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Nearly 160 million Americans are covered by employer-sponsored healthcare plans, with most employers covering a significant proportion of their employee healthcare premiums. Consequently, rising healthcare costs directly impact our nation’s employers. In order to understand how employers are responding, Willow Research and PNC Healthcare conducted a large-scale study of senior level executives at U.S. companies who offer healthcare benefits to their employees. Through qualitative and quantitative research with employers, we examined the contours of employer-sponsored healthcare plans today, what companies are struggling with, and how they are coping with exploding healthcare costs.
This article reports the results of our quantitative study of employer executives, supplemented by insights and verbatim comments from the qualitative research.
In this paper, we look at:
Because company size often dictates the extent and scope of their healthcare plans and initiatives, this report highlights significant differences by size of employer. (For more information about the methodology, please see “About This Study” at the end of this paper.) This is the third of three white papers on the state of the healthcare industry.
The first, “Hospitals in Transformation,” focused on how providers are navigating the tumultuous healthcare climate. “Payers Reimagined,” the second white paper, looked at payers: their challenges and initiatives, and how they see their future.
Under 100 employees
Employer executives believe that healthcare benefits are critical to recruiting and retaining good employees, which is particularly important in this competitive era of low unemployment. However, rising healthcare costs threaten employers’ ability to both provide and subsidize healthcare benefits for employees. The uncertainty around Affordable Care Act (ACA) reform is also a looming challenge for employers who want Congress to address the cost problem.
Yet, employers are not just sitting on their hands. In addition to offering robust healthcare plans, companies of all sizes are trying to reduce costs by promoting healthier behavior through a range of educational and wellness programs. Large employers are taking it even further by investing in population health to identify and support their at-risk employees, and by adopting the self-insurance model to control their own costs.
Ultimately, our research finds that, rather than withdrawing in the wake of rising healthcare costs and regulatory uncertainty, U.S. companies are actually stepping up their commitment to employee healthcare.
Employers who offer healthcare benefits to their employees remain committed to providing those benefits, explaining that healthcare benefits are critical to employee recruitment and retention strategies. The majority believe it gives them a competitive advantage.
[For recruiting and retention] our healthcare plan is a huge benefit. Especially because we’re not a brand name
Employers offer choice in their healthcare plans. The majority of employers offer two or more different healthcare plan options for employees to choose from. PPOs are the most prevalent type of plan offered, followed by HMOs. Larger employers offer more plan options than small employers and are also more likely to offer non-traditional plans like high-deductible plans and point-of-service plans.
More than nine in 10 employers subsidize their employee healthcare premiums, contributing 61% of the premiums, on average. While less common, nearly two in three employers also subsidize premiums for employee spouses and dependents, contributing, on average, 35% of the cost of premiums.
Large employers are proactive and strategic in designing and adjusting their healthcare plans. They are also more likely to have changed their mix of healthcare plans in 2018. Nearly one in three large employers have actually increased their company contribution to premiums this year.
Rising healthcare costs don’t just impact the bottom line. They also force companies to make financial trade-offs in their compensation and benefits. Indeed, most employer executives say that their financial contribution to employee healthcare impacts other benefits and employee compensation, such as raises, bonuses, 401(k) match, etc. Mid-size and larger employers are particularly likely to balance their healthcare spending against compensation and other employee benefits.
It does not impact the compensation as most people would view it, the paycheck. But we do have a bonus program that’s discretionary based on company profitability. When we look at profitability, it will obviously be lower if the costs of our benefits increased.
Employers are generally satisfied with their healthcare plans. Nine in 10 employers are very or somewhat satisfied with their health insurance benefits. Most employers also believe that their employees are generally satisfied with their health insurance benefits. While some larger employers know this through employee satisfaction surveys, most HR executives just know it anecdotally. Their employees make it known when they are unhappy.
Employers also believe that their employees are largely satisfied with the quality and choice of network providers, their insurer’s customer service, the ease of understanding their healthcare plans, and the choice of plans offered to them by their employers. Not surprisingly, employees are least satisfied with the premiums charged for their healthcare coverage.
When I bring them onboard and do new hire orientations, they’re pretty satisfied, for the most part. I think just the reputation of the company that we chose to insure with, they’re happy with.
When asked to identify their company’s greatest challenges when it comes to healthcare, employer executives say rising healthcare costs are the biggest challenge they face and say that managing the cost of premiums is by far their single greatest challenge. Increasing premiums place a greater burden on both the employer and the employee and even threaten the employer’s ability to offer robust and competitive healthcare plans. While most employers are tackling the cost problem, it is an existential threat for some smaller employers who say that they will not be able to sustain continued cost increases.
