Towers Watson (NYSE, NASDAQ: TW) announced today that total spending on health care by employers participating in Towers Watson’s OneExchange private exchange solution for active employees is projected to grow by just 1.8% from 2014 to 2015. Total spending includes funding for coverage from employers as well as employee contributions and out-of-pocket costs.

The 1.8% growth rate is very close to the Consumer Price Index (CPI), which was 1.5% in 2013, and is much lower than both historical and projected market averages for health benefit cost increases. Achieving growth levels at or near the CPI is necessary if employers are to avoid the Patient Protection and Affordable Care Act’s excise tax on high-value health plans, known as the “Cadillac tax,” which goes into effect in 2018.

For comparison purposes, midsize to large employers not using a private exchange expect a 4% increase in 2015 health care costs for active employees after some plan design changes. If no plan changes are made, employers project a 5.2% growth rate.1 Aon Hewitt recently announced a projected cost increase for employers using its private exchange of 5.3% for 2015.2

“These results validate OneExchange as a new opportunity for employers to aggressively manage medical spending without sacrificing important programs that contribute to a healthier workforce, such as wellness and intensive chronic disease management,” said Dave Osterndorf, a managing director with Towers Watson’s Exchange Solutions. “The plans and programs built into OneExchange are based on best practices proven to bend the cost curve in a dramatic way. The financial and administrative efficiencies of OneExchange offer all employers a ready-made solution that achieves results that mirror those of the country’s leading self-insured employers.”

Health Care Spending Cost Increases Compared to CPI

           
        Increase       Time Period
CPI 1.5% 2013 (most recent)
OneExchange for active employees† 1.8% 2015 over 2014
Midsize/large employers, with plan changes‡ 4.0% 2015 over 2014
Midsize/large employers, with no plan changes‡ 5.2% 2015 over 2014
Aon Hewitt Active Health Exchange‡ 5.3% 2015 over 2014
 

† Based on three 2014 employers
‡ Based on projections for 2014 and 2015 spending
Source data: Cost-related data gathered by consultants on behalf of 492 Towers Watson clients.

2014 Savings Will Exceed Initial Projections

In addition to projections of low cost increases for 2015, employers using OneExchange are on track to exceed initial estimates of cost savings for 2014. Compared to what employers would have experienced outside OneExchange, average cost savings were expected to exceed $900 per employee. Based on 2014 year-to-date savings, the average is now expected to exceed $1,400 per employee.

“With OneExchange, employees and their families are spending less when they need health care, and are needing less care as they take more control of their health and health care decisions,” said Jean Moore, a managing director with Towers Watson’s Exchange Solutions. “Equally important, the cost savings employers are achieving with OneExchange are not coming from a cost shift to employees or from employees ‘buying down’ by choosing less valuable plans and running the risk of underinsuring. Instead, they are coming from implementing a comprehensive health coverage strategy with highly effective plans and programs.”

Savings Shared by Employees

While OneExchange cost savings improve employers’ bottom lines, they also increase employees’ pay packages. On average, employers expect about $500 of the $1,400 per-employee savings in 2014 to pass through to employees. The cost savings come to employees in the form of reduced payroll contributions toward health care coverage and/or lower out-of-pocket costs.

Added Moore, “It’s not often you can give your employees a raise and save money for your company at the same time. OneExchange does that.”

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at towerswatson.com.

1 Towers Watson 2014 Health Care Changes Ahead Survey, July 2014
2 Aon Hewitt press release, September 18, 2014