A new study has shown that health insurance cost inflation for group plans continues to slow, ebbing to 4.1% in 2013 (after plan changes). But while that’s the lowest level in 15 years, inflation is still spurring employers to look for new ways of cost-cutting.
The average annual cost of coverage for both employers and workers has increased to $12,535 in 2014, compared with $11,938 last year, according to a survey of 595 large companies by Towers Watson, a benefits consultant, and the National Business Group on Health (NBGH), a Washington-based employer lobbying organization. On average, most employers had their workers pay 25% of the amount in 2013, a bit more than the year prior.
This year, it looks like rates are trending up 4.4% after plan changes. Meanwhile, more employers are experimenting with higher-deductibles and copays.
And while some employers have sent their workers to the public health care exchange, many employers – leery about the government-run marketplaces – have turned to private exchanges, according to the study.
The study shows that if you actively work to keep control of your costs, you can beat those averages. Best performers (defined as respondents that have maintained cost increases at or below the Towers Watson/NBGH median for each of the past four years) fared much better than other employers. Their cost trends (after plan changes) between 2010 and 2013 averaged 1.6%.
Of the executives surveyed, 67% agreed to a moderate or great extent that private health exchanges would provide a viable option for active employees as early as 2015. But many employers are in wait-and-see mode, as they want to make sure that private exchanges are a viable option.
Seventy-one percent of respondents said that evidence that private exchanges can deliver greater value than current self-managed models would be a reason to seriously consider offering one.
Writes Towers Watson: “In short, while private exchanges have already proved to be an effective option for retiree health, most employers are taking a wait-and-see approach for their active employees.”
Private exchanges have a similar design to the public exchanges that were created by the Affordable Care Act. They are only open to employees of companies that contract with these private exchanges for their workers’ health insurance.
They operate in much the same way as a public exchange and allow employees to choose health plans from a menu of carriers and different deductible and copay structures. Some private exchanges also include the same types of tiers found in public plans, including the “metal plans” – bronze, silver, gold and platinum.
Like the public exchanges, though, the theory is that by being part of an exchange that offers multiple plans, insurers will compete more aggressively on price. They would also push for better deals with hospitals and doctors and do better managing potentially expensive diseases.
More choice for employees
Private exchanges also may appeal to employees because they can choose the kind of plan they want instead of having their employer choose for them. Being part of a private exchange also gives individuals the opportunity to switch plans from year to year if they are unhappy with the doctor network and/or the claims administration, or if the cost for their plan is growing faster than for others.
Only a small fraction of the 122 million workers now getting coverage through employers is currently enrolled in these private exchanges, but the number could rise if the Towers Watson study predictions hold true.
Private exchanges will offer a viable alternative to employer-sponsored coverage as early as next year, 66% of the companies surveyed predicted. That said, they are waiting for evidence of private exchanges’ effectiveness in helping employers and employees control costs, and as well of the quality of care for their covered employees. Some are starting by having their Medicare-eligible retirees access coverage through private exchanges.
Meanwhile, employers are trying to find new ways to control health costs. Some successful strategies include operating clinics at the worksite and experimenting with different kinds of networks of hospitals and doctors, said Towers Watson.
And while they plan to continue to pay for coverage, they are looking at ways they could reduce their financial commitment by scaling back what they pay for dependents’ coverage, for example.