) and lack of an adequate health management program budget (30%).

The findings suggested, however, that employers are increasingly adopting programs designed to help employees modify their behavior and become more informed health care consumers. The survey found that two-thirds (66%) plan to offer incentives for employees to complete a health risk appraisal in 2010, up from 61% in 2009. The survey also showed that 56% now offer health coaches, and more than one-quarter (26%) now offer onsite health centers.

“Even in tight times, employers will continue to encourage healthy behaviors with financial incentives and other initiatives,” said Ted Nussbaum, senior consultant at Towers Watson. “However, there are challenges to changing employee behavior that extend beyond budget constraints and employer-sponsored programs. Inspiring workers to be actively involved in their own health remains an uphill battle for most companies.”

The survey also showed that employers see considerable room for improvement with regard to medical vendor program delivery. When asked to rate vendors’ performance, two-thirds of the companies (67%) said they believe vendors fall short with programs designed to modify member behavior to promote more efficient use of health care services. Two-thirds (66%) rated these vendor programs designed to promote healthy lifestyle decisions as not at all or only slightly effective,and 57% said they consider vendors not at all or only slightly effective at driving care to quality providers.

“A strategic shift in their health strategies is underway,” said Helen Darling, president, National Business Group on Health.“Employers frustrated with high costs and limited employee interest in personal health management will be forced to take more aggressive steps to drive down cost increases while keeping workers healthy and productive. Building a healthy workforce has to be a team effort with both employers and their workers actively involved.”

Employee Benefits Increase According To Earnings

Besides earning less, workers in low-paid employment have substantially smaller benefit packages than higher-paid workers, and they are less likely to take full advantage of the benefits offered, according to the results of a survey by the U.S. Bureau of Labor Statistics (BLS).

A report published in the BLS Program Perspectives newsletter analyzed data from a March 2009 survey that examined the distribution of several types of benefits, including retirement and health care, among workers with different earning levels. Results showed, for example, that 31% of civilian workers in the lowest 10% of the national earnings range had access to defined contribution retirement plans, compared with 68% of workers in the highest 10% of the earnings range. Lower earners were also found to be far less likely than higher earners to participate in defined contribution plans. Just 13% of the lowest-paid workers contributed to their employers’ retirement plan, compared with 55% of the highest-paid employees. Thus, the take-up rate, or the percentage of workers with access to a retirement plan who participate in the plan, was shown to be 40% among the lowest-paid workers and 80% among the highest-paid workers.

The findings also revealed that defined contribution plans offered to lower-wage workers are more likely to require a contribution by the employee than those plans offered to higher earners: 72% of workers in the lowest 10% of the earnings range were required to contribute, compared with 66% of employees in the highest 10% earnings range.

The analysis also showed discrepancies in the percentages of workers who have access to defined benefit plans at work. The results indicated that 54% of workers in the highest wage category were provided with traditional pensions by their employers, compared with 6% of employees in the lowest wage category. Take-up rates for defined benefit plans were found to be 69% for workers in the lowest wage category and 95% for workers in the highest wage category.

The report’s authors observed that the findings on access to health care benefits, along with health plan participation and take-up rates, generally followed the pattern shown for retirement benefits. The survey showed that just 26% of employees in the lowest wage category were offered health care benefits, compared with 92% in the highest wage category. Higher earning employees were also found to be more likely than lower earners to be offered dental and outpatient prescription drug coverage.

And, despite much smaller incomes, lower earners appear to contribute a greater proportion of their health insurance premiums than higher earners. Employers were found to contribute 85% of single coverage costs for the highest 10% of earners, compared with 75% for the lowest 10% of earners. For family coverage, employers picked up 76% of the cost for the highest-paid group, but only 61% of the cost for the lowest-paid workers. In dollar terms, the survey showed that the average monthly premium contribution by the lowest-paid workers in plans requiring employee contributions was $96.89 for single coverage and $379.53 for family coverage, while the equivalent amounts for the highest-paid employees were $85.47 and $319.72.

The survey also looked at workers’ access to a number of other benefits. Results showed that 84% of the highest-paid workers were provided with life insurance benefits by their employers, compared with 17% of the lowest-paid group. Just over one-third of the lowest earners (37%) were offered paid holidays, compared with more than three-quarters of the highest paid group (77%). Meanwhile, 43% of the lowest earners were provided with paid vacations, versus 74% of the highest earners.

