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Annual Employer Health Care Strategy Survey: Journey of a Thousand Miles


It begins with a single step, according to the proverb, and that's about as far as employers have gone. This year's survey by Deloitte & Touche/Business & Health found innovative efforts and a great deal of hard work that's yet to be done.


Annual Employer Health Care Strategy Survey

Journey of a Thousand Miles

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Choose article section...Involving the consumer Emphasis on costs Current practice Focus on pharmacy About the survey

By John Erb

It begins with a single step, according to the proverb, and that's about as far as employers have gone. This year's survey by Deloitte & Touche/Business & Health found innovative efforts and a great deal of hard work that's yet to be done.

The future of employer-sponsored plans is seriously threatened by spiraling inflation. Much has been written about the demographic, economic and social causes of that inflation. Some of those forces seem insurmountable, but this year's Deloitte & Touche/Business & Health Employer Health Care Strategy Survey demonstrates that even the most frustrated employers can take steps to mitigate rising costs in their own plans. The three most important steps are:

  • Reassess plan design program structure in light of the changing health care marketplace. The managed-competition model popular in the 1990s is largely outmoded. Managed-care savings have dwindled, eroded by reduced discounts, relaxed patient management and rich plan design. Forty-seven percent of this year's survey respondents believe HMOs are no longer effective in controlling costs, up from 38 percent in 2001. Further, the use of multiple plan offerings (typically, a self-insured PPO and one or more fully insured HMOs) at each work location probably increases costs for most employers.
  • Encourage greater employee involvement in their health care purchasing decisions and in managing financial risk. The prevailing copayment design seen in managed care and prescription plans must inevitably revert to the basics of insurance with traditional cost-sharing mechanisms such as deductibles and coinsurance. The consumer-driven health care model is an exciting initiative aimed at making employees more rational purchasers of services, but even in current models, steps can be taken to encourage employees to use cost-efficient providers and to seek information on types (and cost) of diagnostic and treatment alternatives. The emergence of employer-funded health care reimbursement accounts may smooth the transition for employees long accustomed to minimal out-of-pocket health care expenses.
  • Provide resources to plan participants to assist in managing their chronic medical conditions. The fact that, generally, 20 percent of claimants generate 80 percent of cost has employers searching for tools and pressuring plan administrators to address those claimants' needs. Nearly a quarter of survey respondents make disease management programs available to employees and their families — up from 16 percent in 2001. The proportion rises to 43 percent among very large employers with 10,000 or more employees. These programs can be valuable cost-management tools when participant compliance is high, and many employers are designing financial incentives to reward compliance

There is no "magic bullet" that will mitigate health care cost inflation. A multifaceted approach — wrapped in effective and ongoing communication with employees—to address both the price and utilization of health care services is required. Unless and until we can more fully engage consumers in this cost-management effort, there is little hope that we will be successful in preserving the private sector health insurance model.

Involving the consumer

Employers' expectation of greater employee involvement in their own care management has grown markedly — from 27 percent of survey respondents in 2001 to 43 percent in 2003. In the same period, the percentage of employers striving to assist their employees to become better consumers of health care as a primary benefits strategy jumped from just 9 percent to 19 percent.

Three out of five respondents foresee a change in their employees' role in their health care plans and expect greater involvement in plan selection and purchasing services, design of the benefits package, and selection of their health care providers. A similar percentage sees a changing role for plan vendors, with more direct interaction with consumers/patients, although employers will remain the primary distribution channel. Nine percent predict full administrative interface capabilities with members to handle customized self-directed plan selection.

Clearly, there is major interest in getting employees more involved in health care purchasing decisions, and more employees are getting real experience in making choices. While only 3 percent of respondents have actually implemented consumer-driven plans (two-thirds of them as an option to their traditional offerings), fully 30 percent are considering such a plan within the next five years. Only 2 percent of respondents currently allow employees to customize their health plan coverage through plan design or provider selection.

