2012 employer health care trends

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2012EmployerHealthCareTrendsHealthCareReform,RisingInsuranceCosts&ThreeEmploymentStrategiestoMitigateThem.

The face of American healthcare is changing. In recent

years, various reforms have been implemented and others

are pending. And as the Supreme Court prepares to decide

on the constitutionality of the Patient Protection and

Affordable Care Act (PPACA), otherwise known as the

Health Care Reform, employers recognize that regardless

of the final ruling, it will have a significant impact on

health care in the years to come.

Confused by the pending legislation, employers are fearful

of rising insurance costs and are hesitant to make any

significant changes to their current plans. However,

despite the potential changes coming to the US healthcare

market, they have no choice but to continue managing

these costs for their companies. Employers and human

resources professionals that are well‐informed about

health insurance trends will be better suited to determine

the policies that will be the greatest benefit to their

companies.


2012HealthCareTrends

According to the 2011 annual survey of medical cost trends by PriceWaterhouseCoopers

(PwC), US employers can expect health care cost to rise 8.5 percent in 2012. That is 1.5

percent below the Aon Hewitt 2011 Health Care Trend survey which estimates national

medical care costs will increase by 10 percent. Health care inflation is increasing at levels of

three to four times the degree of national inflation. The expectation is that these trends will

continue, creating concern for employers as well as employees struggling to afford medical

coverage.

PwC identified two key factors likely to contribute to inflated medical costs in 2012:

Consolidation among hospitals and physicians. Hospitals and physicians are

aligning through mergers, acquisitions and other arrangements. Consolidating

providers is viewed as a way to reduce costs and improve efficiencies, but

health plan providers are concerned that it will reduce competition and drive

up rates.

Post‐recession stress. The top three causes of stress over the past five years

‐ money, work and the economy—are taking their toll on the American

workforce, according to the American Psychological Association. Health plans

and employers are witnessing a rise in claims for stress‐induced illnesses which

are highly correlated to unhealthy behavior and adverse health conditions such

as heart disease.


Confirming this trend, actuarial firm Milliman released its 2011 Milliman Medical index

in May, 2011. The report shows that the health care cost for a typical U.S. family of

four covered by a preferred provider organization (PPO) in 2011 was $19,393. This

reflects an increase of 7.3 percent over 2010. Even though the percentage of increase

was the lowest in recent years, the increase in total dollars—$1,319 in 2011—was the

highest in the history of the study. Of this $1,319, employers covered about 40% of

the increase ($641) while employees shouldered the rest—$403 in payroll

contributions and $275 in additional cost sharing.

Employers React to Rising Costs &

Health Care Reform

In February 2011, McKinsey & Company conducted a survey

of over 1300 U.S. private‐sector employers on the CEO or

CFO level regarding the impending changes legislated by the

Health Care Reform Act. According to the survey, rising

insurance premiums may drive many employers to

discontinue offering health coverage to their employees,

opting to pay a penalty instead. The survey found that 30%

of all employers would “definitely” or “probably” drop their

health care plans; of those employers with a “high

awareness” of the details of health care reform that

increased to 50%.

Ostensibly, seemingly high fines of $2000‐3000 would be

enough of a deterrent to prevent employers from

discontinuing coverage for employees. However, in truth,

such penalties represent only about one quarter of the

health insurance costs these employers would have to pay.

Aspartofa2011survey,PriceWaterhouseCoopersaskedemployersaboutchangestheyaremakingintheirbenefitsplansinlightofhealthcarereform.Thesurveyfound:

•84percentofemployerssaidtheyarelikelytomakechangesinplandesigntooffsetexpectedcostsassociatedwiththehealthreformlaw.

•86percentsaidtheyarelikelytore‐evaluatetheiroverallbenefitsstrategy.

•One‐halfareconsideringsignificantlychangingoreliminatingcompanysubsidiesfordependentmedicalcoverage.

PricewaterhouseCoopers'(PwC)HealthResearchInstitute,2011MedicalTrendSurvey.


A further challenge to employers is how to strategize

appropriately when forced to make changes to their health

plan design due to rising costs. On the one hand, they are

unable to absorb all of the cost increases, but on the other,

don’t want to pass it all on to their employees. In contrast to

the challenge of making plan design changes is the

uncertainty of what health care reform will require of them

in the future. Employers are hesitant to make any significant

changes to their plans, such as reducing certain types of

coverage, if the PPACA will require them to include it at a

later stage. Or they are afraid of the consequences of losing

grandfather status, even though they need to take action to

control the current renewals cost. The burden on employers

to make sense of this complex puzzle is frustrating, stressful

and time consuming.

