High-Performance Insights Best Practices in Health Care

Transcription

1 B E S T High-Performance Insights Best Practices in Health Care th Annual Willis Towers Watson/National Business Group on Health Best Practices in Health Care Employer Survey

2 Employers increasingly view a healthy and productive workforce as a business imperative and a source of competitive advantage.

3 High-Performance Insights Best Practices in Health Care th Annual Willis Towers Watson/ National Business Group on Health Best Practices in Health Care Employer Survey Table of Contents Executive Summary...2 Survey Highlights...3 About the Survey...5 Cost Trends: Affordability Concerns Grow...6 Best Performers Create Financial Advantage...8 Strategy and Planning: Employers Raise Their Game...9 Emerging Trends...11 Participation...11 Subsidization...12 Vendor Partner Strategies...13 Health Care Delivery...15 Pharmacy...16 Workforce Health...17 Engagement and Consumerism...18 The March to ABHP Everywhere...19 Measurement: Using Data to Improve Employee Health and Well-Being...21 Conclusion: Best Practices of the Best Performers High-Performance Insights: Best Practices in Health Care

4 Executive Summary U.S.-based employers say they are more committed to providing some form of a health care benefit to employees over the next 10 years than they have been in recent years now that the Affordable Care Act (ACA) is settled law, and its implications and future better understood. Employers confidence that they will still be offering health care a decade from now nearly doubled rising from 25% in 2014 to 44% this year, according to the 487 respondents to the 2015 Willis Towers Watson/National Business Group on Health (NBGH) Best Practices in Health Care Survey. Notwithstanding this dramatic increase, employers continue to be challenged by both the cost still trending above the rate of general inflation and performance of their health benefit programs. With cost projections, particularly for specialty drugs, indicating that cost concerns won t be going away anytime soon, they continue to search for new and better ways to manage cost and value through benefit delivery and workforce health improvement. In addition, employers increasingly view a healthy and productive workforce as a business imperative and a source of competitive advantage. As a result, concerns about employee well-being including lifestyle-based health risks, lack of engagement in their own well-being, low participation in wellness programs and their financial health are prompting companies to consider further changes to their health benefit plans. Notably, while rethinking their incentive strategy and looking to enhance the workplace experience, they have made a healthy workplace culture a top strategic priority (see Willis Towers Watson s soon-to-be-published Staying@Work Survey Report). Standing out from the crowd is a small group of best performers that are gaining significant competitive advantage by creating and leveraging best practices, especially superior network and provider contracting strategies, to control costs and improve workforce health. 2 willistowerswatson.com

5 Survey Highlights Cost Management Cost pressures are driving employers to make changes to their benefit programs Most respondents (95%) expect (to a moderate or great extent) to reevaluate their health and pharmacy benefit strategy. Nearly as many (89%) expect to evaluate their vendor/network strategy. A vast majority (83%) also expect to make changes to avoid the ACA s excise tax on high-cost plans, up from 31% in 2014 (see footnote 2, page 6). Respondents expect total health care costs (employer and employee) to reach $12,041 per employee per year (PEPY) in 2015, up 4.1% from $11,567 in 2014, and to rise nearly 5% to $12,643 PEPY in Although our study of these trends over two decades shows that health care cost trends remain at historically low levels, they are still well above the rate of general inflation and the indexing factor for the excise tax. With low inflation limiting the degree to which companies can raise prices on goods and services to cover rising costs, and the 40% excise tax, originally slated for 2018 but now deferred until 2020, employers are focusing more than ever on cost management. Employee affordability concerns intensify In 2015, employees are paying, on average, 22.2% of total premium costs, which is expected to rise to 22.8% in 2016 after employers make changes to control their costs. In paycheck deductions, the average employee is contributing $2,676 in premiums, which is expected to rise to $2,882 in 2016, a 7.7% increase compared to the average salary increases in 2015 of 3% or less. 1 This inevitably creates an issue for employers with low-wage employees, whose ability to absorb increased health care costs may be reaching its limit. Companies aggressively manage their plans population to rein in costs Employers are stepping up their focus on the biggest drivers of cost, including the size of the participating population. Four in five identified changes to health and pharmacy plan designs as their most important strategic priority over the next three years, and many have already taken action: 27% have adopted spousal surcharges, and another 30% said they are considering it by Twenty percent have moved to a defined contribution (DC) arrangement (see What Is a DC Health Arrangement? page 13), a strategy that s expected to double by Employers take action to curb the cost of specialty pharmacy The cost and utilization issues regarding specialty pharmacy are a top pain point for employers. Fifty-three percent have added new coverage and utilization management, and 32% more plan to do so by A quarter (26%) have addressed specialty drug costs and utilization that are currently billed under the medical plan. Nearly double that number expect to address it in 2016 and triple by Eighteen percent have adopted coverage changes in 2015, hoping to drive patients to less expensive sites of care, with another 42% planning to do so by As employer adoption of account-based health plans (ABHPs) becomes pervasive, the use of fullreplacement ABHPs continues to grow Eighty-two percent of companies have an ABHP in 2015, and another 4% expect to add an ABHP for the first time in As the excise tax on high-cost plans draws ever closer, median employee enrollment in ABHPs has increased from 15% to 43%, largely because many employers have replaced all their plans with ABHPs (20%, up from 7% in 2012). Looking ahead, nearly one-quarter (24%) of all companies could offer an ABHP as their only plan option in 2016 if they follow through with their current plans, jumping to nearly 50% by More than 70% of companies offering an ABHP pair it with a health savings account (HSA), the dominant account model, in order to motivate employees to use this taxadvantaged opportunity to defray the rising cost of health care today and accumulate savings to help pay for health care in retirement. Employers are accelerating year-round communications to active employees about the value of HSAs today (36%, more than doubling to 76% by 2018) and after they retire (27%, increasing to 68% by 2018). Moreover, a strong majority of employers with ABHPs (84%) put seed money into employee accounts (no match or participation in wellness programs required), and 64% contribute funds at the beginning of the year or immediately when earned. 1 Source: Willis Towers Watson Financial Benchmark Survey High-Performance Insights: Best Practices in Health Care