When it comes to educating the consumers whom they hope will take on more decision-making — and whose resistance 68 percent of respondents consider the biggest obstacle to change — three out of four employers continue to use printed materials in the form of annual open enrollment materials. An increasing number of employers are using Web-based educational tools. Fully one-third of respondents use intranet-based plan information, 44 percent make health plan Internet sites available to employees, and 39 percent provide links to health content sites.

Most employers, however, are not in a position to provide basic consumer information. It's true that PPOs are perceived as providing the highest level of employee satisfaction and HMOs the lowest, but the fact is that two out of three responding employers do not monitor employee/patient satisfaction. What's more, interest in the topic is waning. The 31 percent that monitor satisfaction in 2003 is down from 44 percent in 2001. Not surprisingly, very large employers that make huge investments in health care are most likely (at 50 percent)to monitor satisfaction among the end users.

Interest in monitoring the quality of care is even weaker and also waning. Only 15 percent of respondents reported that they or their health plans monitor quality-of-care indicators, down from 22 percent in 2001. HEDIS reports have no appeal for the majority of respondents. Fifty-three percent don't receive HEDIS information and don't see a need for it. That compares with 45 percent that said, "No thanks," in 2001. Similarly, those that responded that they did not currently receive HEDIS data but would like to receive it declined from 43 percent in 2001 to 33 percent in 2003.

Among the 15 percent of respondents that do monitor quality-of-care indicators, the most frequent indicators (cited by 80 to 90 percent) are mammography screening, Pap smear rates, clinical outcomes, childhood immunization rates, cesarean section rates and proportion of members receiving care.

Emphasis on costs

Employers are far more focused on cost than on quality or patient satisfaction — and with good reason. The cost of employer-sponsored health care plans rose an average 14.9 percent in 2003 to $6,020 per employee from an annual $5,239 in 2002, according to the survey respondents. They also predicted that their 2004 plan costs would rise an average 14.3 percent to approximately $6,880 per employee.

Respondents with fewer than 500 employees were hardest hit, indicating an average 17 percent increase, compared to 14 percent for employers with 500 or more employees. Variations by region and by type of plan were minimal, and cost differentials between types of plans offered narrowed in 2003.

The average premium for HMO coverage this year is $232 monthly compared to $254 for PPO coverage. The difference of roughly 9 percent compares with 16 percent in 2002. Employees pay, on average, about 20 percent of the cost of their own coverage and about 30 percent of the cost of family coverage, just as they have since 2001.

Prescription drug costs averaged $847 per employee in 2002, or 16 percent of total medical plan expense. Dental plan costs averaged $489, mental health/substance abuse coverage $134, and vision care costs $106.

Little wonder, then that rising costs remain, by far, the primary factor driving employers' health plan decision-making. In 2003, 85 percent of respondents cited cost, while only 14 percent regarded employee recruitment and retention.

The most common employer strategy for controlling health care costs in 2003 continues to be the use of plan design changes — increasing deductibles, copayments and coinsurance. Nearly half (45 percent) of the survey respondents cited plan design changes as their primary cost control strategy, followed by increasing employee contributions (20 percent), and contracting with lower cost health plans or administrators through the competitive bid process (9 percent).

When asked if their organization was considering any dramatic changes in the way health care benefits are purchased, 70 percent replied, "No." But the 30 percent that are considering dramatic changes is up five points from 2001. The trend is more pronounced among firms with 10,000 or more employees. Thirty-two percent of these very large firms are considering dramatic purchasing changes, compared with only 12 percent in 2001.

Current practice

Fifty-seven percent of respondents indicate that PPO plans offer the most effective approach for managing costs and maintaining quality of care. Twenty-six percent chose HMO plans, followed by 13 percent for POS plans, and 4 percent for indemnity plans. Faith in HMOs is strongest in the West and among very large firms.

PPOs are offered by 78 percent of the survey respondents, making that model the most widely offered health plan alternative. At least one HMO is offered by 50 percent of the respondents, a POS plan by 26 percent, and a traditional indemnity plan by 25 percent.

