Towers Perrin Survey Finds Consumer-Driven Health Care Strategies Jeopardized by Employer and Employee Disconnects

Rising Health Benefit Costs Pose a Growing Dilemma for Businesses Employees Are Increasingly Negative About Health Benefits

NEW YORK, N.Y., June 14, 2004 — A widening gap between employer and employee views on health care threatens to undermine employer efforts to use consumer-driven health care strategies to slow the growth of health care costs, according to new survey results from Towers Perrin.

The 2004 Towers Perrin Health Care Consumerism Survey: Aligning Employer and Employee Interests shows that most U.S. employers are moving forward with health care strategies that rely on employees to be better health care consumers. At the same time, however, recent employer efforts to control company health care costs have fueled growing employee resistance and have compromised the perceived value of health benefits in many organizations.

The research, which involved a survey of more than 1,000 employees of midsize and large U.S. companies, and a companion survey of executives and managers at more than 120 major U.S. companies, focused on how employers are responding to continuing health care cost pressures and how employees, in turn, are responding to current employer initiatives.

�The clear trend among employers is to try to enlist employees as allies in the effort to control health care cost growth by educating them about the problem and encouraging them to be more thoughtful consumers of health care through changes in plan design and related initiatives,� said Jim Foreman, managing director of Health and Welfare for Towers Perrin�s HR Services business. �Our survey suggests that many employees just aren�t buying it, in part because they�ve been largely shielded from the true cost of health care during the managed care era and view rising costs as the company�s problem. What comes through loud and clear in our survey is that, for employees, health care is all about me.�

Rising Health Care Costs — The Dilemma for Business

For employers, the continuing double-digit growth in health care costs has created a growing conflict between key business and talent management goals. From a business perspective, rising health care costs threaten companies� financial performance in today�s increasingly competitive marketplace. The vast majority of our employer respondents (92%) said that senior leaders in their organizations view health care costs as a serious business issue that must be addressed.

�Early indications show that health care costs may be slowing down somewhat, but for 2005, are still expected to present an increase of approximately 10% for employers. Although this increase is potentially less than in recent years, this is still a significant cost burden to absorb, especially since companies can only raise prices for their products or services by one or two percent,� said Foreman.

At the same time, however, employers recognize the important role that health care benefits can play in attracting and retaining employees. Over three-quarters (79%) of our employer respondents said their senior leadership also believes that offering competitive health benefits is critical to meeting their key talent management goals, both now and in the future.

In response to the cost pressures, almost all U.S. employers have moved to share a portion of the added costs with employees in recent years, either through increases in employee contributions for coverage (reported by 87% of our employer respondents) or through reductions in benefit levels (reported by 81%).

Employers Adopting Consumer-Driven Strategies

In addition, most employers are moving forward with efforts to help employees be better consumers. For example, 71% of the employers surveyed have provided information and tools to help employees make better decisions about coverage. And 63% have introduced information and tools to help employees be better consumers of health care services in the last few years. Over half (52%) also introduced information or programs to encourage employees to adopt healthier behaviors, the survey found.

Also notable is that over a quarter (27%) of the participating employers have implemented consumer-driven health plan (CDHP) designs in the last few years, while fully half will implement or consider offering CDHPs in the next few years. Although CDHPs take various forms, they typically combine high-deductible medical coverage with an account-based mechanism to help employees pay eligible health care expenses. Less than a quarter (23%) of the responding companies have no plans to explore CDHPs in the near term.

�With the savings from managed care and vendor management initiatives behind us, employers are searching for workable solutions to the health care cost dilemma,� Foreman said. �They recognize the limits of cost-shifting strategies and many are betting on consumerism as the answer.�

Employees Aren�t Buying It

Not surprisingly, our employee responses reveal that working Americans are becoming increasingly resistant to health care cost shifting by their employers. For example, only 28% of the employees surveyed feel it would be appropriate for their employers to ask them to absorb additional cost increases, while only 15% feel that further benefit reductions are appropriate. In a similar survey we conducted last year, almost half (46%) of employees felt it was appropriate for their employers to ask them to absorb more cost increases.

What is somewhat surprising is the employee reaction to consumerism initiatives and CDHPs. Importantly, the vast majority of the employees surveyed (82%) believe they are already good consumers ? and this was up from 72% of employees in our survey last year. What�s more, other Towers Perrin research shows that, in companies that have introduced CDHPs thus far, employee participation rates in these new plan designs are relatively low in most organizations.

�Employers recognize that helping employees change behavior — use health care dollars more carefully and adopt healthier lifestyles — will play an important role in controlling cost growth,� Foreman said. �But achieving the desired behavior changes will be difficult if employees think they are good consumers already and don�t trust the company�s motives with regard to costs.�

Communication Breakdown

To support the move to consumerism, most employers have devoted more attention in recent years to communicating with employees about health care and costs. For example, over two-thirds (69%) of our employer respondents said their companies have begun educating employees about the business impact of rising health care costs in recent years. And most (70%) of the participating employers believe their companies communicate effectively when it comes to health care cost issues.

However, many employees either aren�t getting the message or aren�t buying it. Notably, only a third (34%) of our employee respondents agree that rising health care costs have implications for the success of their companies (43% flatly disagree). And just over half (53%) said they believe what their companies communicate about rising health care costs.

�Our findings suggest that the disconnect may stem from the fact that many employers� communications have focused primarily on costs and their impact on the company,� Foreman said. Only about a quarter of our employer respondents (28%) say they communicate with employees about health care issues other than costs. And surprisingly, only 31% feel that their companies have sent clear messages about what employees need to do to be effective health care consumers.

Closing the Gap

Our employee survey also indicates that employees are open to changing their behavior if they believe it�s in their interest. Most (81%), for example, see the impact of rising health care costs on their own finances, and those who agree that health care costs threaten the success of their companies are far more willing to share in the cost increases than those who don�t see the potential business impact.

In addition, most employees said they�re open to a range of health management initiatives that directly benefit them. Almost four out of five (79%), for example, believe their employers should encourage employees to adopt healthy lifestyles, and almost as many (76%) say they would join a health plan that offered financial incentives for healthy behavior. Sixty-four percent say they are willing to complete a confidential health risk assessment to help them identify health risks.

Many employees also believe their employers can play a role as a conduit for information and tools to help them manage their health and health care costs. Employer-provided resources viewed as most helpful by our employee respondents are:

  • Health-related Web sites
  • Information booklets and brochures
  • Toll-free 800 number for an independent nurse or medical practitioner.

�Employees understand that health care costs are a problem, and they�re open to behavior changes that could reduce costs both for them and for their employers, but they�re not motivated to change just to save the company money,� Foreman observed. �Employers need to recognize that health care is primarily an emotional issue for employees, not a cost issue. For consumerism to be fully effective, employees need to believe it�s in their self-interest.�

About Towers Perrin

Towers Perrin is a global professional services firm that helps organizations around the world improve their performance through effective people, risk and financial management. Through its HR Services business, Towers Perrin provides global human resource consulting and administration services that help organizations effectively manage their investment in people. Areas of focus include employee benefits, compensation, communication, change management, employee research and the delivery of HR services. The firm’s other businesses are Reinsurance, which provides reinsurance intermediary services, and Tillinghast, which provides management and actuarial consulting to the financial services industry. Together, these businesses have over 8,000 employees and 78 offices in 76 cities in 24 countries. More information about HR Services is available at www.towersperrin.com/hrservices.