6 Many employers have or are planning to differentiate cost sharing for the use of high-performance networks or COEs. Best performers: Using a variety of strategies to create competitive advantage Our research identified 43 best performers companies that have distinguished their health plans from those of other large and midsize companies by implementing superior network and provider strategies that make their programs more efficient and hold the line on cost trend before any changes to their health plan designs (see Best Performers Create Financial Advantage, page 8). They also use data and metrics to inform new strategies. These companies have created a per-employee cost advantage of over $2,000, compared to this survey s national average ($10,258 versus $12,041 of total cost PEPY). For a company with 10,000 employees, that translates to a $20 million per-year advantage. Best performers also maintain a two-year average cost trend that is 2.6 percentage points lower than that of other organizations before plan changes (4.3% versus 6.9%) and 1.3 percentage points lower even after changes (3.7% versus 5.0%). Best performers lead the way in developing high-performing health programs that manage cost and add value. For instance, 33% offer ABHPs as their only plan, 32% use spousal surcharges, and 34% evaluate specialty drug cost and utilization through the medical benefit compared to the national average of 20%, 27% and 26%, respectively. Adding Value Through Value-Based Contracting Arrangements, Technology and Changing the Consumer Experience Transition to value-based payment strategies gains momentum Over 70% of employers identify reimbursement methodologies that are based on cost, quality, improved efficiency and better outcomes as an important criterion in selecting their health plan vendor partners second only to competitive price discounts. Key strategies companies are adopting include: Contracting with their health plan for services at centers of excellence (COEs) 37% today, with another 25% planning it by 2018 Implementing high-performance networks 11% today, with another 50% potentially adding them over the next three years Contracting directly with providers Few are doing so today, but nearly 15% of employers are considering this approach to secure improved pricing and greater value on medical, COE, accountable care organization (ACO) and patient-centered medical home (PCMH) services Employers place greater emphasis on value-based plan designs While few employers have adopted value-based designs to improve quality and efficiency of care delivered in their medical and pharmacy plans (11% and 20%, respectively), there is growing interest in adding these features. An additional 38% of employers plan to add value-based designs to medical plans by An additional 33% plan to add them to pharmacy plans. Employers are using subsidies to drive employee behavior Many employers have or are planning to differentiate cost sharing for the use of high-performance networks or COEs. While fewer than 5% are doing so today, another one-quarter of employers have or are planning to adopt reference-based pricing or implement requirements that link reimbursement to second-opinion services by willistowerswatson.com

7 About the Survey Employers are adopting telemedicine, but employee usage lags Nearly half (46%) of employers offer telemedicine services today, up from 28% in By 2018, 90% of employers could be offering these services: Another 24% plan to add the service in 2016, and another 20% are considering it by However, less than 10% of employees use telemedicine services. To prompt usage, many employers offer favorable reimbursements. Nearly a third (31%) of employers with telemedicine services offer lower copayments or charges for telemedicine consultations. More employers turn to voluntary benefit services to assist employees in optimizing their health care As more private exchanges have entered the employerprovided health care marketplace in the last few years, the workforce has also undergone a generational shift. These trends have shined a bigger light on creating a consumergrade shopping experience for active employees who have limited compensation dollars to spend. The goal is to provide more choices to help meet a family s needs at the right price and acceptable risk levels. This dynamic has created a greater interest in expanding and reinforcing voluntary benefit services, ranging from credit monitoring services to critical illness and supplemental accident benefits. More than a third of employers (34%) already offer more customization with voluntary benefits that employees choose and pay for outside of the health plan, and by 2018, 70% of all employers in our survey plan to offer voluntary benefit services. Increasing Employee Engagement Employers rethink their incentive strategy for wellness programs in the face of low employee participation Discouraged by continued low employee use of wellness programs in spite of lucrative incentive programs, employers are looking for new ways to boost employee engagement. Over the next three years, nearly 90% of employers that offer incentives today are examining or plan to examine their organization s philosophy and approach to incentives. Realizing now that wellness has more to do with behavior change than lowering health care costs, 96% expect to increase their focus on employee well-being, and 94% expect to develop or enhance a culture where employees are responsible for their health. Companies are willing to make investments that take a few years to pay off, provided there is evidence of effectiveness. The 20th annual Willis Towers Watson/NBGH Best Practices in Health Care Employer Survey tracks employers best practices and the results of their efforts to provide and manage health benefits for their workforce. The report identifies the actions of highperforming companies, as well as current trends in the health care benefit programs of U.S. employers with at least 1,000 employees. The survey was completed by 487 employers in June and July Respondents collectively employ 15.1 million full-time employees, have 12.0 million employees enrolled in their health care programs and represent all major industry sectors. Figure 1. Number of full-time workers employed by respondents 28% 28% 13% 13% 17% 1,000 to 2,500 2,500 to 5,000 5,000 to 10,000 10,000 to 25,000 25,000 Figure 2. Region where the majority of benefit-eligible workforce is located 26% 26% 5% 12% 19% 9% 11% 8% 22% Figure 3. Industry groups 13% 22% 18% 10% National Northeast South Midwest West Energy and Utilities Financial Services General Services Health Care IT and Telecom Manufacturing Public Sector and Education Wholesale and Retail High-Performance Insights: Best Practices in Health Care

8 Cost Trends: Affordability Concerns Grow Employers continue to face rising health benefit costs in 2015, although at a slower rate than last year, down from 4.9% to 4.1% after plan design changes. Without these changes, rate increases would have been 6% in 2014 and 5.7% in 2015 (Figure 4). However, the slowdown in cost trend increases brings little cheer for employers or employees. For one thing, there are growing signs that health care cost trends could be heading higher, mostly due to expensive new prescription drug treatments. 2 Employers in this survey reveal cost trends appear to be on track to increase to 5% in Additionally, in 2020, the ACA's 40% excise tax begins on plans with costs over IRS thresholds tied to the Consumer Price Index, which we estimated 38% of companies would trigger in 2018 and 73% by 2023 if they don t make changes. 3 In addition, while cost trends are at historically low levels, they are still much higher than the general inflation rate and have outpaced wages, which have been rising between 2.0% and 3.0% annually for much of the last decade. As a result, the slower pace of cost trends does nothing to diminish the growing affordability challenge for active employees, who see an increasing share of their total rewards going to health care benefits. They also bear a larger and larger share of the cost in both payroll contributions (premiums) and out-of-pocket costs, with lower-wage employees feeling the greatest burden on their household budget, or worse choosing to forgo needed medical services because they can t afford them. Figure 4. Total health care cost increases before and after plan design changes 15% 10% 5% % 5% * Health care trend after plan changes (total plan costs) Health care trend before plan changes Consumer Price Index for All Urban Consumers *Projected 2 Recent evidence from the Centers for Medicare and Medicaid Services projects an uptick in the use of medical goods and services in addition to medical prices throughout the rest of this decade. 3 The excise tax will require plan sponsors to pay a surcharge for plans that exceed certain thresholds (estimated to be $10,200 per covered single employee and $27,500 per covered family). The projection is based on the guidance received to date and is subject to change as the regulatory guidance continues to unfold. 6 willistowerswatson.com