HealthCareSolutions

With so much uncertainty, what options do employers have to proactively keep their

rising insurance costs in check? Luckily, there are three methods that have been

growing in popularity over the past several years, each of which has proven successful in

containing insurance premiums and overall costs:

1. Consumer Directed Health Plans

2. Employee Wellness Programs

3. Professional Employer Outsourcing

“Employerscontinuetobeconcernedaboutthesustainabilityofhealthcarecostincreases,especiallyinthelongterm,andtheyarereactingbymakingchangesnow.”

MichaelThompson,principal,HRservices,PriceWaterhouseCoopers


ConsumerDirectedHealthPlans.

Employers continue to explore consumer‐directed health care plans (CDHC). These plans

are structured to give employees greater control over their personal health care costs,

thereby promoting caution before they utilize expensive procedures or request

unnecessary treatments.

CDHC plans offer higher deductible options, coupled with

Health Savings Accounts (HSAs) or Health Reimbursement

Accounts (HRAs) through which employees pay for out‐of‐

pocket medical costs with their self‐funded plans.

Accountable Care Organizations

An Accountable Care Organization (ACO) is a network of

health care organizations, hospitals and doctors that unite in

order to provide coordinated medical care to patients. Until

recently, health care in America has mostly been fragmented.

Hospitals, pharmacies, skilled nurses, primary and specialty

doctors operated as separate entities across the health

spectrum. ACOs, born as a result of the Health Reform Act, are

meant to integrate, coordinate and be held accountable for an

individual’s health care, generating better medical outcomes

at lower cost.

Studies performed on current ACOs including Mayo Clinic, Cleveland Clinic and

Intermountain indicate that delivering efficient health care would help reduce health care

costs by as much as 50%. By driving out inefficiencies, reducing unnecessary hospital

Accordingtorecentreports,theconsumerdrivenplansareworking‐CDHCpatientsweretwiceaslikelyaspatientsintraditionalplanstoaskaboutcost,threetimesaslikelytochoosealessexpensivetreatmentoption,andchronicpatientswere20percentmorelikelytofollowtreatmentregimenscarefully.

"ConsumerDrivenHealthCare",NetworksFinancialInstitutePolicyBrief,IndianaStateUniversity].


admissions and applying the best approaches to clinical care, ACOs provide a promising

picture of affordable health care.

Micro Market Networks

Micro Market Networks operate in a similar vein to ACOs, without being quite as integrated.

Many insurance companies, including Blue Cross, Blue Shield, Health Net and United

Healthcare, are working on the initial phases of Micro Market Networks, with the intent to

eventually provide self‐contained health care within the health care system. The result is

that health care plans would be structured around a single health care system in one region.

An individual’s health insurance company may offer a variety of options including the

purchase of an independent plan that only includes access to a particular group of self‐

contained health providers. The expectation over the coming two years is that many

regional networks of this sort will develop. The hope is that these Micro Market Networks

will operate in a similar fashion to ACOs, improving efficiencies and driving costs down.

Insurance Companies Purchasing Providers

In the past, insurance companies developed business relationships or partnered with

health care providers. A new trend, driven by the business and economic realities of

health care reform, is that insurance companies are actually purchasing health care

providers. Over the past year in Southern California, Anthem purchased the CareMore

medical group and United Healthcare purchased the Monarch medical group in Orange

County.


These are two examples of entities uniting with the expectation of improving

health care outcomes and lowering costs concurrently. Whether this type of

endeavor will indeed be successful remains to be seen.

Facing an uncertain future, employers encounter the challenge of determining health care

coverage policies for their companies. Keeping informed and mindful of health care trends

will facilitate effective decision‐making. Projections indicate a steady rise in health care

costs, which those with an optimistic outlook anticipate will be offset as various potential

solutions develop, reducing expenses and providing better quality care.


EmployeeWellnessPrograms.

As premiums continue to increase, employers are looking to promote employee

wellness programs to offset these costs. Well documented research indicates that a

balanced lifestyle – including a proper diet, exercise and leisure time – leads to

healthier and more productive employees. In turn, the employees’ medical

utilization is reduced, and health premiums drop. Additionally, a healthy staff will

have fewer sick days, be on time more often, and remain focused throughout the

day.

