Towers Watson Projects Employer Health Care Costs Will Increase 5.3% in 2013; Employers Remain Committed to Health Care Plan Sponsorship

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Following the U.S. Supreme Court decision on health care reform, most employers (88%) have affirmed their commitment to offer health care benefits to their active employees for the foreseeable future, according to a survey of 440 midsize to large companies by Towers Watson (NYSE, NASDAQ: TW), a global professional services company. This strong commitment (up 17 percentage points from 2011) comes despite a projected 2013 per employee health care cost of $11,507, an increase of 5.3% from 2012. It also comes amid uncertainty relating to the November elections, development of insurance exchanges and the rapidly evolving health care delivery system.

“While the most significant changes mandated by health care reform will not occur until 2014, it is essential that companies develop a strategic response and prepare for these changes well in advance of then,” said Ron Fontanetta, senior health care consulting leader at Towers Watson. “These changes will have a profound impact on the way health care is delivered and how many individuals acquire health insurance, most notably retirees.”

Roughly two-thirds of companies say the Supreme Court’s decision has affected their overall health strategy. However, one-third are waiting for the upcoming elections or the opening of insurance exchanges before making any significant changes to their health care strategy. In fact, nearly three-quarters (72%) state they lack confidence that the exchanges will provide a viable alternative for active employees by 2015. While relatively few companies are likely to direct active employees to exchanges in the near term, the story for retirees is very different. Nearly six out of 10 of companies with a program are somewhat to very likely to discontinue retiree medical plan sponsorship for post-65 retirees, with 64% considering the same for pre-65 retirees.

Although the rate of health care cost increases has slowed (5.3% projected for 2013 compared with an expected 5.9% this year), a majority of employers (58%) expect they will trigger the health care reform excise tax* in 2018 if they do not make changes to their current benefit strategy. As a result, 83% of employers are planning to take steps to control their costs to avoid the tax. The $11,507 total cost represents an employer cost of $8,911 per employee and an employee cost of $2,596 per employee. While the overall increase in employee cost sharing is modest, it is meaningful to employees, as it outpaces average merit increases.

The actions and programs that companies are planning or considering include changing plan options (63%), significantly reducing subsidization of coverage for spouses and dependents (38%), and using spousal waivers or surcharges (29%). Additionally, some employers will pass along a greater percentage of costs to employees. Thirteen percent plan to increase their employees’ share of health care of premiums in 2013 by five percentage points or more, while 42% plan to increase employees’ share by one to five percentage points.

“Affordable health care remains a top priority for employers and a key component in employee value propositions,” said Randall Abbott, senior health care consulting leader at Towers Watson. “However, due to the increasing costs of medical benefits and the additional burden of compliance, business leaders need to keep the pressure on to control costs, increase workforce accountability and engage workers to lead a healthier lifestyle.”

Other notable trends and data points from the survey include:

*Excise tax: According to the Patient Protection and Affordable Care Act, the federal government will impose an excise tax of 40% on insurers of employer-sponsored health plans, including self-insured employers, with an aggregate value of more than $10,200 for individual coverage and $27,500 for family coverage.

**Account-based health plans: A plan with a deductible offered together with a personal account (health savings account or health reimbursement arrangement) that can be used to pay a portion of the medical expense not paid by the plan. Account-based health plans typically include decision support tools that help consumers better manage their health, health care and medical spending.

The 2012 Towers Watson Health Care Changes Ahead Survey offers insight into the focus and timing of U.S. employers’ planned response to the Patient Protection and Affordable Care Act in the wake of the U.S. Supreme Court’s announcement that it is constitutional. The survey was completed by 440 employers during July 2012 and reflects respondents 2013 – 2015 health care benefit decisions. The responding companies comprise a broad range of industries and business sizes, and collectively employ 6.6 million employees.

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at .