9 Measuring Total Plan Costs: New and Improved Data For the first time, total plan costs for this 20-year-old study are being based on Willis Towers Watson s annual Financial Benchmark Survey, which includes detailed medical plan cost values on 1,017 companies with more than 9.0 million enrollees and total costs of over $104 billion. Incorporating the use of this deep and broad database for the first time in our annual Willis Towers Watson/NBGH Best Practices in Health Care Survey enhances our ability to provide detailed annual plan costs for over 20 industry groups. These cost data are adjusted for demographic, geographic and design factors, and as a result, help us evaluate how efficiently companies health plans are performing. This significant change enables participating employers to gain a richer understanding of how well their plans are performing compared to those of others at a level of detail that is unmatched by any other survey data source in the marketplace. For fully insured medical and pharmacy plans, the costs presented reflect premium rates. For self-insured plans, the costs reflect premium equivalencies, which include company contributions to medical accounts such as health reimbursement accounts (HRAs) and HSAs, health management program costs and program participation incentives paid by the plan, and administration costs. In total, nearly 75% of respondents to the Willis Towers Watson/NBGH Best Practices in Health Care Survey participated in the Willis Towers Watson Financial Benchmark Survey. Unquestionably, organizations where HR and Finance are aligned on a total rewards strategy will be best positioned to assess both the cost and talent implications of decisions in the future. Furthermore, today s historically low inflation environment limits companies ability to absorb these health care cost increases by raising the prices of goods and services they sell. Unquestionably, organizations where HR and Finance are aligned on a total rewards strategy will be best positioned to assess both the cost and talent implications of decisions in the future. Total health care costs, on average, are $12,041 PEPY for 2015, up 4.1% from $11,567 in Looking ahead, costs are expected to increase 5% to $12,643 in Employees are paying, on average, 22.2% of total premium costs in 2015 and are expected to pay 22.8% in 2016 after companies take steps to control their costs. In paycheck deductions, this translates into an average employee contribution of $2,676 to premiums in 2015, which is expected to rise to $2,882 in 2016, a 7.7% increase. A Look at Industry Differences There is nearly a 70% difference between low- and high-cost industries (Figure 5, page 8). For instance, the Pharmaceutical industry, on average, spends $14,756, compared to $8,854 for companies in the Retail sector, a difference of over $5,900 PEPY. While this represents, in part, differences in demographics and family size as well as overall plan values, this variation in costs suggests that health care assumes a larger share of the total rewards budget for some industries. Moreover, while costs vary by industry, there is also equal, if not more, variation within industries, with some companies spending $6,000 more per employee on health care than their industry peers. This disparity telegraphs that some industries need to be more aggressive than others in understanding and executing on program efficiency to maintain costs that enable them to be competitive and affordable to participants, and mindful of the excise tax risk. But clearly, select companies in every industry need to take that path, as well High-Performance Insights: Best Practices in Health Care

10 Figure plan costs $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 Retail 11,628 10,123 8,854 7,726 6,884 13,913 12,762 11,469 10,277 9,406 Manufacturing Financial Services 15,016 13,294 11,515 10,292 8,706 Health Services 15,033 13,289 12,469 10,543 9,186 14,937 14,053 12,687 10,657 9,559 Technology Energy/ Utilities 17,703 16,655 14,649 12,405 11,355 Pharmaceuticals 17,752 16,777 14,756 14,330 12,637 Total database 15,440 13,633 12,041 10,218 8,706 90th percentile 75th percentile Average 25th percentile 10th percentile Note: This chart presents select industry groups that are a subset of the general industries used in other sections of this report. It does not reflect all companies or industry groups in WillisTowers Watson s Financial Benchmark Survey database. Best Performers Create Financial Advantage Employers continue to show dramatic differences in their ability to manage their health care cost trends. Our research this year identified 43 that qualify as best performers based on their ability to manage cost trends and efficiency: Cost trend Two-year average trend before plan changes (2013/2014 and 2014/2015) that is at or below the national norm (6% for 2014 and 2015) Efficiency Two-year average efficiency (2014/2015) that is 5% or greater (roughly 60th percentile and above) reflects actuarial adjusted costs to account for differences in plan design value, demographics (age, gender, family size) and geographic factors We project best performers will pay over $2,000 less for health care per employee in 2015 than other companies in our national survey ($10,258 versus $12,264 of total cost PEPY) after plan changes. For a company with 10,000 employees, that translates to a $20 million per-year advantage. Best performers also maintain a two-year average cost trend before plan changes that is 2.6 percentage points lower than for other organizations (4.3% versus 6.9%) and a trend after plan changes that is 1.3 percentage points lower (3.7% versus 5.0%). What Can We Learn From Best Performers? Best-performing companies lead the way in developing high-performing health programs that manage costs and add value, in part by implementing superior network and provider strategies. Throughout the rest of this report, we identify specific tactics that best-performing companies are doing much more than the national average or other organizations best practices focused on our seven core areas: Participation Subsidization Vendor partner strategies Health care delivery Pharmacy Workforce health Engagement and consumerism While there are many factors to explain the reasons for best performers holding the line on costs, these activities are likely an important part of their recent success, and many are emerging trends that could position them and those that emulate them for success in the future. While best performers are leading the way, there is plenty of opportunity for all companies to take actions to rein in costs and improve the performance of their health care programs. 8 willistowerswatson.com