In contrast, other studies conducted on workplace stress

indicate that a stressful, unbalanced lifestyle can lead to

cardiovascular risk. And of course, as the health of an

employee diminishes, the utilization of health insurance

increases, thereby hurting insurance premiums.

A study in the journal Psychosomatic Medicine found that

men who report high job strain – the combination of heavy

demands and little control at the office – have thicker

carotid intima‐media thickness (IMT). IMT is considered a

reliable way of determining the early stages of

atherosclerosis, the narrowing and stiffening of the arteries.

One researcher on the project wrote, “Prospective studies in older subjects have

shown that even a 0.1‐mm increase in carotid IMT may increase the subsequent risk

of cardiovascular heart disease events by approximately 30%.”

91percentofemployers“believedtheycouldreducetheirhealthcarecostsbyinfluencingemployeestoadopthealthierlifestyles.”

HarvardSchoolofPublicHealthasquotedin,TheNewEnglandJournalofMedicine.


The good news is that a vast majority of employers recognize the value of

implementing a wellness program in their organization. According to PwC’s report,

89% of employers understand the connection between a healthy workforce and

reducing health insurance premiums.

“Employers continue to be concerned about the sustainability of health care cost

increases, especially in the long term, and they are reacting by making changes now,” said

Michael Thompson, principal, HR services, at PwC. “Health care in the future will be very

different than we know it today, and uncertainty about these changes complicates health

care benefits strategies. However, the most proactive employers are planning for potential

future scenarios and making incremental changes now toward a longer‐term view of

transformational change … aligned around health and wellness.”

What is a Wellness Program?

A wellness program can include anything from educating employees to be more conscious

health care consumers and promoting healthy lifestyle habits, to offering incentives for

weight‐loss or exercise activity and offering free or discounted memberships to gyms and

health clubs. Alternatively, some employers incorporate penalties into their wellness plans

to dis‐incentivize employees from engaging in an unhealthy lifestyle. Wal‐Mart, for

example, recently imposed a $2000 per year surcharge for some smokers.

While this type of approach is somewhat controversial, it drives the message home that

unhealthy lifestyle choices out of the office impact employers’ costs and overall efficiency in

the office. Ultimately, a healthier workforce will reduce medical insurance costs and

improve employee productivity.


Implementing a Wellness Program

How do you implement a wellness program at work? Here are 4 suggestions:

1. Create a health‐conscious corporate culture. For starters, replace junk

food with health food. If you have a vending machine, replace the chocolate bar with a

protein bar, and the bag of chips with a bag of trail mix or nuts. There are dozens of

healthy – and tasty – alternatives out there. Just shop around. If you have a soda

machine, replace high‐sugar, caffeinated drinks with mineral water or decaffeinated

iced‐teas.

2. Offer health incentives and wellness

benefits. One of the most popular benefits that

employers can offer their staff is gym membership

reimbursement. Other wellness programs, such as

WalkingSpree, create walking clubs and competitions

to motivate and engage employees in a healthy

lifestyle. Other incentives can include paid

membership for healthy‐lifestyle programs such as

Weight Watchers, yoga or spinning classes.

3. Be flexible. Consider a implementing a flexible work‐week, telecommuting

or offering alternative working‐hours. Employees have a life outside the office, and a

flexible work environment makes employees healthier, happier and more committed to

your company. According to a Stanford University study conducted in March, 2012

telecommuters were four percent more productive than office workers, working more

hours and taking a larger workload.

“Employerswhoofferflexibleschedulesandalternativestothetraditionalnine‐to‐fivenotonlyseehigherproductivity,butalsosaveonhealth‐relatedbenefitstheyalreadyoffer.”

SaraSuttonFell,FounderandCEO, Flexjobs.com


Ideas for flexible arrangements can include working 4 days per week at 10 hours per day,

instead of the traditional 5 days of 8 hours, giving employees one day extra off. Or staying

late on Thursdays allows employees to leave early on Fridays. Be creative, but be sure to

consult with a professional, as an alternative work schedule may have pay‐related

ramifications.

4. Encourage vacation. Most employees accrue vacation, or personal days

off. Everyone needs to recharge their batteries, so encourage your staff to take the

vacation coming to them. They will come back re‐energized and ready to get back to

work.