Employer And Employee Priorities In Benefit Planning

As more employers encourage workers to participate in programs designed to reduce benefit costs, an increasing number of employees are getting their financial affairs in order and participating in wellness and disease management programs, according to an annual survey by Deloitte Consulting and the International Society of Certified Employee Benefit Specialists (ISCEBS).

The survey of 292 employers asked respondents to name their top five “rewards,” or benefit, priorities. Results showed that, for 2010, the leading priority is the cost of providing health care benefits, while the second priority is the ability of reward programs to attract, motivate, and retain talented employees. The third priority is the clear alignment of the company’s rewards strategy with its business strategy and brand, the fourth priority is the willingness of employees to pay for an increasing portion of benefit plan coverage and to manage their own “rewards budget,” and the fifth priority is the ability of reward programs to accommodate the varying needs and interests of different generations with distinctly different needs and priorities. Researchers observed that these priorities had changed slightly since the last survey taken in 2009, when a smaller percentage of employers selected health care costs as a priority, and a larger percentage selected the ability to attract and retain talent as a priority.

Meanwhile, a parallel survey of employees showed that more than three-quarters of respondents (77%) are concerned about their ability to afford retirement, 60% are concerned about their job security, and 45% are concerned about their ability to earn additional rewards. Around one-third of respondents said they are concerned about the cost of their current health care benefits and about the investment performance of their 401(k) plans.

When asked how they intend to respond to these challenges, nearly two-thirds of employees (65%) said they plan to participate in wellness and disease management programs in an effort to optimize their health status. In addition, 55% indicated they will increase their contributions to their private savings plans, 51% said they expect to pay off personal debts on an accelerated basis, 45% said they intend to increase their 401(k) plan contributions, and 41% said they expect to delay retirement. Researchers noted that these priorities have shifted noticeably since the 2009 survey, when less than half of respondents expressed an interest in participating in wellness and disease management programs.

Researchers further indicated that these results represent the strongest alignment of employer-employee interests in the survey series since it began in 1994, and may demonstrate a shared focus on health, responsibility, and cost reduction that could be mutually beneficial in the long-term.

Tim Phoenix, principal, Deloitte Consulting, observed that containing rewards program costs is the number one strategic challenge facing organizations. “Employees recognize that fact and are facing this challenge with a renewed personal responsibility by saving more and paying down debt,” Phoenix said.

When asked to name the most significant challenge they expect their organization will face over the next three years, 24% of the employers cited the rising cost of providing rewards, and 23% said the shortage, motivation, and retention of qualified talent. Other potential challenges for the near future included uncertain economic conditions and their impact on employee retirement and savings plans (18%), and new or pending tax and regulatory requirements (13%).

Employers were also asked to identify any changes they have implemented in benefit program design or strategy over the past 12 months or expect to implement over the next 12 months. More than two-thirds (69%) said they are increasing employee communication and education around benefits; 56% indicated they are redesigning some benefit or reward programs to better align the interests of employees and the organization, and to promote employee engagement; 51% reported improving the measurement of return on investment of reward programs; 48% said they are engaging in a more formal and rigorous process of asking employees what they value most about their benefits or rewards programs; and 40% reported making changes to the packaging, branding, and communications related to rewards programs.

Besides standard benefits, researchers noted that employers are also focusing on additional “reward” programs in 2010, as 78% of respondents anticipate a change in other rewards over the next 12 months. Most commonly, respondents cited learning and development programs (39%) and cash incentives/bonuses (39%) as potential offerings for 2010. Others included flexible work schedules (35%) and mentoring programs (22%). While mandatory furloughs, sabbaticals, or other scheduled reductions were considered by employers (32%) within the past year, only 13% plan to exercise this option in the coming year. Similarly, the consideration of mandatory paid time off declined from 16% last year to 5% this year.

“Both personal and business decisions today are often being driven by the economy,” said Richard Kleinert, principal, Deloitte Consulting. He advised organizations to take control of these decisions and move ahead with cost-conscious adjustments to their rewards programs, without losing sight of the role these programs play in driving organizational strategy and goals.