11 Strategy and Planning: Employers Raise Their Game Despite their concerns about costs, employer confidence that they will continue to offer health care coverage in 10 years nearly doubled from last year, to 44% (from 23% in 2012 and 25% in 2014) (Figure 6). Now that the Supreme Court has affirmed the constitutionality of the ACA, and the law s implications and future are better understood, employers are becoming more aggressive about controlling costs and improving plan effectiveness. Top Strategic Focus Areas Clearly, the ACA s excise tax is increasingly a priority. Last year, only 31% of employers said they were making changes to avoid the tax, up from just 20% the year before. This year, 83% said they are giving it at least moderate attention, with the vast majority (58%) giving it great attention (Figure 7). Over the next three years, most employers (95%) will be focused on evaluating their health and pharmacy plan design, with 80% giving it high priority. This focus is highly influenced by their ongoing concern with rising pharmacy costs, notably specialty pharmacy. Willis Towers Watson s pharmacy experts predict that specialty pharmacy, which serves less than 5% of covered lives, will account for 50% of total drug spend by For most employers, this is projected to represent between 10% and 15% of total health plan cost for 2016 and beyond. Now that the Supreme Court has affirmed the constitutionality of the ACA, and the law s implications and future are better understood, employers are becoming more aggressive about controlling costs and improving plan effectiveness. Figure 6. Employer confidence that they will offer health care in 10 years nearly doubles 80% 70% 60% 50% 40% 30% 20% 10% 0% Note: High confidence represents responses of very confident Figure 7. Top priorities of employers health care activities over the next three years 0% 20% 40% 60% 80% 100% Evaluate health and pharmacy plan design strategy Increase focus on employee well-being, including health, financial and workplace experience Develop/Enhance a workplace culture where employees are responsible for their health Evaluate vendor/network strategy Make changes to avoid the excise tax ceiling Adopt/Expand the use of financial incentives to encourage healthy behaviors Evaluate care management programs for chronic and acutely ill members Review health care benefits in a total rewards context Develop/Enhance a health technology strategy including employee engagement and delivery of care Assess the viability of or adopt an active employee private insurance exchange Assess the viability of or adopt public insurance exchange options for active employees Not at all/2 3 To a moderate extent 4/5 To a great extent High-Performance Insights: Best Practices in Health Care

12 With employers increasingly viewing a healthy and productive workforce as a business imperative and a source of competitive advantage, employers are looking at a variety of ways to create a financial advantage for their organizations that involves both employees and vendors: 4 96% are increasing their focus on employee well-being including health, financial and workplace experience with 73% making it a high priority. 94% are making a healthy workplace culture a top strategic priority, with most (72%) making it a high priority. 89% are looking for potential cost savings in network and vendor contracts and relationships, with the majority (60%) giving it high attention. Employers also say that they are willing to make changes that may take a few years to succeed and to make short-term financial investments to achieve improved health outcomes (70% and 69%, respectively, strongly agree) as long as they have proved to be effective. And 41% are willing to make effective plan design changes or changes in offerings that would disrupt employees (Figure 8). Figure 8. Employers short- and long-term goals are focused on results 0% 20% 40% 60% 80% 100% Make changes now that may take a few years to achieve measurable success Make short-term financial investments to achieve improved health outcomes Forgo commonly offered programs that are not likely to benefit the population Make changes in plan design or program offerings that disrupt employees Take on an operationally challenging project Offer leading-edge programs not yet proven Strongly disagree/disagree Neither agree nor disagree Strongly agree/agree 4 Source: Rx Collaborative data provided by Express Scripts 10 willistowerswatson.com

13 Emerging Trends As the majority of employers become much more aggressive about strategies to control costs and improve program effectiveness, we see a number of trends emerging in the following areas: Participation Subsidization Vendor partner strategies Health care delivery Pharmacy Workforce health Engagement and consumerism By looking at the strategies and tactics our best-performing companies are creating and leveraging (see Best Performers Create Financial Advantage, page 8) to achieve a $2,000 peremployee cost advantage, we have identified best practices in each of these emerging trends. Employers looking to emulate these financial results and effectiveness on the road to developing a high-performance health plan can look closely at these practices where best performers are leading all other companies. Participation Employers are redefining their financial commitment to families health care, especially spouses (Figure 9). Currently, more than half have increased employee health contributions in tiers for spouses (56%) and children (46%), with 81% and 61%, respectively, planning to do so by Use of spousal surcharges (when other coverage is available, usually from the spouse s own job) is poised to more than double by 2018 (from 27% to 56%). These strategies address employer concerns about affordability by helping employers avoid or reduce across-the-board increases in employee contributions. Figure 9. Redefine financial commitment to family health care, especially working spouses 0% 20% 40% 60% 80% 100% Increase employee contributions in tiers, with spouses more than employees with single coverage Increase employee contributions in tiers, with children more than employees with single coverage Use spousal surcharges (when other coverage is available) Structure contributions on a per-dependent-covered basis Eliminate/Don t offer subsidy for spousal coverage (provide access only) 3 10 Action taken/ Tactic used in 2015 Best Practices Participation Structure employee contributions on a per-dependent-covered basis: 13% of best performers versus 5% of national average = 7% lead Use spousal surcharge: 32% of best performers versus 27% of national average = 5% lead Planning for 2016 Considering for 2017 or High-Performance Insights: Best Practices in Health Care