Uncertainty over ACA reform is the second greatest challenge for employers, who wish Congress would address the problem.
First, employers are trying to manage costs by educating their employees on the best and most cost-effective way to use their healthcare plans. However, many employers cite challenges with getting their employees to understand and use their plans most effectively. Further, employers say that they must walk a fine line between educating employees and intruding on their personal health decisions.
Employers are also focused on getting their employees to take more responsibility for their own health through wellness/incentive programs. Digital health/telemedicine is also on the rise, but only a minority are investing in on-site clinics.
The larger the employer, the more initiatives they are undertaking. Compared to small and mid-sized employers, large employers are more likely to be engaging their employees through education, wellness/incentive programs and digital health/telemedicine. Some are also entering into the traditional provider space by establishing on-site clinics.
Those employers who currently offer company sponsored health and wellness programs provide a variety of programs aimed at promoting healthier habits among employees. Exercise and fitness programs are most frequently offered by these employers. However, incentives for preventive care (e.g., annual physicals), smoking cessation and weight loss programs are also prevalent.
There are significant differences across employers in terms of the scope of employee wellness/incentive programs. Some employers have well developed wellness programs that offer free gym memberships, quarterly wellness fairs and tele-nurse services.
Others have simply offered an occasional smoking cessation or weight loss program. Larger employers are more likely to have well-developed wellness programs with employee incentives.
Those employers who currently offer financial incentives for participation in wellness programs most often do so through cash incentives and helping to pay for gym memberships. Employers also incentivize employees by making additional contributions to healthcare premiums and health spending accounts and setting up rewards programs.
Employee participation in wellness programs varies widely. Some employers say that they are having tremendous success and participation, while others have trouble just getting their employees to attend open enrollment orientation. Additionally, some employees express privacy concerns about participating in employersponsored wellness programs, and some employers are hesitant to be too intrusive or “big-brotherish.”
We work with a health and wellness program provider. We do it to provide a service for employees but the ancillary benefit is to help us negotiate our rates moving forward with our providers. We actually have an extremely high participation rate in our wellness program at large, like 80%.
As noted earlier, nearly half of employers are currently offering or planning to institute a digital health or telemedicine initiative that uses technology to engage employees and/or increase access to providers. Employers who are adopting a digital health/telemedicine initiative are doing it through both mobile apps and virtual office visits.
These employer executives say that virtual office visits save both money and time for the employee, reduce the amount of time the employee is out of the office, and also save money for the company.
While employers are generally optimistic about their telemedicine program and say that many employees have embraced it, some note resistance among older and less computer-savvy employees, who struggle with digital technology and prefer face-to-face interaction with their provider over virtual office visits.
In addition to employee education, wellness programs and digital health, many large employers are also using predictive/data analytics to inform and drive population health initiatives. While predictive analytics are not yet widespread among smaller companies, mid-sized companies are planning to adopt it in the future.
Employers who use population health strategies do so to predict and manage their financial risks. They rely heavily on vendors that use analytics to identify high-risk/high-cost employees who they can intervene with and support through education and wellness programs. Predictive analytics are also used to guide decision-making around health plan offerings and formulary plans.
We have an eye toward population health and looking at ways we can deliver support for people, but it’s on a more targeted basis. We look at our population and try to understand where there might be needs for additional programs, and we want to be able to deliver those in a way that it’s hitting the people who need it, rather than just a blanket offer that’s out there.
Some employers are also self-insuring to control costs. Overall, one-third of employers surveyed are self-insured, but adoption varies tremendously by size of the company. Over half of large employers are self-insured, compared to just one in four small employers. Of those self-insured companies, half have reinsurance or “gap insurance” coverage to protect them in case of a catastrophic healthcare event that causes them to hit the ceiling on their claims limit.
“A self-insured group health plan (or a ‘self-funded’ plan as it is also called) is one in which the employer assumes the financial risk for providing healthcare benefits to its employees. In practical terms, self-insured employers pay for each out-of-pocket claim as they are incurred instead of paying a fixed premium to an insurance carrier, which is known as a fully-insured plan.” 
Employers say that self-insurance provides cost-saving benefits to the company and its employees. Self-insurance also gives employers greater control over their health plans.
Importantly, for many employers — particularly large ones— self-insurance goes hand-in-hand with greater employer involvement and influence in employee healthcare. Self-insured companies are more likely to offer wellness/incentive programs, and to experiment with telemedicine and population health initiatives, in an effort to improve outcomes, reduce costs and increase employee engagement.
