The increase in cost of employer-sponsored health and dental benefits leveled out in 2012.

In fact, for active employees the overall employer healthcare spend increased just 2.1% in 2012, down from 2.7% the previous year, finds a survey by Towers Watson. Also, drug costs are trending at -0.2% and the cost of dental care is up by only 1.3% from 2011 to 2012.

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This trend can be explained by a number of factors, says Wendy Poirier, Towers Watson’s Canadian Health and Group Benefits Leader.

“As many commonly prescribed drugs have recently come off patent, employers are seeing the results of increased use of generics at substantially lower costs. They are also benefiting from drug plan management strategies that mitigate waste and increase efficiencies, and the effect of beneficial plan design features such as early exposure to preventative dental coverage.”

But caution is still advised. While the decrease in overall healthcare costs is good news for employers, one area to watch is high-cost specialty drugs. According to the survey, specialty or biologic drugs are typically used by less than 5% of the employee population, but account for 15% to 25% of the total drug spend.

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The upward trend on healthcare expenses, other than drugs covered by employer sponsored plans, is another area of concern for plan sponsors. For active and retiree plans the cost of these healthcare claims, which typically include services such as physiotherapy, chiropractic and naturopathic treatment, is up 6% from 2011 to 2012, notes the survey.

Workforce strategy

Continued moderation of healthcare costs is likely for the next 24 months, given expected decreases in generic drug prices and the introduction of new drug management measures. However, increasing utilization of high-cost drugs combined with an ageing workforce will start to push cost increases back towards their historic trend.

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“To combat expected healthcare cost increases, employers can broaden their focus and look at how workforce health and productivity strategies might help control the costs of drug, dental and other benefits,” says Poirier.

She adds, “While employers have added more prevention and support to their benefits foundation, more work is needed to understand the cost drivers and to implement specific actions to manage both current and future costs. Mandatory generic substitution, drug supply limitations and restrictions, therapeutic substitution strategies, drug formularies, preferred provider networks and healthcare spending accounts have all proven effective strategies for ensuring sustainable healthcare plans.”