14 Figure 10. Industry advantage Annual amount of 2015 spousal surcharge for medical coverage by industry Annual In use amount Wholesale and Retail 40% $900 IT and Telecom 36% $1,300 All companies 27% $1,200 Financial Services 27% $1,200 Manufacturing 27% $1,200 Health Care 25% $1,200 General Services 23% $1,250 Energy and Utilities 13% $1,320 Public Sector and Education 13% $1,200 Note: Median The majority of employers now offer ABHPs, and by next year, nearly one in four (24%) may offer an ABHP as their only plan. Figure 11. Changes in contribution structure for active employees 0% 20% 40% 60% 80% 100% Structure employee contributions based on employees taking specific steps (e.g., completing health assessment, biometric screening) Include greater choice and variety by offering voluntary benefits and services (e.g., critical illness insurance, accidental life insurance) Structure employee contributions based on employee compensation levels Use a defined contribution arrangement (i.e., structure employer contributions based on a flat dollar amount across plans) Action taken/ Tactic used in 2015 Planning for 2016 Considering for 2017 or 2018 Only employees that cover other family members pay contributions in tiers, along with the surcharge. The Wholesale and Retail industry (with 40% of all companies in the industry), followed by the IT and Telecom industry (36%), leads all others in using spousal surcharges (Figure 10). Subsidization The majority of employers now offer ABHPs, and by next year, nearly one in four (24%) may offer an ABHP as their only plan (see The March to ABHP Everywhere, page 19). In addition, a significant minority of employers have made other changes to their contribution structure for employees, and while few plan to make changes for 2016, many more are doing spade work for potential actions in anticipation of further excise tax guidance. The number of employers that structure contributions based on employees taking certain steps such as completing a health assessment, which is currently at 39%, is expected to grow to 66% by 2018 if respondents follow through with their plans (Figure 11). To add greater choice and variety, one-third of employers have added voluntary benefit services, including some to cover nonmedical costs that may be incurred during a critical illness. For instance, critical illness and hospital indemnity insurance may provide financial support in specific circumstances. The number of employers that currently offer these benefits (34%) is expected to surge to 71% by Best Practices Subsidization Structure employee contributions based on employees taking specific steps: 53% of best performers versus 39% of national average = 13% lead Offer a low-value-plan option (e.g., highdeductible plan with actuarial value around 70%): 30% of best performers versus 22% of national average = 8% lead Use value-based benefit designs in medical plan: 17% of best performers versus 11% of national average = 6% lead 12 willistowerswatson.com

15 What Is a DC Health Arrangement? Traditional DC plans, where the employer contributes a fixed-dollar amount toward the cost of an employee s health benefit each year and the employee pays the difference between that amount and the actual cost of the coverage elected, were most popular during the heyday of flexible benefits plans in the 80s and early 90s. They were developed to help an employer cap or reduce the organization s benefit costs and encourage employees to rethink their health benefit elections. When health care costs rise slowly, the DC approach is manageable. But as the pace of health care cost increases quickened in the late 80s, DC approaches led employees health plan cost increases to outpace their compensation gains, and the DC premise began to lose its appeal. Now, the number of employers giving DC plans a second look is growing for three converging reasons. They want to: Move to a private exchange (marketplace) for employee health benefit delivery, many of which encourage employers to take a DC approach Create greater price transparency in health plan cost sharing and employer subsidies Encourage employees to avoid paying for coverage they are unlikely to use and consider buying down to a lower level of coverage A DC approach can accomplish all of these things when structured well, but employers should carefully consider their objectives when designing a DC strategy. For instance, if your primary objective is to de-risk your health benefit program, you won t get there with DC it works merely to cap employer contributions in a given plan year. If your goal is to avoid the excise tax as it currently stands, a DC arrangement won t help unless employees actually buy down to lower levels of coverage, because both employer and employee shares of premium cost are included in the current excise tax definition. It is critical to work with an expert to define your objectives, weigh the multiyear implications, and ensure your approach aligns with your total rewards strategy and desired employee value proposition (EVP). Interest in a DC approach is also gaining ground, with 20% of respondents currently using this approach, and is expected to nearly double by Some employers wrongly believe a DC approach provides a better way for employers to manage their health spend over the long term and avoid the excise tax (see What Is a DC Health Arrangement?). Vendor Partner Strategies Employers are turning their attention to the provider strategies deployed by their vendor partners, focusing on controlling costs and improving care. Notably, 74% formally monitor vendor performance through performance guarantees; 66% integrate health management programs; more than half (56%) require vendors to share data for employee outreach and integrated reporting, and nearly half (47%) involve all vendors in regular strategic planning to improve collaboration (Figure 12). Figure 12. Aggressively managing vendors 0% 20% 40% 60% 80% 100% Formally monitor vendor performance through performance guarantees 74 Integrate health management programs 66 Require vendors to share data for employee outreach and integrated reporting 56 Involve all vendors in regular strategic planning to improve collaboration High-Performance Insights: Best Practices in Health Care

16 As employers have become more aggressive in achieving their plan cost and effectiveness goals, the importance they place on emerging strategies beyond competitive discounts in selecting health plan vendors is also rising. For instance, the percentage of employers saying it was very important to choose vendors whose reimbursement methodology is based on the three metrics of the ACA (cost, quality and better outcome) rose to 71% this year, up from 39% last year. An additional 23% said it was somewhat important. Other factors chosen by more than half of employers as very important included a willingness to partner with third parties, proven results and effectiveness of new strategies, and COEs expanded for treatments beyond transplants (Figure 13). As employers have become more aggressive in achieving their plan cost and effectiveness goals, the importance they place on emerging strategies beyond competitive discounts in selecting health plan vendors is also rising. Best Practices Vendor Partner Figure 13. Factors in selecting a health plan vendor 0% 20% 40% 60% 80% 100% Competitiveness of the negotiated insurer discounts Vendor s emphasis on adopting reimbursement methodology based on cost, quality, improved efficiency and better outcomes Willingness to partner with third parties Employer reporting demonstrating results/effectiveness of new contracting strategies Availability of COEs beyond traditional transplant COEs Availability of telehealth solutions integrated with health plan Availability of ACOs and/or PCMHs with provider incentives and penalties based on quality, efficiency and outcomes Require vendors to share data for employee outreach and integrated reporting: 68% of best performers versus 56% of national average = 12% lead Involve all vendors in strategic planning: 54% of best performers versus 47% of national average = 7% lead Select health plan vendor based on willingness to partner with third parties: 83% of best performers versus 70% of national average = 12% lead Formally monitor vendor performance through performance guarantees: 88% of best performers versus 74% of national average = 14% lead Select health plan vendor based on availability of expanded COEs: 71% of best performers versus 61% of national average = 10% lead Not at all important Somewhat important Very important 14 willistowerswatson.com

