Study: How Large Employers Are Cutting Healthcare Costs

Written by: PeopleKeep Team
Originally published on August 28, 2014. Last updated August 14, 2019.

cutting_costsWith the cost of group health insurance on the rise, many employers are concerned with cutting down on healthcare benefit costs. A significant trend in mitigating healthcare costs is to shift the costs to the employees.

Towers Watson recently conducted a survey of 379 employee benefit professionals from midsize to large companies about healthcare benefit plans for 2014-2017, and how they plan to cut their health benefit costs.

Rising Healthcare Costs are a Major Concern to Employers

According to the survey analysis, U.S. employers expect a four percent increase in 2015 healthcare costs after plan design changes. The increase is projected at 5.2 percent if there are no plan design changes. The concern about healthcare costs has grown enough to get two-thirds of CEOs and CFOs more directly involved in developing their company’s health benefit strategies.

Other trends revealed in the survey included:

  • 83 percent of employers consider healthcare benefits an important part of their benefits package and plan to continue subsidizing health insurance costs for their full and part-time employees.

  • 73 percent of employers are somewhat or very concerned about triggering the Affordable Care Act’s (ACA’s) excise tax

  • 43 percent reported that avoiding the excise tax is the top priority for their healthcare strategies in 2015

The worry about triggering the excise tax is an understandable one, as it could mean big fines for an employer. If an employer provides a healthcare benefit that does not comply with the ACA’s reforms or does not meet these requirements outlined in IRS Notice 2013-54, the employer may be subject to a $100/day excise tax per applicable employee under IRC Section 4980D.

Trends for Cutting Down Healthcare Costs

In response to concerns about rising healthcare costs and the excise tax, 81 percent of employers plan moderate to significant changes to their existing healthcare plans over the next three years.

One of the healthcare cost-mitigation trends revealed in the survey was the migration to account-based health plans (ABHPs). An account-based health plan (ABHP) is a consumer-directed strategy that pairs a group health insurance plan with a tax-advantaged medical spending account.

Total-replacement ABHPs could be in place at 50 percent of the companies by 2017. With a total-replacement ABHP, the ABHP is offered as the main health benefit plan - instead of group health insurance. There are already 17 percent of the employers surveyed that currently only offer an ABHP.

Another cost-cutting trend revealed in the survey was reducing company subsidies for spouses and dependents. A third of employers are considering significantly reducing these subsidies, while ten percent have already done so. Spouse exclusions or surcharges (if coverage is available elsewhere) are being considered by 26 percent of the employers surveyed, while 30 percent have that policy in place now.

Some employers are considering implementing a defined contribution approach. In fact, 13 percent have a defined contribution approach in place today, with 30 percent considering them for 2016 and 2017.

Source: Towers Watson

An Alternative Method for Cutting Healthcare Costs

While not mentioned specifically in the Towers Watson survey, there are other options rather than shifting healthcare costs to workers by decreasing company subsidies or cutting spousal benefits. Employers are transitioning to health insurance allowances (aka “pure defined contribution health benefits”) because this strategy offers predictable costs to the employer, while giving employees access to quality health insurance.

By providing their employees with an allowance to spend on individual health insurance, employees are able to access more comprehensive, less expensive healthcare that fits their individual needs.

Health insurance allowances reduce the cost and time associated with traditional health insurance, while still providing a health benefit for retaining and recruiting top employees.

Despite the cost challenges employers are facing maintaining employee healthcare benefits, most employers (99.5 percent) reported having no plan to discontinue healthcare benefits at their companies.

Read the full survey analysis at Towers Watson

What are your plans for cutting healthcare benefit costs?

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Originally published on August 28, 2014. Last updated August 14, 2019.


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