In 2003, PPO plans commanded the highest enrollment nationally, accounting for 57 percent of all health plan participants. Some 26 percent of participants enroll in HMOs, while 11 percent are enrolled in POS plans, and only 6 percent in indemnity plans. Enrollment patterns are little changed from 2002.

Funding patterns vary by the type of plan offered. For HMOs, most survey respondents (73 percent) offer a fully insured program in 2003, but 21 percent self-insure at least one HMO, up from just 13 percent in 2001. Respondents that offer POS plans were almost evenly split on the primary funding method — 52 percent offer fully insured plans while 48 percent either partially or completely self-insure these plans. Seventy percent self-insure their PPO plans.

Focus on pharmacy

Twenty-three percent of respondents identified prescription drugs as having the greatest impact on their health plan costs. That's down from 31 percent in 2001, and on a par with 22 percent blaming increased utilization and 21 percent blaming rich plan design. Asked for a secondary cost-driver, 47 percent cited prescription drug costs, far more than any other factor.

Shifting costs is the most popular strategy of reining in the employer drug spending. Fifty-seven percent of respondents indicate that they are increasing copayments, coinsurance and deductibles. When asked what changes they were considering for their pharmacy benefits, 45 percent of respondents indicated that they would increase the level of employee cost-sharing, 21 percent will change from copayments to coinsurance, 16 percent will implement a separate prescription drug deductible, and 6 percent will implement an annual maximum benefit.

Three out of five survey respondents continue to integrate their prescription drug benefits with their medical plan vendor, but 39 percent have carved out that aspect to a Pharmaceutical Benefit Manager (PBM) to help control cost. That figure ranges from 23 percent of employers with fewer than 500 employees to about 60 percent of those with 5,000 or more employees.

Prior authorization for certain prescription drugs is required by 19 percent of the respondents. Twenty-seven percent require mandatory generic substitution, while only 7 percent require the use of mail order for maintenance drugs.

The use of drug formularies has grown significantly as more employers have adopted the three-tier copayment structure. In 2001, 48 percent of respondents were using a three-tier structure. This percentage grew to 61 percent in 2003. Conversely, the percentage using a two-tier structure declined — from 40 percent of the 2001 respondents to only 26 percent in 2003. Nearly half of the latter (12 percent) indicated that they will move from a two-tier to a three-tier/formulary benefit. In three-tier plans, the most common copayment design is $10 for generic, $20 for formulary brand and $30 for non-formulary brand. Similarly, the standard two-tier design is $10 for generic and $20 for brand.

Click here for the complete Deloitte & Touche/Business & Health Employer Health Care Strategy Survey 2003.

John Erb, a consultant on health benefit issues to large public and private sector employers, serves as chief analyst of the Employer Health Care Strategy Survey. He can be reached at jerb@deloitte.com.

About the survey

Deloitte & Touche, in conjunction with Business & HealthInstitute, conducts an annual survey of the health benefit strategies currently in use by employers in the United States. These survey results present the responses of Human Resources and Benefits executives from more than 1,000 organizations across the country regarding their health insurance benefits strategies.

About 70 percent of the respondents had 500 or more employees, and the respondents were distributed across all regions of the country and all industry groups. The responding employers represented a total of 5.3 million benefit-eligible active employees in the U.S.

Survey data represents, in most cases, responses as to program design in 2003. In some cases, respondents are asked to provide historical data for 2001 and 2002 as well.

No attempt is made in this report to characterize the results of this study as statistically significant or projectable to the entire population of U.S. employers. Rather, the study provides a snapshot of employer concerns, strategies and plan characteristics in 2003.

Previous Deloitte & Touche/Business & Health Surveys:

Health Care Costs Skyrocketing, What's an Employer to Do? (July 15, 2002)

Employers are Tied to the Inflation Track. (January 2001)

Can Employers Halt the Price Hikes? (December 1999)


John Erb. Annual Employer Health Care Strategy Survey: Journey of a Thousand Miles.

Business and Health

Sep. 15, 2003;21.

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