17 Health Care Delivery To help control costs, and improve quality and outcomes by the time the excise tax takes effect, employers are betting on the use of these provider strategies: COEs, currently 37%, set to surge to 62% by 2018 High-performance networks (created based on cost and quality) and so-called narrow networks (more focus on cost advantage), currently 11%, expected to quintuple to 61% by 2018 ACOs, currently 7%, set to triple to 22% PCMHs, currently 5%, set to nearly quadruple to 19% by 2018 for better pricing and greater value (Figure 14) Other options, such as medical tourism and directcontracting, are also sparking more interest for the future. Developing COEs for some specific services can provide a platform to align physicians in quality improvement efforts, reduce costs through greater efficiencies, and create market differentiation through clinical excellence and high patient satisfaction. The most common COEs focus on bariatric surgery, infertility, cardiac surgery, orthopedic surgery, oncology, maternity and transplants. Best Practices Health Care Delivery Offer medical tourism services and cover employee expenses: 17% of best performers versus 11% of national average = 6% lead Differentiate cost sharing for use of high-performance networks: 17% of best performers versus 12% of national average = 5% lead Provide lower copayment or charges for telemedicine consultations: 38% of best performers versus 31% of national average = 7% lead Figure 14. Employer use of provider strategies to grow by % 20% 40% 60% 80% Contract with health plan for services at COE Implement high-performance/narrow networks Offer medical tourism services and cover employee expenses (e.g., travel costs) Engage a third party to secure improved pricing on medical services (i.e., direct contracting with providers) Contract directly with provider(s) for services of ACOs Contract directly with provider(s) for services at COEs Contract directly with provider(s) for services of PCMHs Action taken/ Tactic used in 2015 Planning for 2016 Considering for 2017 or 2018 Figure 15. Value-based designs to improve quality and efficiency of care delivered 0% 20% 40% 60% 80% Provide lower copayment or charges for telemedicine consultations Use value-based benefit designs in pharmacy plan (e.g., different levels of coverage based on value or cost of services) Differentiate cost sharing for use of high-performance networks Use value-based benefit designs in medical plan (e.g., different levels of coverage based on quality and/or cost of services) Use reference-based pricing in medical plan (e.g., limited level of coverage for a procedure) Require employees who get certain types of medical procedures to pay a higher cost share if they do not first seek additional input (e.g., second-opinion services) Action taken/ Tactic used in 2015 Planning for 2016 Considering for 2017 or High-Performance Insights: Best Practices in Health Care

18 Figure 16. Pharmacy benefit management strategies 0% 20% 40% 60% 80% 100% Implement step therapy programs that drive generic utilization Evaluate pharmacy benefit contract terms Adopt new coverage or utilization management as part of the specialty pharmacy strategy (e.g., require prior authorization or quantity limits based on clinical evidence) Exclude all compound drugs Implement a more aggressive mail-order or 90-day incentive program Conduct an audit of the pharmacy benefit manager Evaluate and address specialty drug costs and utilization performance through the medical benefit Implement coverage changes to influence site of care for specialty pharmacy through the medical benefit Adopt a high-performance formulary with very limited brand coverage across the therapy classes Offer a narrow retail network Action taken/ Tactic used in 2015 Best Practices Pharmacy Adopt a high-performance formulary with very limited brand coverage across the therapy classes: 24% of best performers versus 14% of national average = 10% lead Evaluate and address specialty drug costs and utilization performance through the medical benefit: 34% of best performers versus 26% of national average = 8% lead Exclude compound drugs: 57% of best performers versus 39% of national average = 18% lead Planning for 2016 Considering for 2017 or 2018 Most employers contract COE services through their health plan, not directly with the provider, and with the exception of bariatric surgery and transplants, most employers reimburse employees who use a COE at the same rate as they do for employees who do not use a COE. This may be an area worth exploring, since employers that benefit from a bundled rate at a COE could share in the savings, thus driving more employees to use the centers. While value-based designs to improve efficiency, outcomes and overall quality of care are growing, most employers are currently not using them as aggressively as they could be in their medical (11%) and pharmacy (20%) plans. However, there is growing interest in adding these features by Thirty-three percent of respondents without these designs plan to add value-based design features to their pharmacy plans, and another 38% plan to do so in their medical plans (Figure 15, page 15). Employers are also using subsidies to drive employee behavior. Many employers have or are planning to differentiate cost sharing for the use of high-performance networks or COEs. While fewer than 5% are doing so today, another quarter of employers have or are planning to adopt reference-based pricing or implement requirements that link reimbursement to second-opinion services. Additionally, telemedicine has become very popular with employers. Ninety percent of all employers could be offering it by 2018 (46% offer services today, compared to 28% in 2014, and 44% more plan to add these service by 2018). Meanwhile, only 7% of employees with access to telemedicine currently use it. To drive usage, employers could charge a lower copayment, yet only 31% of employers offering telemedicine charge lower copays today, even though it costs far less than an office visit. But employers are catching on that number surges to 75% by 2018 if they follow through with their plans. Pharmacy The cost and utilization issues regarding specialty pharmacy in particular are a top pain point for employers. Fifty-three percent have added new coverage and utilization management, and 32% more plan to do so by 2018 (Figure 16). A quarter (26%) have addressed specialty drug costs and utilization that are currently billed under the medical plan. Nearly double that number expect to address it in 2016 and triple by Eighteen percent have adopted coverage changes in 2015, hoping to drive patients to less-expensive sites of care (e.g., self-infused at home rather than administered by a health care professional at a hospital or doctor s office), with another 42% planning to do so by willistowerswatson.com

