"Managing costs" and "keeping employees healthy" to improve productivity continue to be employers' top business and workforce issues for 2010, according to Hewitt Associates research. In fact, "keeping employees healthy" has been the No. 1 workforce concern for the last two years.

Health care costs have posed an extraordinary challenge for employers over the past year. In the Society for Human Resource Management's (SHRM) newly released 2010 Employee Benefits Survey Report, 72 percent of the 534 HR professionals surveyed said that the benefits offerings at their organization have been affected in some way over the past year.

In total, the average cost for health care per employee is $7,038, according to the 2009 SHRM Health Care Benchmarking Database. Larger organizations spend $8,026 per employee compared with $6,706 and $6,775 among small and midsized organizations.

Hewitt's research shows that total health care costs (including employer cost, employee payroll contributions and employee out-of-pocket expenses) have more than doubled in a decade, from $4,793 in 2001 to $11,058 in 2010. And they are expected to continue increasing. A separate report from PriceWaterhouseCoopers LLP (PwC) Health Research Institute forecasts medical costs will increase by 9 percent in 2011, 0.5 percent slower than the 2010 growth rate.

"The ability to manage these ever-increasing costs, along with the new health care legislation, will have a new and profound impact on employee benefits programs in the future," the SHRM report says.

As the full effects of both the recession and the extensive changes in federal health funding and regulation continue to play out, employers in the United States are seeking ways to trim health care costs while staying competitive with a fair health benefit offering.

Organizations are already responding with an assortment of tactics designed to contain cost and motivate workers to become better health care consumers and more engaged in their own health, according to PwC's latest annual Behind the Numbers report.

Improving wellness programs and increased cost-sharing topped PwC's list of changes that employers intend to make to their benefit plans next year:

• 67 percent of companies intend to expand or improve wellness programs;
• 42 percent plan to increase employee contributions for health insurance coverage;
• 41 percent expect to increase medical cost-sharing (including higher deductibles and co-pays); and
• 26 percent intend to increase prescription drug cost-sharing.

In Hewitt Associates' recent Emerging Health Trends 2010 report (free registration required), "increasing employee cost-sharing" was for the first time ranked as one of "the top five primary health care tactic priorities over the next three to five years."

However, Hewitt's report makes clear that shifting costs is a short-term solution and "does not address underlying problems or long-term sustainability."

Because employers do not expect traditional methods to provide sustainable relief from increasing costs, they are beginning to explore other approaches.

Among employers' key tactics, according to Hewitt's findings: utilization of health-care data and measurement to drive health care strategy. There is a strong interest among employers (63 percent) in using analytics and measurable data to motivate health care strategy and ultimately employee behavior change.

"Unfortunately, most companies have a way to go in this area before they can truly measure and evaluate plan performance in a way that will increase their ability to transform raw, measurable data into actionable information," according to the report.

The majority of companies today measure the success of their health and productivity programs by how well they manage medical costs (58 percent) or by how effectively their programs are being utilized (57 percent). Less than one in five employers measure employee behavior change. However, 53 percent said they plan to measure employee-behavior change and/or behavioral modification in the next three to five years.

Meanwhile, many employers are offering incentives to motivate sustained health care behavioral change (56 percent). Employers are moving toward a combined "carrot and stick" approach, "where the employer provides the most generous benefits to those who are doing the most to maintain or improve their health," Hewitt says. "To do this, employers are increasing the use of incentives and penalties as a means of motivating employee behavior change."

"The number of companies offering cash incentives for completing a health risk questionnaire almost doubled from last year — from 35 percent in 2009 to 63 percent in 2010," Hewitt's announcement of the findings says. "In addition, 37 percent of companies provided cash incentives for participating in health improvement and wellness programs, up from 29 percent in 2009."

More than half of companies offer incentives to employees, and a quarter extend these incentives to spouses and/or family members.

Among the other high-priority health care tactics employers are pursuing: executing efficient health care purchasing (50 percent) and providing health and productivity management programs tailored to member risk levels (46 percent).

"There is a growing recognition that newer programs and tactics, tailored to an employer's specific workforce needs, provide the best opportunity to lay the groundwork for a different future," Hewitt reports. "These organizations realize that taking clear, measurable actions today will position them to achieve significant positive results."

Despite the uncertain health care landscape, Hewitt's findings show that less than half of employers have a strategic health care plan in place. Moreover, while 80 percent of organizations said that offering competitive benefits is a key component of their health care strategy, most indicate managing cost as their top business priority — a clear disconnect between HR benefit goals and overall business objectives."

Resources

...Employers Continuing to Invest in Health of Workers Despite Uncertainty...
Hewitt Associates, March 9, 2010

2010 Employee Benefits Survey Report
Society for Human Resource Management, June 28, 2010

Employee Benefits: Which Ones Are Surviving the Weak Economy?
Society for Human Resource Management, June 28, 2010

Behind the Numbers: Medical Cost Trends for 2010
PriceWaterhouseCoopers LLP's Health Research Institute, June 14, 2010

Employer Healthcare Costs Expected to Rise 9% in 2011...
PriceWaterhouseCoopers LLP's Health Research Institute, June 14, 2010

2010 Health and Well-Being Touchstone
PriceWaterhouseCoopers LLP, June 2010

The Road Ahead: Under Construction with Increasing Tolls
Hewitt Associates, March 2010

Survey Finds Employers Are Unlikely to Drop Health Care Benefits
by Regis Coccia
Workforce Management, April 2010

Most Employers Won't Drop Health Care Benefits: Poll
by Regis Coccia
Business Insurance, April 12, 2010