2015 Health Care Costs Rising

by John Sullivan on Aug 21, 2014

Large U.S. employers expect a significant increase in 2015 health care costs. If no adjustments are made employers project a 5.2% growth rate, putting absolute cost per person for health care benefits at an all-time high.  After plan design changes they expect to hold cost increases to 4%, according to global professional services company Towers Watson.  Despite this cost trend, most (83%) employers consider health benefits an important element of their employee value proposition, and plan to continue subsidizing and managing them for both full-time and part-time active employees, according to the 2014 Towers Watson Health Care Changes Ahead Survey. They are, however, continuing to rethink company subsidies for spouses and dependents.

Of particular concern on the cost front is the Patient Protection and Affordable Care Act’s excise tax,* which goes into effect in 2018. Nearly three-quarters (73%) of employers said they are somewhat or very concerned they will trigger the tax based on their current plans and cost trajectory. More than four in 10 (43%) said avoiding the tax is the top priority for their health care strategies in 2015. As a result of the excise tax and other provisions of the health care reform law, CEOs and CFOs are more actively engaged in strategy discussions.

“In the current economic climate, affordability and sustainability remain dominant influences on employers’ overall health care strategies,” said Randall Abbott, senior consultant at Towers Watson. “Expense management and worker productivity are equally critical to business results. While employers are committed to providing health care benefits for their active employees for the foreseeable future, persistent concerns about cost escalation, the excise tax and workforce health have led to comprehensive strategies focused on both year-over-year results and long-term viability for health care benefits and workforce health improvement.”

Combatting the High Cost of Health Care

Companies plan to continue subsidizing and managing benefits while taking aggressive action to keep costs down. In response to short- and long-term cost concerns, a growing percentage (81%) of employers plan moderate to significant changes to their health care plans over the next three years, up from 72% a year ago. One cost-mitigation tactic being considered for 2016 and 2017 are changes in how employers subsidize health care for spouses and dependents. A third (33%) of employers are considering significantly reducing company subsidies for spouses and dependents; 10% have already implemented such reductions, and 9% intend to do so in 2015. In addition, 26% said they are considering spouse exclusions or surcharges if coverage is available elsewhere; 30% have that tactic in place now, and another 7% expect to add it in 2015.

Employers are also examining caps on health care coverage subsidies for active employees, using defined contribution approaches, with 30% of employers considering them for 2016 and 2017, 13% having them in place today and another 3% planning them for 2015.

Source: Towers Watson (NYSE, NASDAQ: TW), News Release – August 20, 2014, for the complete story click U.S. Employers Expect Health Care Costs to Rise 4% in 2015.

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