With Health Care Costs Projected to Rise Another 5% in 2020, Employers Look to New Strategies to Control Costs

Curbing the cost of health care and increasing its affordability remain the top priorities for almost all employers over the next three years (93%), according to the 24th annual Best Practices in Health Care Employer Survey by Willis Towers Watson, a leading global advisory, broking and solutions company. Yet nearly two in three (63%) employers see health care affordability as the most difficult challenge to tackle over that same period.

Source: WTW | Published on October 10, 2019

Employers expect health care cost increases of 4.9%* in 2020 compared with 4.0% in 2019. Despite this cost increase, 95% of employees are very confident their organization will continue to sponsor health care benefits to active employees in five years. Moreover, employers' longer-term commitment to sponsoring these benefits 10 years from now hit 74%, the highest level in the past decade.

The rising cost of health care puts financial pressure not only on employers, but also their employees. In fact 89% of employers believe rising health care costs are a significant source of financial stress for their employees.

"Relentless health care price increases continue to crowd out other benefits, making affordability a challenge for many workers," said Julie Stone, managing director of Willis Towers Watson's specialty practices within its health and benefits business. "In a full-employment economy, employers feel the pressure to offer competitive benefits and can't compromise on employee affordability. With employers and employees seeing no end in sight, many companies are getting creative and tapping into overlooked strategies to shrink the total bill."

While it's important for employers to approach their benefit strategy holistically, these three areas revealed emerging cost-saving measures for employers to tap into:

1. The prescription for cutting drug costs

One of the main drivers of growing affordability concerns among both employers and employees is pharmaceutical spending — notably, the increased cost and continued inflation of specialty pharmaceuticals. More employers have been adopting comprehensive solutions, including roughly half of employers evaluating and managing specialty pharmacy spend not only through the Rx benefit, but also exploring opportunities through the medical benefit (projected to grow from 49% today to 85% by 2020).

We also see two emerging strategies poised to gather momentum among employers:

More employers are attempting to offset specialty pharmaceutical costs by influencing the site of care — as the location where care is given can dramatically affect prices. In fact the number of employers that say they plan to implement coverage changes to influence site of care for specialty pharmaceuticals dispensed through the medical benefit over the next few years is more than doubling (from 21% today to 55% by 2021).

A growing set of employers are intrigued by the possibility of biosimilars offering a lower cost option for patients in need of expensive specialty products. That is why 30% of employers have ensured they have appropriate formulary strategies to leverage biosimilars when available, with another 39% planning to take a more active approach in the next two years.

2. Maximize the value in value-based designs

More employers continue to make stepwise changes in implementing value-based designs to manage costs year over year while also driving better health outcomes for their employees. With employees financially strained by the cost of health care, employers see an opportunity to steer their staff toward the highest quality affordable health care.

We see a subset of employers diving deeper into new strategies that could help improve access to care beyond the approaches of high-performance networks (growing from 16% to 52% adoption by 2021) and the use of centers of excellence within the health plans (growing from 45% to 74% by 2021), which are reaching a critical mass of employers.

By applying design features or incentives, employers are nudging their employees toward higher value, appropriate care that is sourced efficiently and away from overused, potentially wasteful services:

The proportion of employers slashing out-of-pocket costs to steer employees toward proven services that produce positive health outcomes at a lower price tag will nearly triple over next few years (from 17% today to 46% by 2021).

More employers are increasing the out-of-pocket costs for commonly overused and sometimes unnecessary services — adoption of this strategy stands to more than quadruple over the next few years (from 7% today to 35% by 2021).

Employers are also actively reviewing out-of-network coverage and costs. The number of companies reducing out-of-network reimbursements, eliminating non-emergency out-of-network coverage or negotiating full disclosure of all related administrative costs could more than double by 2021.

"With greater access to accurate and transparent data, employers can create value-based designs that make a smaller dent in employees' wallets and a big impact on their health," added Stone. "This value-based approach holds the promise of the best health results at the best price."

3. Enhance employee emotional wellbeing

As employers look to cut costs while enhancing their population's wellbeing, mental and behavioral health ranked the highest as the top clinical area of focus over the next three years, selected by two in three employers. The majority of employers are working to build full-blown strategies for a holistic solution to emotional health by redesigning their employee assistance programs to better address emotional and financial wellbeing (expected to jump from 33% to 74% in three years) and building an organization-wide behavioral health action plan (leaping from 25% to 68% in three years).

With emotional wellbeing such a pressing concern for employers, it is no surprise that a growing cohort of employers are adopting emerging strategies to detect and manage employee stress within a more holistic approach to mental health:

The number of employers that are measuring the stress level of their employees is on track to triple by 2021, from 16% to 53%.

Building on the 27% of employers that already offer apps to support sleep and relaxation, more than half (53%) will implement these programs by 2021, in order to enhance their employee emotional wellbeing. By addressing stress and anxiety before it becomes an expensive clinical need in their population, employers are making a small financial investment to keep costs low down the road.

"Looking at emerging strategies and solutions shines a light on things to come," said Regina Ihrke, senior director and co-leader, Integrated Wellbeing, Willis Towers Watson. "Health care cost challenges are real and significant. However, from encouraging the use of biosimilars to creating an environment that makes it clear and easy for employees to opt for high-value services, and by engaging effective programs to help manage anxiety and stress, there are many worthy options on the table that can make a difference."

*Cost increases for 2019 and 2020 are after-plan changes; increases without plan changes are 5.0% for 2019 and 2020. This marks the 14th year in a row that employers report that they have reduced plan value to control premium and total costs. Cost trends are based on projected medical and drug claims for active employees, including both employer and employee contributions but excluding employee out-of-pocket costs.

About the survey

The 24th annual Willis Towers Watson Best Practices in Health Care Employer Survey was completed by 610 U.S. employers between June and July 2019, and reflects respondents' 2019 health program decisions and strategies. Respondents collectively employ 11.3 million employees and operate in all major industry sectors. Results provided are based on 610 employers with at least 100 employees.