ProfessionalEmployerOrganizations(PEO).

A third method to contain health costs and insulate your business from increasing

premiums is to engage the services of a Professional Employer Organization, or PEO. PEOs

were established in the early 1980s to offer payroll and insurance services to small and mid‐

sized employers. In the early days of the industry, PEOs were also known as “Employee

Leasing” or “Staff Leasing” firms.

As employment laws became more complex in the late 1980s and early 1990s, it expanded

to include all aspects of employee relations and staff development.

In a PEO arrangement, the PEO shares many of the responsibilities of being an employer,

such as paying payroll, filing and paying payroll taxes, providing workers’ compensation and

assisting their clients comply with labor law regulations. One of the most important aspects

of a PEO is its ability to offer clients ‘Fortune 500’ benefit packages and rates typically

inaccessible for small employers.

Economies-of-Scale

Economies‐of‐scale is the primary method through which a PEO can reduce an

organization’s health insurance costs. Small employers with minimal payrolls and fewer

than 500 employees are often limited in the variety of health insurance plans they can offer,

their ability to negotiate with health carriers, and have less flexibility in administering these

plans. The net result is typically higher premiums with fewer options.

In contrast, by pooling hundreds, and even thousands of businesses, PEOs aggregate health

benefit plans and establish relationships with large regional insurance companies to offer

better plan selections with lower premiums.


Risk Diversification

Another benefit of working with a PEO is that it provides the insurance carriers greater

stability by offering insurance coverage to employees in a broader employee base. The

pooled employees come from different industries and geographic areas which stabilize the

premiums over the long‐term. This provides the PEO greater negotiating power at renewal,

thus typically keeping renewal rates below market averages.

Benefits Provided

PEOs provide small employers the unique opportunity to offer their staff a robust and

comprehensive array of employee benefit programs that are typically available to only the

largest corporations. These robust offerings include a wide range of major medical plans

and voluntary benefit offerings:

Multiple health insurance coverages

Dental and vision insurance

Life insurance

Disability and alternative insurance

401 (k) Retirement Plan

Pre‐tax Cafeteria 125 Plans

Flexible Spending Accounts (FSA)

Employee Assistance Programs

Credit Union and financial services

Clients are assigned a benefits specialist and it is the PEO’s responsibility to shop plans,

oversee open enrollment, manage all billing and financial matters, and address all employee

inquiries and administrative issues. The net result of this comprehensive PEO relationship is

the reduction of insurance costs, increased employee motivation and productivity, and the

ability of management to remove unproductive benefits administration from their plate.


Conclusion

While the future of health care reform remains uncertain, there is no doubt that rates

continue to climb in 2012, and for the foreseeable future. Luckily, employers have several

opportunities to mitigate these increases, but it requires some initiative and out‐of‐the‐box

thinking. To recap, there are three primary ways employers can reduce insurance costs:

1. Consumer Directed Health Plans, such as Accountable Care Organizations

and Micro Market Networks, enable employees to control their health care costs by

cautioning employees to think before utilizing expensive procedures or requesting

unnecessary treatments.

2. Employee Wellness Programs help employees lead improved and

healthier lifestyles. These leads to a reduction in medical utilization lower insurance

premiums and more productive employees.

3. Professional Employer Outsourcing provides small and mid‐sized

employers access to large‐company benefits at reduced rates, utilizing the PEO’s

economies‐of‐scale, negotiating power and administrative expertise.

Every employer needs to consider which method will work best for their organization. In

some cases, such as utilizing a PEO, they can incorporate all three systems to achieve the

greatest success.


AboutCPEhr

Headquartered in Los Angeles, California, CPEhr is one of California’s leading Human

Resources Outsourcing and PEO firms. Founded in 1982, CPEhr assists hundreds of clients

representing over 75,000 employees with California’s complex regulatory and insurance

systems. CPEhr provides the following services:

HR Administration

Labor Law Compliance

Management Training

Employee Benefits

Safety and Risk Management

Workers’ Compensation Insurance

Retirement Planning

Payroll and Tax Services

Contact CPEhr

We encourage you to contact us and schedule a complimentary consultation. In this no‐

obligation consultation a senior consultant will analyze your current employee benefit

structure and offer a customized benefit solution.

Call us: 877‐842‐4987 For more information:

Email Us: [email protected]

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2012 employer health care trends

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