Employers Adjust Health Benefits as Costs Near $15,000 per Employee

With the cost of employer-sponsored health care benefits expected to approach $15,000 per employee next year, large U.S. employers continue to make changes, new research reveals.

Many want to hold down cost increases and are steering employees toward cost-effective service providers, such as telehealth options and high-value in-plan provider networks, according to the nonprofit National Business Group on Health (NBGH) survey 2019 Large Employers' Health Care Strategy and Plan Design. The survey was conducted from May to June with 170 large employers as they finalized their 2019 health plan choices; more than 60 percent of respondents belong to the Fortune 500.

Cost Increases Hold Steady

Big employers project that their total cost of providing medical and pharmacy benefits will rise 5 percent for the sixth consecutive year in 2019. If they weren't making benefit changes, their costs would rise 6 percent, the survey showed.

The total cost of health care, including premiums and out-of-pocket costs for employees and dependents, is estimated to average $14,800 per employee in 2019, up from $14,099 this year. Large employers will cover roughly 70 percent of those costs, leaving $4,400 on average for employees to pick up in premium contributions and out-of-pocket expenses.

Health benefit costs are still rising at two times the rate of wage increases and three times general inflation, "making this [cost] trend unaffordable and unsustainable over the long term," Brian Marcotte, NBGH president and CEO, said at an Aug. 7 press conference in Washington, D.C.

Consumer-Directed Health Plans

"The most unexpected data point in the survey this year is that employers are dialing back their move to consumer-directed health plans"―or CDHPs―especially as a full replacement for other health plan options, Marcotte said. CDHPs typically combine a high-deductible health insurance plan with a tax-advantaged account that employees can use to pay for medical expenses, most commonly a health savings account (HSA) or health reimbursement arrangement.

"We may be at a tipping point in terms of cost-sharing with employees," Marcotte said.

In 2019, the number of employers offering CDHPs as a sole option will drop by 9 percent, from 39 percent to 30 percent, "reflecting a move by employers to add more choice back into the mix" by also offering traditional health plans such as preferred-provider organizations, he noted.

To lessen the pain of high deductibles while maintaining incentives for cost-conscious spending, large employers are contributing to their employees' HSAs, on average, $500 for an individual and $2,000 for a family, NBGH found.

The shift to CDHPs as a sole option over the last decade was driven, in part, by the Affordable Care Act and its 40 percent "Cadillac tax" on high-value health plans, originally to take effect in 2018, Marcotte said. "A lot of companies moved to high-deductible health plans to minimize the impact of the Cadillac tax or to delay its impact, but the Cadillac tax has been kicked down the road, first  to 2020 and now to 2022," Marcotte said. Many believe it may be further delayed or repealed altogether, "so employers are relaxing" about the need to reduce the scope of their plans.

Measures before Congress allowing HSAs to pay for certain nonpreventive services on a predeductible basis could make CDHPs more attractive, Marcotte observed. "Employers are interested in adding more flexibility so high-deductible plans can cover value-based services outside the deductible, such as chronic-condition management or care provided at centers of excellence, and some proposals before Congress are beginning to move in that direction."

Direct Contracting

More large, self-insured employers are directly contracting for services with doctors and health systems. Direct contracting with accountable care organizations (ACOs) and high-performance networks jumped to 11 percent in 2019 from 3 percent in 2018, the survey showed. Direct contracting with centers of excellence (COEs) increased to 18 percent from 12 percent.

ACOs are groups of doctors, hospitals and other providers that come together voluntarily to give coordinated, high-quality care to their patients. High-performance networks limit in-network doctors, clinics and hospitals to providers that are highly rated for cost and quality of care. Similarly, COEs are highly rated facilities shown to offer high-quality, cost-effective care, often focused on specific diseases or conditions.

While most direct contracting with COEs is with hospitals that specialize in orthopedics (i.e., knee, hip and spinal surgeries), direct contracting with cancer, cardiovascular and fertility COEs showed the greatest growth.

Employers are also contracting with medical facilities for comprehensive employee care. For example, General Motors recently negotiated lower costs with a Detroit-based hospital system to cover such wide-ranging services as doctor visits and surgical procedures for its local employees, the Detroit Free Press reported.


Nearly all large employers now provide telehealth or "virtual care" as an option for employees, and 20 percent of employers said the services are used annually by 8 percent or more of their workers. Just over half of respondents said their top health care initiative in 2019 was adding more virtual care solutions.

