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Employers strive to control health costs in anticipation of 2018 excise tax

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Most large and midsize employers that offer health insurance to their employees are maintaining it this year, but they're still looking to limit their costs.

Many employers face health care costs that are projected to increase in the single-digit range as well as taxes and fees related to the Patient Protection and Affordable Care Act. They're also taking steps to avoid the 40% excise tax on high-cost health plans that will go into effect in 2018.

Based on various employer surveys, one-third to more than half of large employers are on a trajectory to hit that tax in 2018.

“That's why we've been seeing pretty bold (cost-containment) strategies for a couple of years now,” said Tracy Watts, a Washington-based senior partner and national health reform leader at consultant Mercer L.L.C.

For example, Mercer data shows that employers expect an average increase of 4.6% in health care costs this year, but it would have been 7.1% had they not made changes to their plans.

In contrast to recent years, when benefits enhancements such as banning lifetime limits and expanding coverage to adult children resulted in major changes due to the ACA, 2015 is “a fairly quiet year for major plan changes among large employers,” said Randy Abbott, a Boston-based senior consultant and health and benefits group practice leader at Towers Watson & Co.

By and large, midsize employers did not make huge benefit plan changes for 2015, although there was a continued migration to high-deductible health plans, said Rebecca McLaughlan, vice president of health and benefits at Marsh & McLennan Agency L.L.C., in Troy, Michigan. However, some retail and service businesses reduced worker hours or added lower-cost health plans with higher employee contribution rates to comply with the ACA's mandate to provide coverage to employees, she said.

For the future, nearly four in five midsize to large employers expect to make some change by 2017 in benefits offered to full-time employees, according to a Towers Watson study. Benefits consultants expect even more action as 2018 approaches. Mercer estimates about one-third of employers would be subject to the excise tax without changes to their health plans.

The excise tax, which is to be levied on plans that cost more than $10,200 a year for individuals and $27,500 for a family, could force Chicago-based Jones Lang LaSalle Inc. to scrap its standard preferred provider organization plan as early as 2016, said Tim Quitmeyer, the real estate management and investment firm's vice president of benefits. The company has informed its roughly 15,000 benefits-eligible U.S. employees and, for now, is taking a wait-and-see approach, he said.

Rick Wald, Minneapolis-based director and national practice leader at Deloitte Consulting L.L.P.'s employer health care consulting practice, said “a fair number of employers (are) still holding their breath, seeing what the new Congress will do.”

In the meantime, Jones Lang hopes to expand enrollment in its two high-deductible plans, with in-network deductibles of $1,300 to $6,750 depending on the plan and the number of people covered, through employee education and tech tools to help individuals and families gauge health care spending.

Many employer benefit plans nudged up deductibles, coinsurance and premium contributions for 2015, several surveys show.

Caterpillar Inc. is replacing fixed-dollar copays on certain prescription drug tiers with coinsurance due to rapidly growing costs. A spokeswoman for the Peoria, Illinois-based company declined comment, but in an overview of health benefit changes, Caterpillar said “copays have not increased since 2004 for most participants” and that brand name drugs, which the heavy equipment maker said tripled in cost in 10 years, and growing prevalence of high-cost specialty drugs were major reasons for the move.

Employers also are migrating to high-deductible health plans.

More than half of large employers are adding or expanding consumer-driven health plans, and those offering such plans as their only option jumped 10 percentage points to 32% this year, according to the National Business Group on Health's annual employer survey.

New York-based McGraw-Hill Education adopted two new CDHPs this year, replacing its standard PPO and a different CDHP, according to the company's open enrollment materials. The New York-based educational content provider declined to comment.

Roughly one-third of employers are considering a surcharge for spouses who have health insurance through their own employer or excluded spouses from coverage, according to Towers Watson data.

Outcomes-based incentives also are becoming more prevalent, benefits experts said. Towers Watson's survey predicted a 10% increase in the number of employers taking that approach this year, with another 48% considering it for 2016 or 2017.

Although the U.S. Equal Employment Opportunity Commission has filed several suits challenging wellness programs that penalize employees for nonparticipation, Steve Flores, an associate in the Chicago office of Winston & Strawn L.L.P., said the law firm is not advising clients to pull the plug on wellness plans. Until the litigation plays out, what employers can do is make sure their programs “are communicated as an incentive and not a penalty,” he said.

Miami-Dade County Public Schools, the nation's fourth-largest school district with about 40,000 full-time benefits-eligible employees, has extended its incentive for employees to have an annual physical, participate in biometric screening and complete a health risk assessment. Employees who meet wellness goals by Sept. 30 may select a narrow-network plan with no premium for employee-only coverage.

By encouraging employee participation in wellness activities, the district hopes to raise employee awareness of health risks and encourage them to take action that, in turn, will save the school district money.

Facing potential excise taxes of almost $17 million in 2018 and $40 million in 2020, the school district also is exploring adding a CDHP for 2016, said Scott Clark, the district's Miami-based risk and benefits officer.

Adding a CDHP won't solve the excise tax issue, but it will begin “to chip away at it,” said Mr. Clark, a former president of the Risk & Insurance Management Society Inc., adding that the district will seek proposals this year for a tool that will help employees shop for the most cost-effective health care facilities.

While employers are interested in private health insurance exchanges to provide benefits to their workers, only 3% of large employers have made the move, according to Mercer data.

For some employers, private exchanges are “a logical choice,” said Karen Marlo, a vice president at the National Business Group on Health in Washington.

The retail and hospitality industries, for example, have moved to exchanges in greater numbers because many employers expanded coverage to employees who work at least 30 hours a week. But for companies doing a good job controlling costs, private exchanges are “not the right model at this time,” she said.