Employee Benefits in 2018

Riding Out the Storm

December 27, 2017

BROKERS AND EMPLOYERS CONTINUE TO RIDE OUT THE EMPLOYEE BENEFITS STORM

For those in the employee benefits arena, 2017 was a year of market chaos, regulatory uncertainty, consumer confusion, and technological complexity.

2018 may be more of the same.

But both employers and brokers can take some comfort from their experience with the twists and turns of recent months—knowing that the hard-won lessons of tumultuous times will come in handy in 2018. New innovations, new technologies, and a new emphasis on education and communication may be reshaping the benefits world in ways that will have long-term positive effects.

ACA REPEAL: ON-AGAIN, OFF-AGAIN, ON…

The biggest source of chaos in 2017 came as carriers, brokers, and employers tried to prepare for the consequences of repealing the Affordable Care Act (ACA), a legislative move that eventually bogged down in the Senate.

The confusion actually might have strengthened some ties between employers and brokers, since the latter were more likely to provide businesses with reliable information than what was being said in the media—which changed on a weekly or daily basis.

In the end, employers saw that the ACA was still in place, so reporting and tracking mandates still applied. However, the Trump administration has continued to chip away at Obamacare, through regulatory rules and the recent tax reform bill, so the insurance market will continue to grapple with difficult choices and changing regulatory burdens. This will almost certainly have effects on the insurance industry and benefits in general. For example, the repeal of the individual mandate (part of the tax reform bill) will create millions more unemployed Americans—who will get their care through costly emergency room services. As in the past, that cost will be passed on to insurers; who are likely to raise rates in general to deal with the higher costs. Employers will need to pay close attention to how the insurance markets react to such changes.

TAX REFORM

The end-of-the year passage of a tax reform bill could prompt other changes in the benefits world. Proposed cuts to the corporate tax have led many to speculate that better bottom lines for companies will lead to more generous benefits for employees, along with increased hiring.

It remains to be seen how new income gained by tax changes will be spent. But if the tax cuts do spur new investment in benefits, brokers and advisors will continue to be an important resource in navigating the changes and opportunities.

STRATEGIES FOR HOLDING DOWN COSTS

There’s bad news and good news for employers when it comes to controlling costs of employee benefits. The bad news is that in many areas, such as medical care and pharmacy spend, costs continue to rise. The good news is that the turmoil of the past several years has forced companies to innovate and become more nimble, with a number of promising strategies emerging that can help companies deal with the cost side of employee benefits.

1. Voluntary benefits continue to be popular with employers and employees. With some high deductible health plans (HDHPs), having accident and critical illness policies to supplement basic medical insurance is an important way to complement medical coverage. In addition, other voluntary benefits, such as financial planning or products that help with addressing education debt are often popular.

With the popularity of voluntary benefits, employers must still be aware of potential downfalls of HDHPs. Some companies have found an over-reliance on high deductible plans that are not a good fit for all employees. More than one broker has suggested that seeing HDHPs merely as a one-size-fits-all solution to hold down costs, is a mistake. Many benefits advisors agree that HDHPs can be a great fit for younger, healthier workers or for high wage earners. But for workers with chronic conditions or growing families that require more utilization of health services, HDHPs may not be a good solution. Voluntary products can fill in some gaps; but offering a range of health plans is still the optimal choice for employers.

In the pharmacy world, it’s clear that drug costs will continue to be a major concern for employers. High-priced specialty drugs are being introduced and marketed at an increasing rate. Employer-based plans can turn to Pharmacy Benefit Managers (PBMs), but it’s important to have a PBM that works closely in partnership with an employer to create the best fit for that company. This is where communication and education is important—it makes a big difference when a plan has clear data about utilization, what drugs are covered, and what discounts can be offered. A broker is an important ally in creating these kinds of partnerships.

2. Transparency tools, which have been evolving over the past few years, show great promise for holding down costs and making health care simpler for consumers. The idea of consumer-driven health care sounds great—but too often consumers have lacked the information to make good choices.

New transparency tools are coming onto the market that could greatly aid consumers—and companies—in finding more efficient health care. Web-based services such as Healthcare Blue Book, GoodRx, and Amino.com are providing tools that allow consumers to find quality and cost information about procedures or drugs, directly on their mobile devices. In many cases, the tools allow users to compare prices of nearby facilities or drug stores.

This article by Mercer outlines what an employer or consumer should look for in a transparency tool, including ease of use, comparison of all regional providers, accuracy, and an educational component that explains to consumers why and how the tool can address cost and quality concerns. Brokers and advisors often have experience with these tools and are aware of which ones have the best results in an employer’s area.

3. Prescription drug costs have moderated somewhat in the past year or so, but specialty drugs continue to be a big concern for employers trying to hold down health care costs. Strategies such as formularies and value-based pricing can help. Good consumer education by providers and advisors can also be helpful, as adherence to prescribed drug regimens can play a major role in preventing future illness or hospitalization. As mentioned above, PBMs play an important role in locking in contractual discounts for employer plans. But it’s important to find the right fit.

State and federal governments are also increasingly looking at drug costs, due largely to public pressure, but the prospects for legislative or regulatory relief from high drug costs remain unclear.

CONSOLIDATION—GOOD NEWS OR BAD?

Another item that could have a significant affect on the insurance industry is consolidations and mergers. The 2017 announcement that CVS Health would buy Aetna was just one of several industry mergers to be proposed in recent years. CVS, with nearly 10,000 pharmacies, and Aetna, one of the nation’s largest health insurance carriers, announced the $69 million deal in December.

Such mergers have the potential to create new efficiencies and possibly bring down costs. But concerns about lack of market choices also arise with these moves. In the current climate, it’s likely that consolidation will continue.

TALK WITH MARSH & MCLENNAN Agency

Just as we saw in 2017, the year ahead will no doubt be full of controversy, surprises, and opportunities. Having an experienced broker to help navigate the developments in the benefits world is essential; these market changes are simply too rapid and complex for most employers to keep a handle on and predict the long-term consequences. Your broker will continue to be an important source of information on industry changes, innovation, and technology breakthroughs that can help you continue to offer the most attractive, and appropriate, benefits to workers who are expecting their companies to meet their needs.

This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting or legal matters are based solely on our experience as consultants and are not to be relied upon as actuarial, accounting, tax or legal advice, for which you should consult your own professional advisors. Any modeling analytics or projections are subject to inherent uncertainty and the analysis could be materially affective if any underlying assumptions, conditions, information or factors are inaccurate or incomplete or should change.