Telehealth has branched out well beyond physician consultations to include lifestyle coaching, management of chronic conditions such as diabetes, surgical decision support, physical therapy monitoring and cognitive/behavioral therapy, all of which show the greatest potential for growth over the next several years, the survey showed.

"The growth in virtual solutions largely reflects employer frustration with the pace of change in how health care is delivered," Marcotte said. "Today, if virtual care is not part of your health care strategy, your health care strategy is not complete."

Specialty Drugs

Specialty drugs are often "biologics" derived from living cells, and many are injected or infused intravenously. These expensive medications now account for 50 percent of most employers' prescription drug spending but are prescribed to just 1.5 percent to 2 percent of plan enrollees, Marcotte said.

In 2019, methods to manage specialty pharmaceuticals will include:

  • Establishing aggressive utilization management such as requiring prior authorization, step therapy and quantity limits (64 percent).
  • Requiring that these medications be obtained through a specialty pharmacy or the specialty department of the health plan or pharmacy benefit manager (PBM) firm (58 percent).
  • Using site-of-care management to ensure drugs are administered in appropriate and cost-effective settings, such as injected at home or administered at a doctor's office rather than at a hospital (44 percent).

Drug Rebates

Three in four large employers do not believe drug manufacturer rebates are an effective tool for helping to drive down pharmaceutical costs, and more than half are concerned that rebates do not benefit consumers at the point of sale, the survey showed.

More companies are adopting a recently developed capability by PBM firms to make rebates available to consumers at the point of sale, rather than having the PBMs collect the rebates and pass the savings back to employers and health plans.

The survey found that:

  • 20 percent of large employers had point-of-sale rebates in place this year.
  • 7 percent more are implementing point-of-sale rebates for 2019.
  • An additional 31 percent are considering doing so in 2020 or 2021.

Point-of-sale rebates, however, won't solve the problem of soaring drug costs, health care analysts say. "It would be better to have more reasonable pricing from the get-go and all along the line rather than discounts, rebates and other ways to adjust prices retroactively," Steve Wojcik, NBGH vice president for public policy, recently Managed Healthcare Executive, a trade publication.

PBMs' tendency to include a drug on the plan formulary because the manufacturer provides a rebate "leads to artificially inflated pricing and greater costs for all consumers," Bob Marino, managing consultant at benefits advisory firm OneDigital, told the publication.

Co-Pay Assistance Programs

Another challenge for employers is the growth of drug manufacturers' co-pay assistance programs for specific drugs, provided through discount coupons or medication-specific co-pay cards. Two concerns that employers have with these programs, Marcotte said, are that:

  • Financial assistance is often offered for expensive brand-name drugs when a lower-cost generic option is available, thereby steering consumers to higher-cost options.
  • The assistance provided by the drug company bypasses the health insurer's claims adjudication process.

"To a health insurer, it looks like the consumer has paid for the drug and, as a result, the consumer's deductible and out-of-pocket payments for co-insurance are falsely satisfied," Marcotte said.

To prevent this, PBMs have developed the capability to track drug purchases that received co-pay assistance, he explained. Next year, 29 percent of large employers will have in place so-called "co-pay accumulator programs" that adjust deductibles and out-of-pocket maximums downward to account for manufacturers' subsidies, a number expected to grow to 50 percent by 2021.

Other Coverage Trends

Among other design trends noted in the survey are the continued use of spousal surcharges, expansion of behavioral health benefits and actions to address opioid addiction:

  • Spousal surcharges. Next year, 33 percent of large employers will impose a surcharge for spouses who can obtain coverage through their own employer, and the average annual spousal surcharge will be $1,200. Only 6 percent of respondents will exclude spouses entirely when similar health coverage is available through the spouse's own employer.
  • High-cost claimants. Generally, a relatively small number of plan members drive a majority of the cost. Nearly three-fourths of large employers cited high-cost claimants as one of the top drivers of rising health care costs and 39 percent are adopting a more focused strategy to address high-cost clams next year.
  • Behavioral health benefits. Three in 10 large employers will conduct in-house campaigns next year to reduce the stigma around mental health conditions and treatment. More than half will offer self-directed online resources.
  • Opioid restrictions. A majority of large employers (55 percent) are greatly concerned about the impact of prescription opioid abuse on the workforce. Employers are working with their partners to implement multiple strategies to change prescribing patterns and increase access to alternative therapies, such as acupuncture, physical therapy and chiropractic care.

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