19 Pharmacists that compound their prescriptions, tailoring medications for each customer instead of using precompounded medications, are also in the spotlight for skyrocketing costs. Nearly 40% of employers already exclude compound drugs, which is expected to grow to over 60% by Workforce Health As employers raise the ante for employees to take responsibility for their own health, they are aligning management, communications and the work environment to support them. To promote a healthy workplace, most respondents (51%) expect senior leaders to be visible champions of the organization s health and well-being strategy. They are also building health and well-being into the organization s EVP (49%), organizational goals and values (40%). Moreover, they are providing tools to managers to support their efforts to promote health and well-being (38%), although only a handful are explicitly tying manager performance objectives to healthy results (Figure 17). Comprehensive and sustained communication and the right technology are essential components of any organization s campaign to promote health as part of the work experience. The vast majority of respondents are investing in online tools that are accessible at work and at home (74%), encouraging local champions (both individuals and committees) that promote a healthy workplace (62%), using employee testimonials and stories (61%), and even dedicating portals to deliver health information or individual/team challenges (58%) (Figure 18, page 18). They are also investing in improving the health of the workplace by improving the physical environment to encourage healthy behaviors, including healthy cafeteria options and convenient break or lunchtime walking paths (70%); and ergonomic systems, processes and tools to help employees (63%). Six out of 10 employers offer work/life support that ranges from concierge services, caregiver support and commute-time reduction to flexible work arrangements. And more than half (56%) encourage suggestions for ways to improve employees well-being. Figure 17. Organization and management promoting a healthy workplace 0% 10% 20% 30% 40% 50% 60% Senior leaders are visible champions of the health and well-being strategy 51 Build health and well-being into the organization s EVP 49 Employee health and well-being is included in organizational goals or value statement 40 Tools are provided to managers to support their efforts to promote health and well-being 38 Performance objectives of managers are explicitly tied to health improvement targets for the workforce (e.g., reward managers whose units meet health benchmarks) 3 Best Practices Workforce Health Use fitness challenges or competitions between business locations or employee groups: 78% of best performers versus 64% of national average = 13% lead Provide tools to managers to promote health and well-being: 51% of best performers versus 38% of national average = 13% lead Use consumer marketing techniques to customize communication strategy: 38% of best performers versus 28% of national average = 9% lead Encourage employees to offer suggestions for changing the work environment to improve well-being: 72% of best performers versus 56% of national average = 16% lead Sponsor the use of wearable devices for tracking physical activity or nutrition: 44% of best performers versus 36% of national average = 8% lead High-Performance Insights: Best Practices in Health Care

20 Figure 18. Communications, technology and the environment 0% 20% 40% 60% 80% Ensure all online tools are available for at-work and at-home access 74 Have local health champions and/or committees to promote a healthy workplace 62 Use employee testimonials and/or personal stories 61 Have a dedicated portal to deliver health information or health challenges (individual or team) 58 Encourage employees to offer suggestions to change the work environment to improve their well-being 56 Sponsor the use of wearable devices for tracking physical activity or nutrition 36 Use key influencers and viral messaging to communicate through the social networks of the company 32 Use consumer marketing techniques (e.g., segmentation based on health behaviors or spending patterns) to develop a customized/targeted communication strategy 28 Engagement and Consumerism Increasingly, employers believe that having a high-performing health care plan is a competitive necessity. But to achieve and sustain such performance, they need to develop clearly defined, comprehensive and aggressive multiyear strategies for maximizing their health care investments. These strategies must address cost, value and employee engagement, and explore new options. Employers are embracing various tactics to improve health and engagement, and raise individual employee accountability, which have become critical to achieving high performance. They see their biggest obstacle as a lack of employee engagement (see our comprehensive treatment of health and productivity strategies in our soon-to-be-published 2015 Staying@Work Survey Report). However, while most employers offer various health and productivity programs, few have adopted and articulated a health and productivity strategy with stated objectives and goals for each program. But that s changing. Today, most employers are increasing their focus on employee well-being and a healthy workplace culture (see Top Strategic Focus Areas, page 9). Currently, most companies (70%) focus primarily on direct financial incentives (rewards and/or penalties) to influence desired behaviors, but they are discouraged by low employee enrollment in these programs, which affects Figure 19. Industry advantage The median of employees participating in any wellness activities or health management programs in the last year is less than 55% (except for Financial Services). Mean Median 25th percentile 75th percentile Financial Services 52% 58% 23% 78% All companies 50% 53% 28% 73% General Services 46% 53% 25% 68% Health Care 55% 53% 33% 78% Manufacturing 53% 53% 30% 78% Wholesale and Retail 50% 53% 28% 73% IT and Telecom 45% 45% 23% 68% Energy and Utilities 48% 43% 28% 73% Public Sector and Education 35% 33% 13% 53% all industries (Figure 19). Nearly 90% of employers using incentives today plan to rethink their incentive strategy over the next three years. Realizing now that wellness has more to do with behavior change than lowering health care costs, 96% expect to increase their focus on employee well-being, and 94% expect to develop or enhance a culture where employees are responsible for their health. Companies are willing to make investments that take a few years to pay off, provided there is evidence of effectiveness. Tobacco surcharges are used by 44% of respondents, and the surcharge averages $600 per smoker per year. Best Practices Engagement and Consumerism Focus on strategies to build a healthy workplace and culture to encourage healthy behaviors: 39% of best performers versus 34% of national average = 5% lead Refresh incentive strategy annually to encourage trial of new health-related activities: 37% of best performers versus 24% of national average = 12% lead Incent use of tobacco-cessation programs: 54% of best performers versus 32% of national average = 22% lead Offer price/quality transparency tools: 68% of best performers versus 59% of national average = 9% lead 18 willistowerswatson.com

21 The March to ABHP Everywhere Tax-advantaged ABHPs, an upstart idea at the millennium, are now omnipresent across every industry. Eighty-six percent of employers plan to offer them in 2016, up from 54% five years ago (Figure 20). The long-term effectiveness of ABHP design in helping to control health care costs a subject of much debate and further research will become increasingly clear over time as employers move to encourage employee enrollment in their ABHPs. Enrollment has more than doubled, from 20% to 43%, over the last five years (Figure 21). Behind this enrollment surge, first and foremost, is the growing number of companies that have eliminated all other plan options, from 7% in 2012 to 24% in Meanwhile, among the large number of companies that still offer alternatives, 50% expect to subsidize premiums for their ABHPs in 2016 at a higher rate to entice employee enrollment, up from 32% just four years ago. Also driving enrollment is the inclusion of HSAs, rising from 48% to 78% over last four years, and HRAs, rising more moderately from 23% to 27% (Figure 22, page 20). Figure 20. Take-up in ABHPs approaching universal 100% 80% 60% 40% 20% 0% *Planned for 2016 Note: We define an ABHP as a plan with a deductible offered together with a personal account (i.e., HSA or HRA) that can be used to pay a portion of the medical expense not paid by the plan. ABHPs typically include decision-support tools that help consumers better manage their health, health care and medical spending * Figure 21. ABHP enrollment rates rising at a rapid pace 50% 40% % 20% 10% 0% Median ABHP enrollment Percentage with 100% enrollment Note: Estimates are based on companies that offer an ABHP in various years is based on the 12th annual WillisTowers Watson/NBGH Survey, 2007 is based on the 13th annual survey, 2008 is based on the 14th annual survey, 2009 is based on the 15th annual survey, 2010 is based on the 16th annual survey, 2011 is based on the 17th annual survey, 2012 is based on the 18th annual survey, 2013 is based on the 19th annual survey, and 2014 and 2015 are based on the 20th annual survey (current) High-Performance Insights: Best Practices in Health Care

