2019 Year in Preview

Why employers are offering more choices in health plans next year

The labor market is tight (an un-employment rate of under 4%) and the Cadillac tax is still a can kicked down the road.

Jan Greene
Contributing Editor

American employers may have to juggle uncertainties, some good, some bad—an unpredictable White House, a limited labor force, a volatile stock market. But one thing they can count on: Health benefit costs will go up.

Tracy Watts

Next year appears to be on track for more of the same. Employer surveys show a modest but steady uptick in employer health benefit spending for the coming year—about 5% on average. Much of that increase will go toward specialty drugs, the benefit with the biggest price hikes.

Meanwhile, a tight labor market means employers won’t be able to skimp on offering health benefits, and the surveys show that more big employers are now offering workers a choice of health plan options. Several years ago it was common for large employers to have narrowed their offerings down to just one, usually a high-deductible, plan. Now they’re offering two or three plans, says Tracy Watts, a senior partner at Mercer consulting. “We’re seeing employers start to offer a wider variety of choice.”

It’s hard to nail down the effect of the long-delayed Cadillac tax on generous health plans. Some consultants say the fact that this ACA provision has not been enacted has allowed employers to plow money into benefits. Others say the possibility that the tax could go into effect with little warning has kept them conservative with their spending, although currently it is scheduled to start in 2022.

Workers may get more health plan options, but one of those is almost certain to be a high-deductible plan, usually with an accompanying health savings account. The growth of HDHPs has plateaued in the past few years; about a third of employees are enrolled in one. Paul Fronstin, an economist with the Employee Benefit Research Institute, says the main form of high-deductible benefit, the health savings account-associated plan, continues to be attractive to cost-conscious employers. “It’s growing but it’s taking off like an airplane, not the space shuttle,” he says.

Employer trends

Sources: Kaiser Family Foundation (left); Mercer

The health reimbursement account (HRA), which contains money controlled by the employer that can be used for health coverage, could also get a boost in 2019. The Trump administration is pursuing a rule that would allow employers to use HRAs to help pay for workers’ premiums on the individual health insurance market, something that was not allowed by the Obama administration. HRAs could also be used to pay for dental benefits or short-term insurance plans. But the proportion of companies offering HRAs is small and getting smaller. According to the 2018 Kaiser Family Foundation employer survey it slid from 9% in 2017 to 7% in 2018.

Employers are finding other ways to pump the brakes on their health care spending through benefit design. The KFF employer survey found, for example, an increase in use of tiered provider networks from 13% in 2017 to 17% in the past year. Mercer found 51% of employers providing employees with a service that provides second opinions (which may determine an expensive treatment is unnecessary) and 36% offering care management benefits.

Another growth area for large employers is on-site primary care clinics; Mercer found a third of large employers offer worksite clinics, up from 24% in 2012. It’s significant that big employers are investing in these clinics even though they would count toward health plan spending under a Cadillac tax, if it comes to pass, Watts said.

Unpredictable actions by the administration and Congress or the courts in 2019 are always a possibility with health care, but Watts doubts that next year will bring any major reorderings, even if the political winds and power arrangements were to shift. “It’s been hard to get anything done” in Washington, she says. “The bottom line is that change is hard.”