Most employers who are self-insured have been self-insured for more than five years. The vast majority (86%) of employers who are self-insured say that it is working very well or pretty well. Given the success they are having with the self-insurance model, employers expect to continue using it.
As noted earlier, uncertainty over healthcare reform is the second greatest challenge for employers, after cost. So, we asked employer executives how the Affordable Care Act has impacted them and what they want to see in new legislation.
Large employers are more likely to say that the ACA has been a net positive for their organization, while small and mid-size employers are more likely to report a net negative impact.
While employers are keeping a watchful eye on recent efforts to repeal and replace the Affordable Care Act, they are moving ahead with business as usual. Employers recognize that repealing and replacing the ACA will have a dramatic impact on the marketplace. Some hope for a more competitive and cost-effective market, while others fear it will destabilize markets and contribute to the continued rise of healthcare costs.
When asked whether they favor or oppose various healthcare reform proposals, employers say that they are generally in favor of increasing payer competition across state lines, stronger regulation of prescription drug costs, and raising the contribution limit on health savings accounts.
Conversely, employers are generally opposed to removing the essential health benefit requirement in the Affordable Care Act. Interestingly, overall, there is not an overwhelming outcry against the employer mandate. However, executives of large companies generally tend to be more anti-regulation when it comes to proposed changes to the ACA.
Above all else, employers want healthcare reform to address the cost problem. When asked to identify the one thing they would want to see in a new healthcare bill if they had a seat at the table, employers most often stated the need to make healthcare more affordable.
Our employees are the most valuable resource we have, and we need to keep and retain, and continue to acquire, the highest caliber employee possible. But, there is a line of demarcation that we’re not willing to cross from a cost perspective, and a lot of that has to do with healthcare reform and the uncertainty there.
Despite regulatory uncertainty, employers of all sizes remain committed to providing healthcare benefits to their employees. The overwhelming majority of employers who currently offer healthcare benefits say that they would continue to offer coverage even if the employer mandate were lifted.
Unless major regulations change the way we have to do things, I think we’re going to continue to offer employees a very rich, robust package.
As long as it is tied to employment, healthcare benefits will be important to employers who seek to recruit and retain top-notch talent. To compete for good employees, companies believe that they must offer robust healthcare plans and subsidize employee premiums. It’s an expensive, but necessary, employee benefit.
However, healthcare costs continue to rise, presenting an ongoing challenge for employers. As a result, companies are stepping up their commitment by investing in cost-containment strategies in areas where they think they can make a difference.
Employers are primarily working to influence employee behavior through education and wellness programs. While the jury is still out on how effective these programs are, employers are trying a number of approaches to promote healthier behavior.
In addition, large employers are using analytics to further drive behavioral change, and are cutting out the middle man by insuring themselves. Of course, costs may continue to soar, unemployment may rise, and the uncertainty around ACA reform is ongoing.
But, for now, the nation’s employers remain committed to providing healthcare and continue to seek their own solutions to engage their employees and manage costs.
I think more than ever, all of the uncertainty that’s happening has reaffirmed the importance of us offering a competitive benefit and how meaningful it is for employees to have access to quality affordable care through their employment.
The Employer Study began with a qualitative phase, conducted from June through August 2017. This phase included secondary research and in-depth interviews with more than 20 healthcare experts and employer executives around the country.
The quantitative phase that followed was based on interviews with a national sample of 406 health executives representing companies of all sizes (i.e., number of employees), industries and geographic location of headquarters. Respondents are Owners, C-Suite Executives, Presidents, Vice-Presidents, Operations Directors and HR Managers/Directors who are involved in reviewing, evaluating and selecting health insurance benefits for their organization. Online interviews were conducted from November to December 2017.
In order to ensure a sufficient number of employers of all sizes, the sample was stratified (see chart above). The sample is weighted to represent the actual distribution of U.S. companies by number of employees based on U.S. Census Bureau statistics. The sampling error for the survey is ±4.9% at the 95% confidence level.
“Health Insurance Coverage of the Total Population,” Kaiser Family Foundation, 2016.
“Survival of the Fittest: Hospitals in Transformation,” PNC Healthcare, January 2018.
“Survival of the Fittest: Payers Reimagined,” PNC Healthcare, March 2018.
The information contained herein (“Information”) was produced by an employee of PNC Bank, National Association (“PNC Bank”). Such Information is not a “research report” nor is it intended to constitute a “research report” (as defined by applicable regulations). The Information is of general market, economic, and political conditions or statistical summaries of financial data and is not an analysis of the price or market for any product or transaction.
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