With a 40% excise tax looming on high-cost employer-sponsored health coverage in 2018, many employers are preparing to change their plans and implement wellness programs.
According to a new report by Mercer LLC, the number one concern for larger employers since the Affordable Care Act took effect is the impending excise tax, also known as the “Cadillac” tax.
To avoid having to pay this high tax, employers must keep the total cost of health insurance premium less than $10,200 a year for single coverage and $27,500 for family coverage, starting in 2018.
Thanks to the ACA, wellness programs are again in the spotlight because they can improve the overall health of a company’s workforce and hence reduce premiums. There are other benefits to a healthier workforce, including reduced absenteeism and higher productivity.
And under the ACA, a company can offer its employees up to a 30% discount on their health insurance premiums if they participate in its wellness program.
Thirty-five percent of employers surveyed by Mercer had wellness programs in place, while another 47% were considering implementing them.
While wellness programs have been around for years, there is a growing consensus that outcome-based programs seem to have the most success in yielding a return on investment.
Companies are taking various approaches to offering wellness plans that either reward or penalize employees depending on their actions:
- Action-based incentives or penalties – In this this type of program, to earn rewards – and sometimes avoid penalties – employees are required to take action to improve their health after going through a risk assessment, such as joining a weight-management or dietary-change program, or getting a preventive screening.
- Progress-based incentives – Employees are rewarded for taking steps to hit and reach optimal benchmarks for cholesterol, blood pressure and weight. Steps can include enrolling in a weight-management program and reducing body mass index to receiving dietary counseling to reduce cholesterol, blood sugar or weight. It does not mean they have to reach goals to receive incentives, but they must take some action.
- Outcome-based incentives – In these programs, companies will link incentives and penalties to reaching health metric benchmarks, such as a certain cholesterol, blood pressure or body mass index level. This is by far the most popular wellness arrangement with 41% of employers with wellness programs offering it, according to a study by Fidelity Investments and the National Business Group on Health.
According to the survey, employers don’t penalize employees for not achieving results, but reward those who do with lower premiums, cash or deposits into their health savings or flexible savings account.
- Targeted incentives – The insurer or an analytics company crunches data from the employees’ health risk assessments and claims to offer personalized wellness programs and incentives. Companies may offer premium reductions for completing an assessment and further rewards to employees that participate in activities tailored to the employee.
Families count too
As the design of wellness programs continues to evolve, an increasing number of companies are expanding wellness-based incentives to include spouses and domestic partners.
Fidelity found that 37% of companies surveyed indicated their program includes spouses and domestic partners, and the average spouse/domestic partner incentive is about $500.
When analyzing the data by company size, the results showed that employers with more than 20,000 employees expect to spend an average of $611 on spouses/domestic partners in 2014.