22 Figure 22. ABHPs as the only plan option is on the rise * ABHP with HRA 20% 20% 23% 26% 25% 25% 27% ABHP with HSA 25% 38% 48% 53% 63% 71% 78% Contribute funds to an HSA 15% 30% 39% 42% 54% 63% 69% Offer an ABHP as default plan option 11% 17% 22% 29% 34% 40% Offer an ABHP as only plan option 7% 12% 16% 20% 24% Offer an ABHP to collectively bargained employees 17% 21% 24% 29% 30% Subsidize premiums of ABHP plan(s) at a higher level than other plan options 32% 37% 43% 46% 50% *Includes companies indicating planned for 2016 Note: Based on all companies with or without an ABHP; 2007, 2010, 2012, 2013 and 2014 based on prior years of the Willis Towers Watson/NBGH Survey Employers increasingly pair their ABHPs with an HSA, the dominant account model, in order to motivate employees to use this tax-advantaged opportunity to defray the rising cost of health care today and accumulate savings to help pay for health care services in retirement. And now, nearly two-thirds of all companies with an ABHP (63%) plan to have a yearround communication strategy promoting ABHPs in 2016, rising to 76% by 2018 (Figure 23). In addition, 49% plan to promote the value of HSAs in retirement communications next year, rising to 68% in More companies than ever incent enrollment by seeding money into accounts without requirements (84%). A little over a quarter (28%) contribute based on participation in wellness programs. And just a few match employee contributions up to a specified amount (7%) or vary contributions based on pay (5%). Most employers (64%) distribute contributions to HSAs at the beginning of the year or soon after the contribution is earned, rather than with each paycheck (21%) or monthly (3%). In an effort to use data to inform health care strategy in a more thoughtful and meaningful way, more than half of employers plan to evaluate ABHP member behavior change in 2016 (62%), rising to 81% in Median enrollment in ABHPs grew across all industries in 2015, except the Public Sector and Education, where it declined 1%. In a dramatic change from last year, the General Services industry did the most to increase enrollment (65%), more than doubling enrollment from last year (30%), when it trailed four other industries. Also surging was Health Care, which nearly doubled from 26% to 51%, and Manufacturing, which grew from 34% to 51%. Figure 23. ABHP measurement and year-round communications are growing 0% 20% 40% 60% 80% 100% Offer a low-value-plan option (e.g., high-deductible plan with actuarial value around 70%) Have year-round communication strategy that emphasizes the value of ABHPs to employees and the organization s commitment to these plans Incorporate education regarding HSAs in retirement-planning materials Evaluate ABHP member behavior change against objectives (e.g., costs and utilization metrics, program participation) Action taken/ Tactic used in Planning for 2016 Considering for 2017 or 2018 Best Practices ABHP Offer an ABHP as the only plan: 33% of best performers versus 20% of national average = 13% lead Evaluate ABHP member behavior change against objectives (e.g., costs and utilization metrics, program participation): 44% of best performers versus 37% of national average = 7% lead Have a year-round communication strategy that emphasizes the value of ABHPs to employees and the organization s commitment to these plans: 43% of best performers versus 36% of national average = 7% lead Note: Based on companies with an ABHP in willistowerswatson.com

23 Measurement: Using Data to Improve Employee Health and Well-Being More data exist today on how employees use their health plans than ever before. Employers that can access the data to inform their health strategy could have a distinct advantage in lowering costs and improving the well-being of their workforce. But usually the data are in the hands of the health plans and not the employers. As the major health plans continue to consolidate, it becomes less likely these bigger, more powerful plans will have much incentive to share information unless employers begin building that requirement into their contracts with these vendors as well as other contractors that have the data. A much bigger challenge may be actually using the data effectively. At the moment, just over half of employers are consistently using medical claim data or benchmarking information to inform decisions or changes to their health and well-being programs (55%), and measuring active participation by employees/spouses in their health and well-being programs (51%). But less than half are sharing information with senior management regularly (48%). And even fewer are using data to identify and reach out to specific individuals or subgroups (e.g., those with diabetes) about relevant programs or gaps in care (43%) (Figure 24). A much bigger challenge may be actually using the data effectively. Figure 24. Employers continue to leverage data in health care decision making 0% 20% 40% 60% 80% 100% Use clinical-level medical claim data/benchmarking information to inform decisions or changes to health and well-being program Measure active participation or active engagement by employees/spouses in the health and well-being programs Share health and well-being program performance metrics with the C-suite or senior management on a regular basis Use data to identify specific individuals or subgroups for targeted outreach on relevant health and well-being program(s) or gaps in care Have an articulated measurement strategy that supports multiyear evaluation of health and well-being strategy and programs Measure demonstrated impact of health and well-being programs on health costs or risks Use a variety of financial and nonfinancial metrics to measure the impact of health and well-being programs (i.e., value-oninvestment approach) Use ROI measures to evaluate the impact of health and well-being programs Measure demonstrated impact of health and well-being programs on employee productivity (e.g., lost time, employee work engagement) Not at all/2 3 To a moderate extent 4/5 To a great extent High-Performance Insights: Best Practices in Health Care

24 There is even greater opportunity for employers to use data in a bigger way than most are right now, including: Articulating a measurement strategy that supports multiyear evaluation of health and well-being strategy and programs (used to a great extent by 39%) Measuring the impact of their programs on health costs or risks (35%) Using metrics to measure the value of their investment in these programs (25%) Measuring the ROI of these programs (24%) Measuring the impact of health and well-being programs on productivity (14%) Best Practices Measurement Use clinical-level medical claim data to inform decisions: 71% of best performers versus 55% of national average = 16% lead Have an articulated measurement strategy that supports multiyear evaluation: 44% of best performers versus 39% of national average = 5% lead Share program performance metrics with the C-suite on a regular basis: 56% of best performers versus 48% of national average = 8% lead Measure active engagement by employees/spouses in all programs: 60% of best performers versus 51% of national average = 8% lead Measure demonstrated impact of health and wellbeing programs on health costs or risks: 50% of best performers versus 35% of national average = 15% lead 22 willistowerswatson.com